Mc For Auidt Final
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A CPA has received an attorney's letter in which no significant disagreements with the client's assessments of contingent liabilities were noted. The resignation of the client's lawyer shortly after receipt of the letter should alert the auditor that:
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An adverse opinion will be necessary.
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Undisclosed unasserted claims may have arisen.
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The auditor must begin a completely new examination of contingent liabilities.
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The attorney was unable to form a conclusion with respect to the significance of litigation, claims, and assessments.
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This quiz titled 'MC for Audit Final' assesses knowledge on auditing in automated environments, report distribution limitations, and financial projections. It is designed for learners preparing for professional accounting exams, focusing on audit risks and standards.
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- 2.
You are a CPA retained by the manager of a cooperative retirement village to do "write-up work." You are expected to prepare unaudited financial statements with each page marked "unaudited" and accompanied by a disclaimer of opinion stating no audit was performed. In performing the work, you discover that there are no invoices to support a claim for a $25,000 disbursement. The manager informs you that all the disbursements are proper. What should you do?
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Submit the expected statements but omit $25,000 of unsupported disbursements.
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Include the unsupported disbursements in the statements since you are not expected to make an audit.
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Obtain from the manager a written statement that you informed him of the missing invoices and include his assurance that the disbursements are proper.
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Notify the owners that some of the claimed disbursements are unsupported and withdraw if the situation is not satisfactorily resolved.
Correct Answer
A. Notify the owners that some of the claimed disbursements are unsupported and withdraw if the situation is not satisfactorily resolved.Explanation
As a CPA, it is important to maintain professional integrity and adhere to ethical standards. In this scenario, the discovery of unsupported disbursements raises concerns about the accuracy and transparency of the financial statements. By notifying the owners about the unsupported disbursements, the CPA fulfills their duty to provide accurate and reliable information. Additionally, the option to withdraw if the situation is not resolved satisfactorily demonstrates the CPA's commitment to maintaining professional standards and avoiding involvement in potentially fraudulent or unethical activities.Rate this question:
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- 3.
Professional standards prohibit which one of the following types of engagements for prospective financial statements from being undertaken?
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A compilation
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A review
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An examination
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An agreed-upon procedures engagement
Correct Answer
A. A reviewExplanation
Professional standards prohibit a review engagement for prospective financial statements from being undertaken. A review engagement involves performing analytical procedures and making inquiries to provide limited assurance that the financial statements are free from material misstatement. However, for prospective financial statements, which are based on assumptions and predictions about the future, a higher level of assurance is required. Therefore, a review engagement is not suitable for prospective financial statements.Rate this question:
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- 4.
Auditors frequently audit statements that were prepared on a comprehensive basis of accounting other than GAAP. When this occurs:
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Generally accepted auditing standards apply to these engagements and the reporting requirements differ.
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Generally accepted auditing standards apply to these engagements and the reporting requirements are the same as well.
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Generally accepted auditing standards do not apply to these examinations and the reporting requirements differ also.
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Generally accepted auditing standards do not apply to this engagement and the reporting requirements remain the same for the CPA.
Correct Answer
A. Generally accepted auditing standards apply to these engagements and the reporting requirements differ.Explanation
When auditors audit statements that were prepared on a comprehensive basis of accounting other than GAAP, they still need to follow generally accepted auditing standards. However, the reporting requirements for these engagements differ from those for statements prepared under GAAP. This means that auditors must adhere to specific guidelines and procedures when conducting the audit, but the format and content of the final audit report will vary depending on the basis of accounting used.Rate this question:
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- 5.
The standards which govern the CPA's association with unaudited financial statements of private companies are the:
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AICPA's Code of Professional Conduct.
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Statements on Auditing Standards (SASs).
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Statements of Standards on Attestation Engagements (SSAEs).
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Statements on Standards for Accounting and Review Services (SSARS).
Correct Answer
A. Statements on Standards for Accounting and Review Services (SSARS).Explanation
The correct answer is Statements on Standards for Accounting and Review Services (SSARS). The SSARS provides guidance for CPAs when performing accounting and review services for unaudited financial statements of private companies. It outlines the standards and procedures that CPAs should follow to ensure the reliability and accuracy of these financial statements. The AICPA's Code of Professional Conduct, SASs, and SSAEs are not specifically related to unaudited financial statements of private companies.Rate this question:
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- 6.
The concept of limited assurance is provided for in which of the following engagements?
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Audit
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Review
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Compilation
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Agreed-upon procedures
Correct Answer
A. ReviewExplanation
Limited assurance engagements are provided for in reviews. In a review engagement, the auditor performs procedures such as inquiry, analytical procedures, and discussion with management to obtain limited assurance that there are no material modifications needed for the financial statements to be in accordance with the applicable financial reporting framework. This level of assurance is lower than in an audit engagement, where the auditor provides reasonable assurance. Compilation engagements involve presenting financial information in the form of financial statements without providing any assurance, while agreed-upon procedures engagements involve performing specific procedures agreed upon by the auditor and the client without providing any assurance.Rate this question:
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- 7.
At the completion of the audit, management is asked to make a written statement that it is not aware of any undisclosed contingent liabilities. This statement would appear in the:
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Management letter.
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Letter of inquiry.
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Letters testamentary.
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Management letter of representation.
Correct Answer
A. Management letter of representation.Explanation
After completing an audit, management is typically asked to provide a written statement regarding any undisclosed contingent liabilities. This statement is included in the management letter of representation. The management letter of representation is a formal document that management provides to the auditors, confirming various representations and assertions made during the audit process. It serves as a means for management to acknowledge their responsibility for the financial statements and disclose any relevant information, such as contingent liabilities, that may impact the financial position of the organization.Rate this question:
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- 8.
A company guarantees the debt of an affiliate. Which of the following best describes the audit procedure that would make the auditor aware of the guarantee?
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Review minutes and resolutions of the board of directors.
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Review prior year's audit files with respect to such guarantees.
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Review the possibility of such guarantees with the chief accountant.
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Review the legal letter returned by the company's outside legal counsel.
Correct Answer
A. Review minutes and resolutions of the board of directors.Explanation
The best way for the auditor to become aware of the guarantee would be to review the minutes and resolutions of the board of directors. This is because the board of directors would be responsible for approving and documenting any guarantees made by the company. By reviewing the minutes and resolutions, the auditor can verify the existence of the guarantee and assess its impact on the financial statements.Rate this question:
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- 9.
Which are prospective financial statements that present an entity's expected financial position, results of operations, and cash flows, to the best of the responsible party's knowledge and belief?
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Forecasts Projections Yes Yes
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Forecasts Projections No No
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Forecasts Projections Yes No
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Forecasts Projections No Yes
Correct Answer
A. Forecasts Projections Yes NoExplanation
Forecasts are prospective financial statements that present an entity's expected financial position, results of operations, and cash flows based on the responsible party's knowledge and belief. Projections, on the other hand, are not based on the responsible party's knowledge and belief, making them less reliable than forecasts. Therefore, the correct answer is "Forecasts Projections Yes No" as it accurately describes the characteristics of these financial statements.Rate this question:
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- 10.
The process of "final evidence accumulation" is always done late in the engagement. Which one of the following would be done the earliest in the engagement?
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Final analytical procedures
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Search for contingent liabilities
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Evaluate the going concern assumption
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Acquire the client's letter of representation
Correct Answer
A. Search for contingent liabilitiesExplanation
The search for contingent liabilities would be done the earliest in the engagement. This is because contingent liabilities are potential obligations that may arise in the future, and it is important to identify and assess them early on in the audit process. This allows the auditor to gather sufficient evidence and evaluate the potential impact of these liabilities on the financial statements. Final evidence accumulation, on the other hand, is a process that is done late in the engagement to gather and evaluate all the necessary evidence before issuing the audit report.Rate this question:
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- 11.
Distribution of which of the following types of reports is limited?
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Audit
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Review
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Agreed-upon procedures
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Examination
Correct Answer
A. Agreed-upon proceduresExplanation
Agreed-upon procedures reports are limited in distribution. Unlike audit, review, and examination reports, which are typically distributed to a wider audience, agreed-upon procedures reports are only shared with the specified parties who have agreed upon the procedures to be performed. These reports are tailored to meet the specific needs of the requesting party, and the distribution is restricted to maintain confidentiality and ensure that only the intended recipients have access to the report's findings.Rate this question:
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- 12.
As a CPA you have been asked to examine an entity's financial projections. Acceptance of the engagement would be appropriate if distribution is limited to:
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Stockholders of record as of the date of the report.
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Potential investors and creditors by posting on the Company's website.
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General public by posting on the company's website.
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A financial institution for which the company is negotiating a loan.
Correct Answer
A. A financial institution for which the company is negotiating a loan.Explanation
Acceptance of the engagement would be appropriate if distribution is limited to a financial institution for which the company is negotiating a loan. This is because the financial institution has a direct interest in the entity's financial projections as they are considering providing a loan. The other options, such as distribution to stockholders, potential investors and creditors, or the general public, may not have a direct relationship or need for the financial projections.Rate this question:
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- 13.
Which of the following is a significant risk to the auditor regarding an audit in a highly automated information environment?
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Does not place enough reliance on the processed information
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Places too much reliance on the processed information
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Processed information may not reveal the sources of the information
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Does not understand the processed information produced by the automated environment
Correct Answer
A. Places too much reliance on the processed informationExplanation
In a highly automated information environment, the auditor relying too much on the processed information can be a significant risk. This is because automation can lead to a false sense of security, assuming that the system is accurate and reliable without thoroughly verifying the underlying data or processes. Overreliance on processed information can result in overlooking errors or fraudulent activities that may be present in the system. Therefore, it is important for auditors to exercise caution and not solely rely on the processed information without performing appropriate audit procedures and validations.Rate this question:
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- 14.
Elise-Greer, LLP is an affiliate of the audit client and is audited by another firm of auditors. Which of the following is most likely to be used by the auditor to obtain assurance that all guarantees of the affiliate's indebtedness have been detected?
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Send the standard bank confirmation request to all of the client's lender banks.
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Review client minutes and obtain a representation letter.
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Examine supporting documents for all entries in intercompany accounts.
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Obtain written confirmation of indebtedness from the auditor of the affiliate.
Correct Answer
A. Review client minutes and obtain a representation letter.Explanation
The auditor is most likely to review client minutes and obtain a representation letter in order to obtain assurance that all guarantees of the affiliate's indebtedness have been detected. This is because client minutes may contain discussions or decisions related to guarantees, and a representation letter from management can provide confirmation and evidence of the existence of these guarantees. The other options do not directly address the detection of guarantees of the affiliate's indebtedness.Rate this question:
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Current Version
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Mar 22, 2023Quiz Edited by
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May 08, 2012Quiz Created by
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