Question 1

The management representation letter is used:

Accepted Answer

A)   by the auditor in lieu of audit testing in cases of scope limitation.
B)   by the auditor as evidence that management understands its responsibility for the financial statements and internal control environment.
C)   by the auditor as its sole defense in case of lawsuits arising from an audit failure.
D)   All of the above.E) B) and C)
F) A) and D)

Question 2

If the auditor concludes that audit committee oversight of financial reporting and ICFR is ineffective and that a material weakness exists, the auditor should:

Accepted Answer

A)   communicate this directly to the SEC.
B)   communicate this to the audit committee.
C)   communicate this to the predecessor auditor.
D)   communicate this to the board of directors.E) A) and B)
F) C) and D)

Question 3

Audit Standard (AS) number 5 addresses the impact of consistency issues on the audit report.

Accepted Answer

A) True 
 B)False

Question 4

Dillon is auditing Byrne Corp., a public company. Byrne recently implemented a new accounting system. As part of the ICFR audit, Dillon discovers that material controls surrounding access to the new software were only partially installed. Dillon should:

Accepted Answer

A)   withdraw from the audit.
B)   issue a disclaimer opinion on the ICFR.
C)   issue an adverse opinion on the ICFR.
D)   depending on the circumstances, the auditor may choose any of the above.E) A) and B)
F) A) and C)

Question 5

The audit report must contain explanatory language if there is a going concern issue.

Accepted Answer

A) True 
 B)False

Question 6

In general, scope limitations beyond the control of management:

Accepted Answer

A)   result in a qualified opinion, subject to the scope limitation.
B)   result in an unqualified opinion.
C)   result in an adverse opinion.
D)   result in a qualified opinion, except for the scope limitation.E) B) and C)
F) All of the above

Question 7

Company A hired Q to perform its year-end audit. Subsequent to year-end, A discovers that one of its customers, who owes Company A a material amount, has filed for bankruptcy protection. Assume that Q completed the audit work prior to the date of bankruptcy filing but has not yet issued the audit report. In this case, Q should:

Accepted Answer

A)   ignore the event since it does not apply to the current year under audit.
B)   notify those individuals known to be relying on its work of the bankruptcy.
C)   perform additional work, as deemed necessary given the circumstances.
D)   None of the above.E) A) and C)
F) A) and B)

Question 8

In addition to withdrawal, scope limitations on ICFR audits result in:

Accepted Answer

A)   an adverse opinion.
B)   a qualified opinion.
C)   a disclaimer of opinion.
D)   depending on the circumstances, the auditor may choose any of the above.E) A) and D)
F) A) and B) C

Question 9

A client decides to change accounting procedures for certain types of transactions which have a material impact on the financial statements. The client adopts accounting treatment promulgated under GAAP. Prior to this, the client was not using GAAP; as part of the change the prior year financial statements are restated. The auditor should issue what type of opinion?

Accepted Answer

A)   Unqualified opinion.
B)   Qualified opinion.
C)   Adverse opinion.
D)   Depending on the circumstances, the auditor may choose any of the above.E) B) and C)
F) B) and D) A

Question 10

Under which circumstances should an auditor NOT issue a disclaimer of opinion?

Accepted Answer

A)   When the auditor has not performed all the necessary fieldwork.
B)   When an auditor has determined the client is not following GAAP.
C)   When the auditor is denied access to the minutes of the Board of Directors.
D)   Both "b" and "c".E) B) and C)
F) B) and D)

Question 11

A client decides to change accounting procedures for certain types of transactions which will have a material impact on the financial statements. The client adopts an accounting change promulgated by GAAP but this change has no effect on the current period financial statements. The auditor should issue what type of opinion?

Accepted Answer

A)   Qualified opinion.
B)   Unqualified opinion.
C)   Disclaimer of opinion.
D)   Depending on the circumstances, the auditor may choose any of the above.E) B) and D)
F) B) and C)

Question 12

Litigation differs from a claim in that:

Accepted Answer

A)   litigation involves obligations that have already been assessed; claims are possible obligations.
B)   litigation involves amounts that have been set; claims involve possible obligations.
C)   litigation involves legal actions; claims are possible obligations.
D)   None of the above.E) B) and D)
F) B) and C)

Question 13

An auditor is responsible for communicating which of the following matters to the audit committee?

Accepted Answer

A)   Audit adjustments.
B)   Consultation with other accountants.
C)   Disagreements with management.
D)   All of the above.E) A) and B)
F) A) and C)

Question 14

All subsequent events are recorded in the footnotes as a contingent liability.

Accepted Answer

A) True 
 B)False

Question 15

An adverse opinion on ICFR includes:

Accepted Answer

A)   The definition of a material weakness.
B)   Identification of the material weakness.
C)   A statement that a material weakness has been identified.
D)   All of the above.E) A) and D)
F) C) and D)

Question 16

Explanatory language is always necessary if the auditor issuing the audit report relies on the work of other auditors.

Accepted Answer

A) True 
 B)False

Question 17

The client includes which of the following in its representation letter:

Accepted Answer

A)   a statement that all transactions for the period under audit have been recorded.
B)   a statement that management has no knowledge of fraud amongst its employees.
C)   a statement that management has responsibility for the accuracy of the financial statements.
D)   All of the above.E) None of the above
F) C) and D)

Question 18

For each of the following scenarios below, determine what type of audit opinion would be issued on the financial statements. Your choices are:
1. Unqualified
2. Unqualified with explanatory paragraph
3. Qualified
4. Qualified with explanatory paragraph
5. Disclaimer of opinion
6. Adverse opinion
7. No effect on audit opinion
TASK
A. A client refuses to provide details of all pending litigations which while material are not considered pervasive. 
b. A client's warehouse burns down, making inventory observation impossible.
c. A client files for bankruptcy protection.
d. A client changes from one method of accounting to another method of accounting promulgated by GAAP. 
e. A client changes from one method of accounting to another method not promulgated by GAAP.
f. A client fails to book material adjusting journal entries proposed by the auditor. 
g. A client refuses to allow the auditor to access to the company's outside legal counsel. This is a scope limitation. 
h. A client switches auditors prior to year-end and selects your firm. The predecessor auditor is uncooperative.
i. The auditor realizes that the partner on the client is the brother-in-law of the client's controller.
j. The client refuses to disclose material related-party disclosures. 
k. Material weaknesses are found in the ICFR, although the financial statements are fairly presented. 
l. The outside legal counsel refuses to comply with the request for information despite pleas from the client.

Accepted Answer

a. A client refuses to provide details of all pending litigations. - 4 - Qualified with explanatory paragraph.
b. A client's warehouse burns down, making inventory observation impossible. - 4 - Qualified with explanatory paragraph.
c. A client files for bankruptcy protection. - 2 - Unqualified with explanatory paragraph.
d. A client changes from one method of accounting to another method of accounting promulgated by GAAP. Either - 1 - Unqualified or - 2 - Unqualified with explanatory paragraph, depending on significance.
e. A client changes from one method of accounting to another method not promulgated by GAAP. - 4 - Qualified with explanatory paragraph, OR - 6 - Adverse opinion, depending on materiality.
f. A client fails to book material adjusting journal entries proposed by the auditor. Either - 4 - Qualified with explanatory paragraph or - 6 - Adverse opinion, depending on materiality.
g. A client refuses to allow the auditor access to the company's outside legal counsel. Either - 4 - Qualified with explanatory paragraph or - 5 - Disclaimer of opinion, depending on materiality.
h. A client switches auditors prior to year-end and selects your firm. The predecessor auditor is uncooperative. - 7 - No effect on audit opinion (affects scope.)
i. The auditor realizes that the partner of the client is the brother-in-law of the client's controller. - 5 - Disclaimer of opinion (independence).
j. The client refuses to disclose material related-party disclosures. Either - 4 - Qualified with explanatory paragraph or - 6 - Adverse opinion, depending on materiality.
k. Material weaknesses are found in the ICFR, although the financial statements are fairly presented. - 1 - Unqualified or - 2 - Unqualified with explanatory paragraph. In the case of an integrated audit., the report on financial statements would require an explanatory paragraph referring to the audit of ICFR.
l. The outside legal counsel refuses to comply with the request for information despite pleas from the client. - 4 - Qualified with explanatory paragraph or -5 - Disclaimer of opinion, depending on circumstances and materiality.

Question 19

A SAS 8 review:

Accepted Answer

A)   requires auditors review other information provided in the financial statements by the client.
B)   requires the auditor investigates inconsistencies between the annual report and the financial statements.
C)   allows the auditor to include an explanatory paragraph in the audit report for inconsistencies between the other information and the financial statements.
D)   All of the above.E) A) and C)
F) A) and D)

Question 20

As part of the wrap-up procedures, Mary Ellen Dillon reviews the minutes of the Board of Directors for a client. During her review, she discovers that a major acquisition is planned in the coming months. This planned acquisition should:

Accepted Answer

A)   be disclosed in the footnotes to the financial statements.
B)   be disclosed in an explanatory paragraph of the audit report.
C)   be audited by the audit firm as part of its wrap-up work.
D)   None of the above.E) B) and D)
F) B) and C)

Exam 11: Completing the Integrated Audit and Reporting

The management representation letter is used:

Correct Answer
verified

If the auditor concludes that audit committee oversight of financial reporting and ICFR is ineffective and that a material weakness exists, the auditor should:

Correct Answer
verified

Audit Standard (AS) number 5 addresses the impact of consistency issues on the audit report.

Correct Answer
verified

Dillon is auditing Byrne Corp., a public company. Byrne recently implemented a new accounting system. As part of the ICFR audit, Dillon discovers that material controls surrounding access to the new software were only partially installed. Dillon should:

Correct Answer
verified

The audit report must contain explanatory language if there is a going concern issue.

Correct Answer
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In general, scope limitations beyond the control of management:

Correct Answer
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Correct Answer
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In addition to withdrawal, scope limitations on ICFR audits result in:

Correct Answer
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C

Correct Answer
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A

Under which circumstances should an auditor NOT issue a disclaimer of opinion?

Correct Answer
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Correct Answer
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Litigation differs from a claim in that:

Correct Answer
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An auditor is responsible for communicating which of the following matters to the audit committee?

Correct Answer
verified

All subsequent events are recorded in the footnotes as a contingent liability.

Correct Answer
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An adverse opinion on ICFR includes:

Correct Answer
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Explanatory language is always necessary if the auditor issuing the audit report relies on the work of other auditors.

Correct Answer
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The client includes which of the following in its representation letter:

Correct Answer
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A SAS 8 review:

Correct Answer
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As part of the wrap-up procedures, Mary Ellen Dillon reviews the minutes of the Board of Directors for a client. During her review, she discovers that a major acquisition is planned in the coming months. This planned acquisition should:

Correct Answer
verified

Exam 11: Completing the Integrated Audit and Reporting

The management representation letter is used:

Correct AnswerverifiedShow Answer

If the auditor concludes that audit committee oversight of financial reporting and ICFR is ineffective and that a material weakness exists, the auditor should:

Correct AnswerverifiedShow Answer

Audit Standard (AS) number 5 addresses the impact of consistency issues on the audit report.

Correct AnswerverifiedShow Answer

Dillon is auditing Byrne Corp., a public company. Byrne recently implemented a new accounting system. As part of the ICFR audit, Dillon discovers that material controls surrounding access to the new software were only partially installed. Dillon should:

Correct AnswerverifiedShow Answer

The audit report must contain explanatory language if there is a going concern issue.

Correct AnswerverifiedShow Answer

In general, scope limitations beyond the control of management:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In addition to withdrawal, scope limitations on ICFR audits result in:

Correct AnswerverifiedC

Correct AnswerverifiedA

Under which circumstances should an auditor NOT issue a disclaimer of opinion?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Litigation differs from a claim in that:

Correct AnswerverifiedShow Answer

An auditor is responsible for communicating which of the following matters to the audit committee?

Correct AnswerverifiedShow Answer

All subsequent events are recorded in the footnotes as a contingent liability.

Correct AnswerverifiedShow Answer

An adverse opinion on ICFR includes:

Correct AnswerverifiedShow Answer

Explanatory language is always necessary if the auditor issuing the audit report relies on the work of other auditors.

Correct AnswerverifiedShow Answer

The client includes which of the following in its representation letter:

Correct AnswerverifiedShow Answer

A SAS 8 review:

Correct AnswerverifiedShow Answer

As part of the wrap-up procedures, Mary Ellen Dillon reviews the minutes of the Board of Directors for a client. During her review, she discovers that a major acquisition is planned in the coming months. This planned acquisition should:

Correct AnswerverifiedShow Answer

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C

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A

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