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1 | |
A lawyer's response to an auditor's inquiry concerning litigation, claims, and assessments may be limited to matters that are considered individually or collectively material to the client's financial statements. Which parties should reach an understanding on the limits of materiality for this purpose? |
| | A) | The auditor and the client's management. |
| | B) | The client's audit committee and the lawyer. |
| | C) | The client's management and the lawyer. |
| | D) | The lawyer and the auditor. |
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2 | |
To which of the following matters would an auditor not apply materiality limits when obtaining specific written client representations? |
| | A) | Disclosure of compensating balance arrangements involving restrictions on cash balances. |
| | B) | Information concerning related-party transactions and related amounts receivable or payable. |
| | C) | Fraud involving employees with significant roles in the internal control system. |
| | D) | The absence of errors and unrecorded transactions in the financial statements. |
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3 | |
Which of the following forms of documentation is required for an audit in accordance with generally accepted auditing standards? |
| | A) | Client representation letter. |
| | B) | Internal control questionnaire. |
| | C) | Client engagement letter. |
| | D) | Management letter. |
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4 | |
Which of the following is an example of a subsequent event that requires disclosure in the notes to the financial statements? |
| | A) | A client's customer, who has been experiencing financial difficulty for several months, declares bankruptcy. |
| | B) | The client completes an environmental cleanup, allowing the auditor to more accurately assess a previously recorded contingent liability. |
| | C) | An event that confirms the auditor's belief (documented prior to the end of the client's fiscal year) that a large portion of the client's inventory is obsolete. |
| | D) | A chemical explosion at a customer's warehouse causes all accounts receivable from that customer to be uncollectible. |
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5 | |
The representation letter that corroborates oral representations made to the external auditors should be addressed to the _____________, and it is generally signed by the _______________________: |
| | A) | auditor; audit committee |
| | B) | audit committee; auditor |
| | C) | auditor; CFO & CEO |
| | D) | auditor; management |
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6 | |
Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern? |
| | A) | Communications with the audit committee indicate a higher than normal rate of employee turnover |
| | B) | Usual trade credit from major suppliers has recently been restricted or denied |
| | C) | There are a significant number of related party transactions occurring |
| | D) | Plans to repurchase a large block of treasury stock have been delayed |
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7 | |
When auditing contingent liabilities, which of the following procedures would be least effective: |
| | A) | Reading the minutes of the board and other committee meetings |
| | B) | Examining all IRS documentation related to possible tax disputes |
| | C) | Reviewing a confirmation from a bank where the client has discounted (sold) a note receivable during the last month of the year |
| | D) | Examining accounts payable confirmations |
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8 | |
According to the Public Company Accounting Oversight Board's [PCAOB] third auditing standard related to auditor documentation and retention, an auditor should retain audit documentation for how long of a period of time beyond completion of the engagement? |
| | A) | Seven years, unless a shorter period is required by state law. |
| | B) | Seven years, unless a longer period is required by state law. |
| | C) | Seven years for electronic documentation; ten years for manual. |
| | D) | The same period as required under state tax law. |
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9 | |
With respect to the issuance of an audit report which is dual dated because of an event occurring after fieldwork was completed but before the audit report was issued, the auditor's responsibility for events occurring after the completion of fieldwork is: |
| | A) | extended to include all events occurring before the audit report is issued |
| | B) | nonexistent—auditors have no responsibility for subsequent events |
| | C) | extended to cover the period up to the issuance of the next audit report |
| | D) | limited to the specific event referred to |
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10 | |
After issuing a report, an auditor has no obligation to make continuing inquiries or perform other procedures concerning the audited financial statements, unless |
| | A) | Information that existed at the report date and may affect the report comes to the auditor's attention. |
| | B) | The management of the entity requests the auditor to reissue the auditor's report. |
| | C) | Information about an event that occurred after the end of field work comes to the auditor's attention. |
| | D) | Final determinations or resolutions are made of contingencies that were disclosed in the financial statements. |
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