Chapters 17 And 18

26 Questions  I  By Pimen103
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Chapters 17 And 18

  
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  • 1. 
    Generally, loss contingencies that are judged to be remote:
    • A. 

      Should be disclosed in the footnotes

    • B. 

      Should be recorded in the financial statements

    • C. 

      Should not be disclosed in the footnotes

    • D. 

      Should be recorded in the financial statements and footnotes


  • 2. 
    An auditor will ordinarily examine invoices from lawyers primarily in order to…
    • A. 

      Substantiate accruals

    • B. 

      Assess the legal ramifications of litigation in progress

    • C. 

      Estimate the dollar amount of contingent liabilities

    • D. 

      Identify possible unasserted litigation, claims, and assessments


  • 3. 
    Harvey, CPA is preparing an audit program for the purpose of ascertaining the occurrence of subsequent events that may require adjustment or disclosure essential to a fair presentation of the financial statements in conformity with generally accepted accounting principles. Which one of the following procedures would be least appropriate for this purpose?
    • A. 

      Confirm, as of the completion of field work, accounts receivable that have increased significantly from the year-end date

    • B. 

      Read the minutes of the board of directors

    • C. 

      Inquire of management concerning events that may have occurred

    • D. 

      Obtain a lawyer’s letter as of the completion of field work


  • 4. 
    Which of the following situations would require adjustment to or disclosure in the financial statements?
    • A. 

      A merger discussion

    • B. 

      The application for a patent on a new production process

    • C. 

      Discussions with a customer that could lead to a 40 percent increase in the client’s sales if agreement is successful

    • D. 

      The bankruptcy of a customer who regularly purchased 30 percent of the company’s output


  • 5. 
    An auditor issued an audit report that was dual dated for a subsequent event that occurred after the completion of field work but before issuance of the auditor’s report. The auditor’s responsibility for events occurring subsequent to the completion of field work was…
    • A. 

      Limited to the specific event referenced

    • B. 

      Limited to include only events occurring before the date of the last subsequent event referenced

    • C. 

      Extended to subsequent events occurring through the date of issuance of the report

    • D. 

      Extended to include all events occurring since the completion of field work


  • 6. 
    “There have been no communications from regulatory agencies concerning noncompliance with or deficiencies in financial reporting practices that could have a material effect on the financial statements.” The foregoing passage is most likely from a…
    • A. 

      Report on internal control

    • B. 

      Special report

    • C. 

      Management representation letter

    • D. 

      Letter for underwriters


  • 7. 
    Communications between the auditor and those charged with governance should include all of the following except:
    • A. 

      A summary of specific audit procedures used

    • B. 

      Significant audit adjustments

    • C. 

      Consultations with other accountants

    • D. 

      Major issues discussed with management before the auditor was retained.


  • 8. 
    In connection with the examination of the consolidated financial statements of Mott Industries, Frazier, CPA, plans to refer to another CPA’s examination of the financial statements of a subsidiary company. Under these circumstances, Frazier’s report must disclose…
    • A. 

      The name of the other CPA and the type of report issued by the other CPA

    • B. 

      The portion of the financial statements examined by the other CPA

    • C. 

      The nature of Frazier’s review of the other CPA’s work

    • D. 

      In a footnote the portions of the financial statements that were covered by the examinations of both auditors


  • 9. 
    For which of the following events would an auditor issue a report that does not include any reference to consistency?
    • A. 

      A change in the method of accounting for inventories

    • B. 

      A change from an accounting principle that is not generally acceptable to one that is generally accepted

    • C. 

      A change in the useful life used to calculate depreciation expense

    • D. 

      A change in accounting principle without reasonable justification from management


  • 10. 
    An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this separate paragraph…
    • A. 

      Is considered an “except for” qualification of the opinion

    • B. 

      Violates generally accepted auditing standards if this information is already disclosed in footnotes to the financial statements

    • C. 

      Necessitates a revision of the opinion paragraph to include the phrase “with the foregoing explanation”

    • D. 

      Is appropriate and would not negate the unqualified opinion


  • 11. 
    When the client fails to include information that is necessary for the fair presentation of financial statements in the body of the statements or in the related footnotes, it is the responsibility of the auditor to present the information, if practicable, in the auditor’s report and issue a(n)…
    • A. 

      Qualified opinion or a disclaimer of opinion

    • B. 

      Qualified opinion or an adverse opinion

    • C. 

      Adverse opinion or a disclaimer of opinion

    • D. 

      Qualified opinion or an unqualified opinion


  • 12. 
    The predecessor auditor, after properly communicating with the successor auditor, has reissued a report because the audit client desires comparative financial statements. The predecessor auditor’s report should make:
    • A. 

      No reference to the report or the work of the successor auditor

    • B. 

      Reference to the work of the successor auditor in the scope paragraph

    • C. 

      Reference to both the work and the report of the successor auditor in the opinion paragraph

    • D. 

      Reference to the report of the successor auditor in the scope paragraph


  • 13. 
    Auditing standards define OCBOA financial statements as including those prepared under the following base(s):
    • A. 

      Regulatory basis

    • B. 

      Tax basis

    • C. 

      A definite set of criteria having substantial support

    • D. 

      All of the above


  • 14. 
    If a lawyer refuses to furnish corroborating information regarding litigation, claims, and assessments, the auditor should...
    • A. 

      Consider the refusal to be a scope limitation

    • B. 

      Honor the confidentiality of the client-lawyer relationship

    • C. 

      Seek to obtain the corroborating information from management

    • D. 

      Disclose this fact in a footnote to the financial statements


  • 15. 
    An auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing audited financial statements. If the auditor concludes that the financial statements do not require revision, but the client refuses to revise or eliminate the material inconsistency, the auditor may...
    • A. 

      Consider the matter closed since the other information is not in the audited financial statements

    • B. 

      Disclaim an opinion on the financial statements after explaining the material inconsistency in a separate explanatory paragraph

    • C. 

      Issue an "except for" qualified opinion after discussing the matter with the client's board of directors

    • D. 

      Revise the auditor's report to include a separate explanatory paragraph describing the material inconsistency


  • 16. 
    When an auditor reports on financial statements prepared on an entity's income tax basis, the auditor's report should...
    • A. 

      Not express an opinion on whether the statements are presented in conformity with the comprehensive basis of accounting used

    • B. 

      Include an explanation of how the results of operations differ from the cash receipts and disbursements basis of accounting

    • C. 

      Disclose that the statements are not intended to conform to generally accepted accounting principles

    • D. 

      Disclaim an opinion on whether the statements were examined in accordance with generally accepted auditing standards


  • 17. 
    If the principal auditor decides to make reference to the other auditor's examination, the introductory paragraph must specifically indicate the...
    • A. 

      The portion of the financial statements examined by the other auditor

    • B. 

      Name of the other auditor

    • C. 

      Type of opinion expressed by the other auditor

    • D. 

      Name of the consolidated subsidiary examined by the other auditor


  • 18. 
    If an auditor dates the auditor's report on financial statements for the year ended December 31, 2009, as of February 10, 2010, except for Note J, as to which the date is March 3, 2010, the auditor is acknowledging responsibility to actively search for and ensure proper handling by management of...
    • A. 

      All subsequent events occurring through February 10, 2010 and the specific subsequent event referred to in Note J through March 3, 2010

    • B. 

      Only the specific subsequent event referred to in Note J as of March 3, 2010

    • C. 

      All subsequent events occurring through February 10, 2010

    • D. 

      All subsequent events occurring through March 3, 2010


  • 19. 
    When the audited financial statements of the prior year are presented together with those of the current year, the continuing auditor's report should cover...
    • A. 

      Both years

    • B. 

      Only the current year, but the prior year's report should be presented

    • C. 

      Only the current year, but the prior year's report should be referred to

    • D. 

      Only the current year


  • 20. 
    Which of the following material events occurring subsequent to the balance sheet date would require an adjustment to the financial statements before they could be issued?
    • A. 

      Settlement of litigation, in excess of the previously recorded liability

    • B. 

      Loss of a plant as a result of a flood

    • C. 

      Sale of long-term debt or capital stock

    • D. 

      Major purchase of a business that is expected to double sales volume


  • 21. 
    The date of the management representation letter should coincide with the...
    • A. 

      Balance sheet date

    • B. 

      Date of the auditor's report

    • C. 

      Date of the latest subsequent even referred to in the notes to the financial statements

    • D. 

      Date of the engagement agreement


  • 22. 
    Which of the following statements is correct about an auditor's required communication with management and those charged with governance?
    • A. 

      The auditor is required to inform those charged with governance about significant errors discovered by the auditor and subsequently corrected by management

    • B. 

      The auditor does not have any requirement to communicate with anyone outside of management

    • C. 

      Weaknesses in internal control previously reported to those charged with governance are required to be communicated to those charged with governance after each subsequent audit until the weaknesses are corrected

    • D. 

      Any matters communicated to those charged with governance are also required to be communicated to the entity's management


  • 23. 
    An auditor may reasonably issue an "except for" qualified opinion for a(n)...
    • A. 

      A scope limitation or an unjustified accounting change

    • B. 

      Neither an unjustified accounting change nor a scope limitation

    • C. 

      An unjustified accounting change, but not a scope limitation.

    • D. 

      A scope limitation, but not an unjustified accounting change


  • 24. 
    When reporting on comparative financial statements where the financial statements of the prior year have been examined by a predecessor auditor whose report is not presented, the successor auditor should make...
    • A. 

      Reference to the predecessor auditor only if the predecessor auditor expressed an unqualified opinion

    • B. 

      Reference to the predecessor auditor regardless of the type of opinion expressed by the predecessor auditor

    • C. 

      Reference to the predecessor auditor only if the predecessor auditor expressed a qualified opinion

    • D. 

      No reference to the predecessor auditor


  • 25. 
    Which of the following is not an audit procedure that the independent auditor would perform with respect to litigation, claims and assessments?
    • A. 

      Obtain assurance from management that it has disclosed all unasserted claims that the lawyer has advised are likely to be asserted and must be disclosed

    • B. 

      Obtain from management a description and evaluation of litigation, claims, and assessments that existed at the balance sheet date

    • C. 

      Inquire of and discuss with management the policies and procedures adopted for identifying, evaluating, and accounting for litigation, claims, and assessments

    • D. 

      Confirm directly with the client's lawyer that all claims have been recorded in the financial statements


  • 26. 
    A disclosure of a contingent liability in the footnotes is made rather than adjusting the financial statement accounts when:
    • A. 

      The loss can be reasonably estimated, but the outcome is unknown

    • B. 

      The outcome is unknown and the loss is reasonably estimable but the client does not want to book the loss

    • C. 

      The outcome of the event is judged to be reasonably possible but the loss cannot be reasonably estimated

    • D. 

      The outcome of the event is judged to be reasonably possible and the loss can be reasonably estimated


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