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Exam 24: Audit Completion

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Question 1

Short Answer

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The fieldwork for the December 31,2013 audit of Treble Corporation ended on March 17,2014.The financial statements and auditor's report were issued and mailed to stockholders on March 29,2014.In each of the material situations (1 through 5)below,indicate the appropriate action (a,b,c,d,or e).The possible actions are as follows: a.Adjust the December 31,2013 financial statements. b.Disclose the information in a footnote in the December 31,2013 financial statements. c.Request the client revise and reissue the December 31,2013 financial statements.The revision should involve an adjustment to the December 31,2013 financial statements. d.Request the client revise and reissue the December 31,2013 financial statements.The revision should involve the addition of a footnote,but no adjustment,to the December 31,2013 financial statements. e.No action is required. The situations are as follows: ________ 1.On January 16,2014 a lawsuit was filed against Treble for a patent infringement action that allegedly took place in early 2010.In the opinion of Treble's attorneys,there is a reasonable (but not probable)danger of a significant loss to Treble. ________ 2.On February 19,2014,Treble settled a lawsuit out of court that had originated in 2009 and is currently listed as a contingent liability. ________ 3.On March 30,2014,Treble settled a lawsuit out of court that had originated in 2007 and is currently listed as a contingent liability. ________ 4.On February 2,2014,you discovered an uninsured lawsuit against Treble that had originated on August 30,2010. ________ 5.On April 7,2014,you discovered that a debtor of Treble went bankrupt on January 22,2014,due to a major uninsured fire that occurred on January 2,2014.

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Question 2

Multiple Choice

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An auditor's decision concerning whether or not to "dual date" the audit report is based upon the auditor's willingness to:

A) extend auditing procedures and assume responsibility for a greater period of time.
B) accept responsibility for subsequent events.
C) permit inclusion of a footnote captioned: event (unaudited) subsequent to the date of the auditor's report.
D) assume responsibility for events subsequent to the issuance of the auditor's report.

E) A) and D)
F) None of the above

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A

Question 3

Multiple Choice

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A client has a calendar year-end.Listed below are four events that occurred after December 31.Which one of these subsequent events might result in adjustment of the December 31 financial statements?

Because a management representation letter is a written statement from a nonindependent source,it cannot be regarded as reliable evidence.

The issuance of bonds by the client subsequent to the balance sheet date would require a footnote disclosure in,but no adjustment to,the financial statements under audit.

Auditing standards require the auditor's assessment of going-concern issues.

One of the primary approaches in dealing with uncertainties in loss contingencies uses a ________ threshold.

Distinguish between contingent liabilities and commitments.

Auditors of public companies must obtain certain representations from management regarding internal control over financial reporting.

Which of the following statements regarding the letter of representation is not correct?

Auditors must communicate in writing about internal control weaknesses to the audit committee or those charged with governance.

If an attorney refuses to provide the auditor with information about material existing lawsuits or unasserted claims,current professional standards require that the auditor consider the refusal as a scope limitation.

If an auditor concludes there are contingent liabilities,then he or she must evaluate the:

Current professional auditing standards make it clear that management,not the auditor,is responsible for identifying and deciding the appropriate accounting treatment for contingent liabilities.

If the auditor determines that a subsequent event that affects the current period financial statements occurred after fieldwork was completed but before the audit report was issued,what date(s) may the auditor use on the report?

Which of the following procedures and methods are important in assessing a company's ability to continue as a going concern?

What needs to be included in a letter of inquiry sent to a client's legal counsel?

If the client refuses to prepare and sign a letter of representation,the auditor would be required to issue either a qualified opinion or a disclaimer of opinion.

The letter of representation obtained from an audit client should be:

When using the probability threshold for contingencies,the likelihood of the occurrence of the event is classified as: