Chapter 14. Completing a Quality Audit

Chapter 14. Completing a Quality Audit/ Chapter 14. Completing a Quality Audit 1. Review activities that are completed towards the end of the audit are quite varied. True False 2. Misstatements that are detected, but individually are not material, should be ignored when determining the appropriate audit report. True False 3. Most audit firms use a schedule to accumulate the known and projected misstatements and the carryover effects of prior-year uncorrected misstatements. True False 4. At the end of an audit, adjustments that are “waived” will remain uncorrected. True False 5. The auditor compares the total likely misstatements to each significant segment of the financial statements, such as total current assets, total noncurrent assets, total current liabilities, total noncurrent liabilities, owners’ equity, and pretax income, to determine if they are, in aggregate, material to the financial statements. True False 6. The total likely misstatements found during the audit are equal to the sum of known and projected misstatements. True False 7. The materiality of a misstatement is based on only the quantitative amount of the misstatement. True False 8. An audit firm culture that emphasizes “doing the right thing,” encourages auditors to deal with difficult issues in a short period of time. True False 9. A culture that encourages auditors to seek consultation with other members of the audit firm will be more likely to result in auditors who will acquiesce to inappropriate or aggressive client preferences. True False 10. PCAOB AS 14 provides important insight that auditors must consider as they decide whether management’s refusal to correct a detected misstatement is indicative of intentional bias. True False 11. In an integrated audit, if one or more material weaknesses exist, the auditor will need to issue a qualified opinion on internal control over financial reporting. True False 12. Multiple internal control deficiencies in the same cycle may actually decrease the likelihood of misstatement in that cycle. True False 13. FASB has set forth four categories of potential losses that can be reasonably estimated. True False 14. Auditors are responsible for designing and maintaining policies and procedures to identify, evaluate, and account for contingencies. True False 15. The primary sourceof evidence concerning contingencies is the client’s external attorney. True False 16. Regarding loss contingencies, legal counsel should be instructed by the client to respond directly to the auditors. True False 17. If a lawyer refuses to furnish the requested information about the client’s contingencies to the auditor, the auditor should issue an unqualified audit opinion. True False 18. Property and casualty insurance premiums are examples of estimates found on financial statements. True False 19. Auditors should have heightened skepticism regarding period-end adjusting journal entries that relate to accounts with significant estimates. True False 20. Estimates are based on both subjective and objective factors. True False 21. Events or transactions occurring after the balance sheet date and before the audit report date, can be useful in identifying and evaluating the reasonableness of estimates. True False 22. A deviation from historical patterns is one of the factors that an auditor focuses on when evaluating the reasonableness of an estimate. True False 23. The auditor should consider the historical experience of the client in making past estimates. True False 24. A policy providing a reserve for returned products at the original sales price rather than at replacement cost violates GAAP. True False 25. If the auditor determines that informative disclosures are not reasonably adequate, the auditor must identify that fact in the auditor’s report. True False 26. Disclosures can be made either on the face of the financial statements in the form of classifications or in parenthetical notations and/or in the notes to the statements. True False 27. A disclosure checklist is a convenient documentation format for evidence that the auditor adequately evaluated the client’s disclosures. True False 28. The auditor should consider matters for disclosure only while gathering evidence during the course of the audit. True False 29. The auditor’s report specifically covers the statements and disclosures made by management in the “Management Discussion and Analysis” (MD&A) section of the annual report. True False 30. Auditors routinely review the MD&A to provide reasonable assurance that it does not contain information that is factually inaccurate or inconsistent with the audited portion of the financial statements and accompanying footnotes. True False 31. Noncompliancewith laws and regulations includes only acts of omission by the entity that are considered to be unintentional and contrary to the prevailing laws or regulations. True False 32. Auditing standards recognize that there are inherent limitations in an auditor’s ability to detect material misstatements relating to the entity’s compliance with laws and regulations. True False 33. Auditors are responsible for obtaining reasonable assurance that the financial statements are free from material misstatements, including material misstatements related to noncompliance with laws and regulations. True False