cpa audit ch 14 review 1

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Joens1313
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cpa audit ch 14 review 1
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2014-06-18 23:06:23
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cpa audit ch 14 review 1
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  1. In connection with the annual audit, is the following  a subsequent events procedure?

    Make inquiries with respect to the financial statements covered by the auditor’s previously issued report if new information has become available during the current audit that might affect that report.
    no ---- Subsequent events are events or transactions occurring between the balance sheet date and the date of the auditor’s report (AU-C 560). Making inquiries with respect to financial statements covered by the auditor’s previously issued report when new information becomes available during the current audit is not a subsequent events procedure. Such inquiries pertain to previously undiscovered facts in existence at the date of the prior report that affect the report.
  2. The adverse effects of events causing an auditor to believe there is substantial doubt about an entity’s ability to continue as a going concern would most likely be mitigated by evidence relating to the
    Marketability of assets that management plans to sell.

    Once an auditor identifies conditions and events indicating that a substantial doubt exists about an entity’s ability to continue as a going concern, (s)he should consider management’s plans to mitigate their adverse effects. With regard to plans to sell assets, the auditor’s considerations may include restrictions on disposal, marketability of the assets, and the possible direct and indirect effects of the disposal. Thus, the greater the marketability of the assets, the greater the potential mitigation.
  3. An auditor has substantial doubt about the entity’s ability to continue as a going concern for a reasonable period of time because of negative cash flows and working capital deficiencies. Under these circumstances, the auditor would be most concerned about the
    Possible effects on the entity’s financial statements.

    If an auditor has substantial doubt about the entity’s ability to continue as a going concern for a reasonable period of time, (s)he should assess the possible effects on the entity’s financial statements, including the adequacy of disclosure of uncertainties related to the going-concern issue. The auditor also should include in the auditor’s report an emphasis-of-matter paragraph.
  4. T/F ---- Some subsequent events provide evidence of conditions not in existence at the balance sheet date. Under U.S. GAAP, some of these events are of such a nature that disclosure is required to keep the financial statements from being misleading. Adequate disclosure of these events may include
    Pro forma financial statement presentation.

    Under U.S. GAAP, subsequent events related to conditions that did not exist at the date of the balance sheet should not result in adjustments of (recognition in) the financial statements. These events are disclosed, if necessary, to keep the financial statements from being misleading. Occasionally, such an event may be so significant that disclosure can best be made by means of pro forma financial data. Such data make the event seem as if it had occurred on the date of the balance sheet. In some cases, U.S. GAAP suggest presentation of pro forma statements, usually a balance sheet only, in columnar form on the face of the historical statements. But firms usually incorporate the pro forma balance sheets in notes.
  5. Subsequent to the issuance of the financial statements, the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts The auditor most likely should
    Determine whether persons are relying or likely to rely on the financial statements who would attach importance to the information.

    If the financial statements have been issued, they have been made available to third parties, along with the auditor’s report. Accordingly, the auditor should (1) discuss the matter with management (and, possibly, those charged with governance); (2) determine whether the statements need revision; and (3) if so, inquire how management intends to address the matter. To determine whether revision is needed, the auditor considers (1) the applicable reporting framework and (2) whether persons are currently relying or likely to rely on the statements who would attach importance to the subsequently discovered facts (AU-C 560).

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