Auditing: A Risk Based Approach 14
exam 2024-2025 100% graded A+
After the report release date, the auditor may become aware of facts that may have
affected the financial statements and auditor's report, had the auditor known the facts at
the time of issuance. With regard to this situation, which of the following statements is
true?
a. Because such facts become known after the report release date, the auditor cannot
reasonably be held accountable for these issues; no action is required on the part of the
auditor.
b. If the auditor decides that steps should be taken to prevent further reliance on the
financial statements and audit report, the client is advised to make appropriate and
timely disclosure of these new facts.
c. If such facts would have been investigated had they been known at the report date,
the auditor should determine whether engagement personnel are competent and
qualified to perform audits; action is required on the part of the auditor to assess
whether engag - QUALITY ANSWERS B
An engagement quality review is required for publicly traded companies, and is optional
for privately held company audits. - QUALITY ANSWERS True
An example of a Type 1 subsequent event would be when a significant lawsuit is
initiated relating to an incident that occurred after the balance sheet date. - QUALITY
ANSWERS False
Auditing standards recognize that there are inherent limitations in an auditor's ability to
detect material misstatements relating to an organization's compliance with laws and
regulations. - QUALITY ANSWERS True
Auditors should not issue a going-concern audit opinion if it would be a self-fulfilling
prophecy that the company will, indeed, go bankrupt. - QUALITY ANSWERS False
Even if immaterial, an intentional misstatement may cause serious difficulties in the
audit, and for the client. - QUALITY ANSWERS True
In completing the audit, the auditor communicates with management via the
management letter. Which of the following statements is false about management
letters?
a. The management letter is used to make significant operational or control
recommendations to management.
, b. Many audit firms consider management's inattention to addressing comments in the
letter to be an important risk factor in subsequent-year audits.
c. The management letter is required for publicly traded companies in the United States,
but not privately held companies.
d. All of the above are false. - QUALITY ANSWERS C
In completing the audit, the auditor obtains a letter of audit inquiry. Which of the
following is an accurate description of a letter of audit inquiry?
a. A letter that is the primary source of corroborative evidence concerning litigation,
claims, and assessments, which is received from the client's legal counsel.
b. A letter that is the primary source of corroborative evidence concerning cash
valuation, which is received from the client's bank.
c. A letter that is the primary source of corroborative evidence concerning accounts
receivable valuation, which is received from the client's customer.
d. A letter that is the primary source of corroborative evidence concerning inventory
valuation, which is received from the client's supplier. - QUALITY ANSWERS A
In completing the audit, the auditor should review the adequacy of the disclosures in
the financial statements. When assessing the disclosures, the auditor should have
reasonable assurance about which of the following.
a. The disclosed events and transactions have occurred and pertain to the entity.
b. All the disclosures that should have been included are included.
c. The disclosures are understandable to users.
d. All of the above. - QUALITY ANSWERS D
In evaluating whether the client is a going concern, which of the following questions
should the auditor ask?
a. Are there indicators of going-concern problems?
b. Is it likely that management can mitigate any identified going-concern problems?
c. Are disclosures about the going-concern problems adequate?
d. All of the above. - QUALITY ANSWERS D
exam 2024-2025 100% graded A+
After the report release date, the auditor may become aware of facts that may have
affected the financial statements and auditor's report, had the auditor known the facts at
the time of issuance. With regard to this situation, which of the following statements is
true?
a. Because such facts become known after the report release date, the auditor cannot
reasonably be held accountable for these issues; no action is required on the part of the
auditor.
b. If the auditor decides that steps should be taken to prevent further reliance on the
financial statements and audit report, the client is advised to make appropriate and
timely disclosure of these new facts.
c. If such facts would have been investigated had they been known at the report date,
the auditor should determine whether engagement personnel are competent and
qualified to perform audits; action is required on the part of the auditor to assess
whether engag - QUALITY ANSWERS B
An engagement quality review is required for publicly traded companies, and is optional
for privately held company audits. - QUALITY ANSWERS True
An example of a Type 1 subsequent event would be when a significant lawsuit is
initiated relating to an incident that occurred after the balance sheet date. - QUALITY
ANSWERS False
Auditing standards recognize that there are inherent limitations in an auditor's ability to
detect material misstatements relating to an organization's compliance with laws and
regulations. - QUALITY ANSWERS True
Auditors should not issue a going-concern audit opinion if it would be a self-fulfilling
prophecy that the company will, indeed, go bankrupt. - QUALITY ANSWERS False
Even if immaterial, an intentional misstatement may cause serious difficulties in the
audit, and for the client. - QUALITY ANSWERS True
In completing the audit, the auditor communicates with management via the
management letter. Which of the following statements is false about management
letters?
a. The management letter is used to make significant operational or control
recommendations to management.
, b. Many audit firms consider management's inattention to addressing comments in the
letter to be an important risk factor in subsequent-year audits.
c. The management letter is required for publicly traded companies in the United States,
but not privately held companies.
d. All of the above are false. - QUALITY ANSWERS C
In completing the audit, the auditor obtains a letter of audit inquiry. Which of the
following is an accurate description of a letter of audit inquiry?
a. A letter that is the primary source of corroborative evidence concerning litigation,
claims, and assessments, which is received from the client's legal counsel.
b. A letter that is the primary source of corroborative evidence concerning cash
valuation, which is received from the client's bank.
c. A letter that is the primary source of corroborative evidence concerning accounts
receivable valuation, which is received from the client's customer.
d. A letter that is the primary source of corroborative evidence concerning inventory
valuation, which is received from the client's supplier. - QUALITY ANSWERS A
In completing the audit, the auditor should review the adequacy of the disclosures in
the financial statements. When assessing the disclosures, the auditor should have
reasonable assurance about which of the following.
a. The disclosed events and transactions have occurred and pertain to the entity.
b. All the disclosures that should have been included are included.
c. The disclosures are understandable to users.
d. All of the above. - QUALITY ANSWERS D
In evaluating whether the client is a going concern, which of the following questions
should the auditor ask?
a. Are there indicators of going-concern problems?
b. Is it likely that management can mitigate any identified going-concern problems?
c. Are disclosures about the going-concern problems adequate?
d. All of the above. - QUALITY ANSWERS D
