Download Chapter 24 PDF

TitleChapter 24
TagsAudit Lawsuit Inventory Financial Statement Auditor's Report
File Size602.9 KB
Total Pages41
Document Text Contents
Page 2

2

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

Learning Objective 24-2


1) If a potential loss on a contingent liability is remote, the liability usually is:

A) disclosed in footnotes, but not accrued.

B) neither accrued nor disclosed in footnotes.

C) accrued and indicated in the body of the financial statements.

D) disclosed in the auditor's report but not disclosed on the financial statements.

Answer: B
Terms: Contingent liability; remote

Diff: Easy

Objective: LO 24-2

AACSB: Reflective thinking skills

2) A commitment is best described as:

A) an agreement to commit the firm to a set of fixed conditions in the future.

B) an agreement to commit the firm to a set of fixed conditions in the future that depends on company

profitability.

C) an agreement to commit the firm to a set of fixed conditions in the future that depends on current

market conditions.

D) a potential future obligation to an outside party for an as yet to be determined amount.

Answer: A
Terms: Commitments

Diff: Easy

Objective: LO 24-2

AACSB: Reflective thinking skills



3) 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:

A) management letter.

B) letter of inquiry.

C) letters testamentary.

D) management letter of representation.

Answer: D
Terms: Completion of audit; written statement by management

Diff: Easy

Objective: LO 24-2

AACSB: Reflective thinking skills



4) Which of the following groups has the responsibility for identifying and deciding the appropriate

accounting treatment for recording or disclosing contingent liabilities?

A) auditors

B) legal counsel

C) management

D) management and the auditors

Answer: C
Terms: Recording or disclosing contingent liabilities

Diff: Easy

Objective: LO 24-2

AACSB: Reflective thinking skills

Page 21

21

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

17) The auditor's responsibility for "reviewing the subsequent events" of a public company that is about

to issue new securities is normally limited to the period of time:

A) beginning with the balance sheet date and ending with the date of the auditor's report.

B) beginning with the start of the fiscal year under audit and ending with the balance sheet date.

C) beginning with the start of the fiscal year under audit and ending with the date of the auditor's report.

D) beginning with the balance sheet date and ending with the date the registration statement becomes

effective.

Answer: D
Terms: Reviewing subsequent events; public company; issue new securities

Diff: Challenging

Objective: LO 24-4

AACSB: Reflective thinking skills



18) Which of the following is not a reason why the auditor requests that the client provide a letter of

representation?

A) Professional auditing standards require the auditor to obtain a letter of representation.

B) It impresses upon management its responsibility for the accuracy of the information in the financial

statements.

C) It provides written documentation of the oral responses already received to inquiries of management.

D) It provides written documentation, which is a higher quality of evidence than management's oral

responses to inquiries.

Answer: D
Terms: Letter of representation

Diff: Challenging

Objective: LO 24-4

AACSB: Reflective thinking skills



19) Subsequent events affecting the realization of assets ordinarily will require adjustments of the

financial statements under examination because such events typically represent the:

A) culmination of conditions that existed at the balance sheet date.

B) discovery of new conditions occurring in the subsequent events period.

C) final estimates of losses relating to casualties occurring in the subsequent events period.

D) preliminary estimate of losses relating to new events that occurred subsequent to the balance sheet

date.

Answer: B
Terms: Subsequent events; realization of assets

Diff: Challenging

Objective: LO 24-4

AACSB: Reflective thinking skills

Page 40

40

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall

7) Auditors must communicate in writing about internal control weaknesses to the audit committee or

those charged with governance.

A) True

B) False

Answer: A
Terms: Auditors communicate internal control weaknesses

Diff: Moderate

Objective: LO 24-7

AACSB: Reflective thinking skills



8) Client representation letters are required by professional auditing standards, whereas management

letters are optional.

A) True

B) False

Answer: A
Terms: Client representation letters; Management letters; Auditing standards

Diff: Moderate

Objective: LO 24-5 and LO 24-7

AACSB: Reflective thinking skills

Learning Objective 24-8


1) The audit firm issues an audit report for its client. The auditor's have NO obligation to make further

inquiries with respect to the client's audited financial statements unless:

A) a development occurs that may affect the company's long term viability as a company.

B) final resolution was made on disclosed contingency for which no liability needed to be accrued.

C) new information comes to the auditor's attention concerning an event that occurred prior to the date of

the audit report that, if known, would have impacted the audit opinion.

D) a lawsuit, in which the risk of loss was considered remote, was resolved in the company's favor.

Answer: C
Terms: Audit report; Further inquiries

Diff: Moderate

Objective: LO 24-8

AACSB: Analytic skills



2) If an auditor discovers that previously issued financial statements are misleading, the most desirable

approach to follow is to request that the client issue an immediate revision of the financial statements

containing an explanation of the reasons for the revision.

A) True

B) False

Answer: A
Terms: Auditor discovers that previously issued financial statements are misleading

Diff: Easy

Objective: LO 24-8

AACSB: Reflective thinking skills

Similer Documents