CH14 [Completing a Quality Audit]

Question 1

A series of ratios that have predictive power in indicating the likelihood of bankruptcy. This score is named for the person who first introduced the concept and associated measurement.

Answer 1

Altman Z-score

Question 2

An intensive time of the year during which the auditor faces the greatest deadline pressure and work volume based upon the need to provide assurance over the client’s financial reports.

Answer 2

Busy season

Question 3

A review at the end of each audit conducted by an experienced auditor, usually a partner, who was not a part of the audit team, but who has appropriate competence, independence, integrity, and objectivity. The purpose of this review is to help make sure that the audit and audit documentation are complete and support the audit opinion on the financial statements and, for public companies, on the client’s internal controls.

Answer 3

Concurring partner review/ Engagement quality review

Question 4

A ranking put forth by Transparency International that ranks countries according to the extent to which people believe corruption exists; the ranking includes about 200 countries and ranks them on a scale from 0 to 10 (0 = high corruption; 10 = low corruption).

Answer 4

Corruption perception index

Question 5

A decision aid that the auditor uses to serve as a cue to guiding audit planning around management’s assertions in various disclosures

Answer 5

Disclosure checklist

Question 6

An approach to considering uncorrected misstatements that requires the simultaneous application of both the rollover method and the iron curtain method.

Answer 6

Dual approach

Question 7

A misstatement about
which there is no doubt. A misstatement that has been specifically identified.

Answer 7

Factual misstatement / Known misstatement

Question 8

An accounting guideline which assumes that the company will continue on long enough to carry out its objectives and commitments. In other words, there is belief that the company will not liquidate in the near future.

Answer 8

Going-concern assumption

Question 9

A method of misstatement correction that focuses on assuring that the year-end balance sheet is correct; this method does not consider the impact of prior-year uncorrected misstatements reversing in later years

Answer 9

Iron curtain method

Question 10

A misstatement that arises from differences in judgments of management concerning accounting estimates that the auditor considers unreasonable, or the selection or application of accounting policies that the auditor considers inappropriate.

Answer 10

Judgmental misstatement

Question 11

A misstatement that has been specifically identified;
_________ are also referred to as factual misstatements.

Answer 11

Known misstatement

Question 12

A letter from the auditor to the client identifying any problems and suggested solutions that may help management improve its effectiveness or efficiency.

Answer 12

Management letter

Question 13

A letter to the auditors that the client’s chief executive and chief financial officers are required to sign that specifies management’s responsibility for the financial statements and confirms oral responses given to the auditor during the audit.

Answer 13

Management representation letter

Question 14

This involves acts of omission or commission by the entity, either intentional or unintentional, which are contrary to the prevailing laws or regulations.

Answer 14

Noncompliance

Question 15

A misstatement that is the auditor’s best estimate of the misstatement in a given population, and that is a projection of the misstatement identified in an audit sample to the entire population from which the sample was drawn.

Answer 15

Projected misstatement

Question 16

A period of time not to exceed one year beyond the date of the financial statements being audited.

Answer 16

Reasonable period of time

Question 17

The date the auditor grants the entity permission to use the auditor’s report in connection with the financial statements.

Answer 17

Report release date

Question 18

A financial reporting disclosure that occurs when and if a material misstatement is ultimately discovered; at that point, management will have to issue revised financial statements with the misstatement corrected

Answer 18

Restatement

Question 19

A method of misstatement correction that focuses on the materiality of the current-year misstatements and the reversing effect of prior year misstatements on the income statement, thereby allowing misstatements to accumulate on the balance sheet.

Answer 19

Rollover method

Question 20

Events occurring between the date of the financial statements and the date of the auditor’s report.

Answer 20

Subsequent events

Question 21

A review of events occurring in the period between the balance sheet date and the audit report date to determine their possible effect on the financial statements.

Answer 21

Subsequent events review

Question 22

A summary of unadjusted audit differences that is communicated to the audit committee is described in the management representation letter, and that is evaluated individually and in the aggregate for determining whether the financial statements are materially correct.

Answer 22

Summary of unadjusted audit differences

Question 23

Written evidence from management to the auditor providing assurance that the entity has received a commitment of necessary financial support to ensure that the entity remains a going concern.

Answer 23

Support letter

Question 24

Events that existed at the balance sheet date.

Answer 24

Type I subsequent events

Question 25

Events that did not exist at the balance sheet date, but that may require disclosure.

Answer 25

Type II subsequent events