Chapter 11: Completing the Audit

Question 1

Audit work performed between the beginning of the year and the date of the financial statements is referred to as ___ ___.

Answer 1

interim testing

Question 2

The auditors have gathered sufficient, appropriate evidence on which to base their report at the ______.
- completion of interim testing
- date of the auditor’s report
- date of the financial statements
- audit report release date

Answer 2

• date of the auditor’s report

Question 3

If relevant internal controls are effective, auditors may use __ ___ procedures to move interim conclusions to the year-end date.

Answer 3

roll-foward

Question 4

Auditors should ensure that ______ have been properly disclosed.
- only contingencies that can be reasonably estimated
- only unfavorable contingencies
- both favorable and unfavorable contingencies

Answer 4

• both favorable and unfavorable contingencies

Question 5

A contingent liability that requires special consideration by auditors is ___.
- pending tax payments due to late filing of tax returns
- potential warranty payments for goods and services sold
- the outcome of litigation
- a guarantee of debt on behalf of another party

Answer 5

the outcome of litigation

Question 6

The date of the auditor’s report is also referred to as the audit ____ ____.

Answer 6

completion date

Question 7

An attorney letter ____.
- must be sent directly from the auditor to ensure the information can be relied on
- must be sent directlty from the client in response to auditors’ inquiries
- cannot be used during an audit due to client-attorney privilege

Answer 7

• must be sent directlty from the client in response to auditors’ inquiries

Question 8

Written representations are ____. (Select all that apply)
- required before the audit can be completed
- signed by a member of the Board of Directors
- also known as client representations
- dated as of the date of the financial statement date

Answer 8

• required before the audit can be completed
• also known as client representations

Question 9

Potential warranty payments, tax disputes with the IRS and debt guarantees on behalf of another party are all examples of ___ liabilities.

Answer 9

contingent

Question 10

True or false: Auditors are expected to design and perform procedures solely for the purpose of identifying conditions that indicate going-concern uncertainties

Answer 10

False

Reason: Auditors are required to consider whether any evidence provides “substantial doubt” about going concern.

Question 11

Auditors should discuss pending litigation with the client’s ______.
- board of directors
- attorneys only
- management and attorneys
- management only

Answer 11

management and attorneys

Question 12

Auditor recommendations for adjustments to the financial statements are considered to be ____ to indicate management’s responsibilty for the financial statements

Answer 12

proposed

Question 13

Audit work performed between the beginning of the year and the date of the financial statements is referred to as __ ___.

Answer 13

interim testing

Question 14

A proposed adjustment to the financial statements that the client decides not to make is called a(n) ___ ___.

Answer 14

uncorrected misstatement

Question 15

When auditors assess the risk of material misstatement from pending litigation, they will request the client send a(n) ______ ______ to all lawyers who worked for the client during the period under audit.

Answer 15

attorney letter

Question 16

Written representations are also known as ______ or ______ representations.

Answer 16

management; client

Question 17

When auditors use the ______ method to evaluate the materiality of uncorrected mistakes, only current-period income effect(s) are considered.
- cost/benefit
- rollover
- iron curtain

Answer 17

rollover

Question 18

Engagement quality review_____. (Select all that apply)
- is required by GAAS
- reviews whether audit evidence was sufficient to support the audit opinion
- must be conducted by the partner in charge of the audit
- is also known as concurring-partner review

Answer 18

• is required by GAAS
• reviews whether audit evidence was sufficient to support the audit opinion
• is also known as concurring-partner review

Question 19

When subsequently discovered facts are discovered prior to the audit report release, auditors normally choose to ______ ______ the report.

Answer 19

dual date

Question 20

Which of the following statements regarding auditor evaluation of the materiality of misstatements are correct? (Select all that apply)
- adjustments must only be proposed if both methods indicate material misstatement
- The rollover method only considers current-period income effects.
- Auditors may evaluate misstatements using either the rollover or iron curtain method.
- adjustments should not be recommended if the financial statements are not materiality misstatements

Answer 20

• The rollover method only considers current-period income effects.
• Auditors may evaluate misstatements using either the rollover or iron curtain method.

Question 21

The situation where auditors failed to perform necessary audit procedures prior to the audit report release date is referred to as ______ procedures.

Answer 21

omitted

Question 22

Audit documentation review ____. (Select all that apply)
- ensures the audit is conducted in accordance with GAAP
- provides an evaluation of the firm’s audit practices
- allows the firm to adhere to the performance principle
- can be a component of staff training and evaluation

Answer 22

• provides an evaluation of the firm’s audit practices
• allows the firm to adhere to the performance principle
• can be a component of staff training and evaluation

ensures the audit is conducted in accordance with GAAP (GAAS)

Question 23

For public entities, the communication of all significant internal control deficiencies must be made to the client in writing ___.
- prior to the date of the audit report
- prior to the receipt of client representations
- no later than 60 days after the audit report release date
- prior to the audit report release date

Answer 23

• prior to the audit report release date

Question 24

Subsequent events provide evidence of conditions that ______.
- existed at the date of the financial statements only
- arose following the date of the financial statemetns only
- existed at or arose following the date of the financial statements

Answer 24

existed at or arose following the date of the financial statements

Question 25

Auditor communications to individuals charged with governance include ______. (Select all that apply) - significant difficulties encountered during the audit - overview of audit scope and timing - representations requested from management - all misstatements identified during the audit

Answer 25

- significant difficulties encountered during the audit - overview of audit scope and timing - representations requested from management ## Footnote - all misstatements identified during the audit (reason: Only uncorrected misstatements that are not considered trivial)

Question 26

For nonpublic entities, the communication of all significant internal control deficiencies must be made to the client in writing _____. - prior to the date of the audit report - no later than 60 days after the audit report release date - prior to the receipt of client representations - prior to the audit report release date

Answer 26

no later than 60 days after the audit report release date

Question 27

Near the end of the audit, recommendations to the client are summarized in a document commonly referred to as the ____ ____.

Answer 27

management letter