The responsibility for the identification and disclosure of related parties and transactions with such parties rests with the A. Auditor. B. Entity's management. C. Financial Reporting Standards Council (FRSC). D. Securities and Exchange Commission (SEC).

Financial Reporting Standards Council (FRSC)

Securities and Exchange Commission (SEC)

PSA 570 (Going Concern) states that a fundamental principle in the preparation of financial statements is the going concern assumption. Under this assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws and regulations. The responsibility to make an assessment of an entity's ability to continue as a going concern rests with the

Securities and Exchange Commission (SEC)

The date of the written representation shall be

As near as practicable to, but not after the date of the auditor's report on the financial statements.

After the date of the auditor's report.

After the date of approval of the entity's financial statements.

Before the entity's financial statements are issued.

A written representation from a client's management that, among other matters, acknowledges responsibility for the fair presentation of financial statements, should normally be signed by the

Chief executive officer and the chief financial officer.

Chief financial officer and the chair of the board of directors.

Chief executive officer, the chair of the board of directors, and the client's lawyer.

Chair of the audit committee of the board of directors.

An auditor should obtain evidence relevant to all of the following factors concerning third-party litigation against a client except the

Jurisdiction in which the matter will be resolved.

Existence or a situation indicating an uncertainty as to the possible loss.

Probability of an unfavorable outcome.

Period in which the underlying cause for legal action occurred.

Which of the following procedures should an auditor ordinarily perform regarding subsequent events?

Compare the latest available interim financial statements with the financial statements being audited

Review the cutoff bank statements for several months after the year-end

Send second requests to the client's customers who failed to respond to initial accounts receivable confirmation requests

Communicate material weaknesses in internal control to the client's audit committee

The letter of audit inquiry should be

Prepared by management and sent by the auditor.

Prepared and sent by the auditor.

Prepared and sent by management.

Prepared by the auditor and sent by management.

A purpose of a management representation letter is to reduce

Audit risk to an aggregate level of misstatement that could be considered material.

The possibility of a misunderstanding concerning management's responsibility for the financial statements.

The scope of an auditor's procedures concerning related party transactions and subsequent events.

An auditor's responsibility to detect material misstatements only to the extent that the letter is relied on.

Which of the following statements best describes the auditor's responsibility concerning the appropriateness of the going concern assumption in preparing the financial statements?

The auditor's responsibility is to predict future events or conditions that may cause the entity to cease to continue as a going concern

The auditor's responsibility is to make a specific assessment of the entity's ability to continue as a going concern

The auditor's responsibility is to consider the appropriateness of management's use of the going concern assumption and consider whether there are material uncertainties about the entity's ability to continue as a going concern that need to be disclosed in the financial statements

The auditor's responsibility is to give a guarantee in the audit report that the entity has the ability to continue as a going concern

Which of the following events most likely indicates the existence of related parties?

Making a loan without scheduled terms for repayment of the funds

Discussing merger terms with a company that is major competitor

Selling real estate at a price that differs significantly from its book value

Borrowing a large sum of money at a variable rate of interest

Which of the following statements best expresses the auditor's responsibility concerning facts which become known to the auditor after the date of the auditor's report but before the date the financial statements are issued?

The auditor should consider whether the financial statements need amendment, discuss the matter with management, and consider taking actions appropriate in the circumstances

The auditor should amend the financial statements

If the facts discovered will materially affect the financial statements, the auditor should issue a new report which contains either a qualified opinion or an adverse opinion

The auditor should withdraw from the engagement

Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events? A. Inquiring as to whether any unusual adjustments were made after the date of the financial statements. B. Confirming a sample of material accounts receivable established after the date of the financial statements. C. Comparing the financial statements being reported on with those of the prior period. D. Investigating personnel changes in the accounting department occurring after the date of the financial statements.

Inquiring as to whether any unusual adjustments were made after the date of the financial statements

Confirming a sample of material accounts receivable established after the date of the financial statements

Comparing the financial statements being reported on with those of the prior period

Investigating personnel changes in the accounting department occurring after the date of the financial statements

Which of the following would not necessarily be a related party transaction?

A sale to another corporation with a similar name

A purchase from another corporation that is controlled by the corporation's chief shareholder

A loan from the corporation to a major shareholder

Sale of land to the corporation by the spouse of director

When considering the use of management's written representations as audit evidence about the completeness assertion, an auditor should understand that such representations

Are not part of the audit evidence considered to support the assertion.

Constitute sufficient appropriate audit evidence to support the assertion when considered in combination with a sufficiently low assessed level of control risk.

Replace a low assessed level of control risk as audit evidence to support the assertion.

Complement, but do not replace, substantive tests designed to support the assertion.

Harry, CPA, believes there is substantial doubt about the ability of Tansamjer Corp. to continue as a going concern for a reasonable period of time. In evaluating Tansamjer's plans for dealing with the adverse effects of future conditions and events, Harry most likely would consider, as a mitigating factor, Tansamjer's plans to

Negotiate reductions in required dividends being paid on preferred stock.

Purchase equipment and production facilities currently being leased.

Accumulate treasury stock at prices favorable to Tansamjer's historic price range.

Accelerate research and development projects related to future products.

Which of the following events occurring after the issuance of an auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements?

The discovery of information regarding a contingency that existed before the financial statements were issued

A technological development that could affect the entity's future ability to continue as a going concern

The entity's sale of a subsidiary that accounts for 30% of the entity's consolidated sales

The final resolution of a lawsuit disclosed in the notes to the financial statements

Harold, CPA, believes there is substantial doubt about the ability of Jersamtan Co. to continue as a going concern for a reasonable period of time. In evaluating Jersamtan's plans for dealing with the adverse effects of future conditions and events, Harold most likely would consider, as a mitigating factor, Jersamtan's plans to

Postpone expenditures for research and development projects.

Purchase production facilities currently being leased from a related party.

Strengthen internal controls over cash disbursements.

Discuss with lenders the terms of all debt and loan agreements.

An auditor searching for related party transactions should obtain an understanding of each subsidiary's relationship to the total entity because

The business structure may be deliberately designed to obscure related party transactions

This may permit the audit of intercompany account balances to be performed as of concurrent dates

This may reveal whether particular transactions would have taken place if the parties had not been related

Which of the following statements concerning related party transactions is correct?

The audit procedures directed toward identifying related party transactions should include considering whether transactions are occurring but are not being given proper accounting recognition

In the absence of evidence to the contrary, related party transactions should be assumed to be outside the ordinary course of business

An auditor should determine whether a particular transaction would have occurred if the parties had not been related

An auditor should substantiate that related party transactions were consummated on terms equivalent to those that prevail in arm’s length transactions to those that prevail in arm's- length transactions

The primary reason an auditor requests that letters of inquiry be sent to a client's attorneys is to provide the auditor with

Corroboration of the information furnished by management about litigation, claims, and assessments.

A description and evaluation of litigation, claims, and assessments that existed at the balance sheet date.

The attorneys’ opinions of the client's historical experiences in recent similar litigation.

The probable outcome of asserted claims and pending or threatened litigation.

Which of the following statements extracted from a client's lawyer's letter concerning litigation, claims, and assessments most likely would cause the auditor to request clarification?

'I believe that the action can be settled for less than the damages claimed.'

'I believe that the company will be able to defend this action successfully.'

'I believe that the plaintiff's case against the company is without merit '

'I believe that the possible liability to the company is nominal in amount.'

After an audit report containing an unqualified opinion on 'the client's financial statements was issued, the client decided to sell the shares of a subsidiary that accounts for 30% of its revenue and 25% of its net income. The auditor should

Take no action because the auditor has no obligation to make any further inquiries

Describe the effects of this subsequently discovered information in a communication with persons known to be relying on the financial statements

Determine whether the information is reliable and, if determined to be reliable, request that revised financial statements be issued

Notify the entity that the auditor's report may no longer be associated with the financial statements

The auditor is required to perform procedures designed to obtain sufficient appropriate audit evidence to identify all events that may require adjustment of, or disclosure in, the financial statements up to the

Date of approval of the financial statements

Date the financial statements are issued

Date of the financial statements

The refusal of a client's lawyer to provide a representation on the legality of a particular act committed by the client is ordinarily

Considered to be a scope limitation.

Proper grounds to withdraw from the engagement.

Insufficient reason to modify the auditor's report because of the lawyer's obligation of confidentiality.

Sufficient reason to issue a 'subject to' opinion.

Management's refusal to give the auditor permission to communicate with the entity's legal counsel is most likely to lead to

A qualified opinion or a disclaimer of opinion.

A qualified opinion or an adverse opinion.

Which of the following audit procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

Confirming with third parties the details of arrangements to maintain financial support.

Comparing the entity's depreciation and asset capitalization policies to other entities in the industry.

Reconciling the cash balance per books with the cutoff bank statement and the bank confirmation.

Inspecting title documents to verify whether any assets are pledged as collateral.

When an auditor concludes that there is substantial doubt about a continuing audit client's ability to continue as a going concern for a reasonable period of time, the auditor's responsibility is to

Consider the adequacy of disclosure about the client's possible inability to continue as a going concern.

Issue a qualified or adverse opinion, depending upon materiality, due to the possible effects on the financial statements.

Report to the client's audit committee that management's accounting estimates may need to be adjusted.

Reissue the prior year's auditor's report and add an emphasis of matter paragraph that specifically refers to 'substantial doubt' and 'going concern.'

The auditor should consider the status of legal matters up to the

Date of approval of the financial statements.

Date of issuance of the financial statements.

Which of the following statements best describes the 'date of the financial statements?

The date of the end of the latest period covered by the financial statements

The date on which those with the recognized authority assert that they have prepared the entity’s complete set of financial statements, including the related notes, and that they have taken responsibility for them

The date that the auditor's report and audited financial statements are made available to third parties

The date on which the auditor has obtained sufficient appropriate audit evidence on which to base the opinion on the financial statements

Which of the following procedures is least likely to be performed by the auditor to identify litigation and claims involving the entity which may result in a material misstatement of the financial statements?

Confirm directly with the client's lawyer that all claims have been recorded in the financial statements.

Make appropriate inquiries of management including obtaining representations.

Examine legal expense accounts.

Use any information regarding the entity’s business including information obtained from discussions with any in-house legal department.

Which if the following audit procedures would most likely assist an auditor in identifying conditions and events that may indicate there could be substantial doubt about an entity’s ability to continue as going concern?

Review of compliance with terms of debt agreements

Confirmation of accounts receivable from major customers.

Reconciliation of interest expense with debt outstanding.

After issuing a report, an auditor has no obligation to make continuing inquiries or perform other procedures concerning the audited financial statements, unless

Information, which existed at the report date and may affect the report, comes to the auditor's attention

Final determinations or resolutions are made of contingencies that had been disclosed in the financial statements

Information about an event that occurred after the date of the auditor's report comes to the auditor's attention

The control environment changes after issuance of the report

When an audit is made in accordance with generally accepted auditing standards, the auditor should always

Obtain certain written representations from management.

Observe the taking of physical inventory on the balance sheet date.

Employ analytical procedures as substantive tests to obtain evidence about specific assertions related to account balances.

Document the understanding of the client’s internal control and the basis for all conclusions about the assessed level of control risk for financial statement assertions.

Completion of audit

Authored by Kyle Uping

Business

University

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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?

Cash flows from operating activities are negative

Stock dividends replace annual cash dividends

Significant related party transactions are pervasive

Research and Development projects are postponed

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

The following statements are ordinarily included in a management representation letter, except

The completeness and availability of minutes of stockholders' and directors' meetings.

Sufficient appropriate audit evidence has been made available to permit the expression of an unqualified opinion.

There have been no irregularities involving management or employees who have a significant role in internal control or that could have a material effect on the financial statements.

The financial statements are free of material misstatements, including omissions.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

An auditor is concerned with completing various phases of the audit after the balance sheet date. This subsequent period extends to the date of the

Delivery of the auditor's report to the client

Auditor's report

Final review of the audit working papers

Public issuance of the financial statements

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

The primary source of information to be reported about litigation, claims, and assessments is the

Independent auditor.

Client's management.

Court records.

Client's lawyer.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

The written representations shall be in the form of a representation letter addressed to the

Entity's management.

Auditor.

Entity's chief executive officer.

Entity's chief financial officer.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Analytical procedures used in the overall review stage of the audit generally include A. Retesting controls that appeared to be ineffective during the assessment of control risk. B. Considering unusual or unexpected account balances that were not previously identified. C. Gathering evidence concerning account balances that have not changed from the prior year. D. Performing tests of transactions to corroborate management's financial statement assertions.

Retesting controls that appeared to be ineffective during the assessment of control risk

Considering unusual or unexpected account balances that were not previously identified

Gathering evidence concerning account balances that have not changed from the prior year

Performing tests of transactions to corroborate management's financial statement assertions

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Analytical procedures performed in the overall review stage of an audit suggest that several accounts have unexpected relationships. The results of these procedures most likely indicate that

The communication with the audit committee should be revised

Irregularities exist among the relevant account balances

Additional substantive tests of details are required

Internal control activities are not operating effectively

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