ACP412

COMPLETION OF AUDIT

1. 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.

2. 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
A. The communication with the audit committee should be revised.
B. Irregularities exist among the relevant account balances.
C. Additional substantive tests of details are required
D. internal control activities are not operating effectively.

3. 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).

4. The auditor should review information provided by those charged with governance and
management identifying
I. The names of all known related parties.
II. Related party transactions.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

5. Which of the following events most likely indicates the existence of related parties?
A. Making a loan without scheduled terms for repayment of the funds.
B. Discussing merger terms with a company that is major competitor.
C. selling real estate at a price that differs significantly from its book value.
D. Borrowing a large sum of money at a variable rate of interest.

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

A. A purchase from another corporation that is controlled by the corporation's chief
shareholder.
B. A loan from the corporation to a major shareholder.
C. Sale of land to the corporation by the spouse of director.
D. A sale to another corporation with a similar name.
7. Which of the following procedures should be performed by the auditor to determine the
completeness of information provided by those charged with governance and management
identifying the names of all known related parties?
I. Review prior year's working papers for names of known related parties.
II. Inquire as to the affiliation of those charged with governance and officers with other entities.
III. Review minutes of the meetings of stockholders and those charged with governance
A. I and II only
B. I and III only
C. I and III only
D. I, I, and III

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

A. In the absence of evidence to the contrary, related party transactions should be assumed to
be outside the ordinary course of business.
B. The audit procedures directed toward identifying related party transactions should
include considering whether transactions are occurring but are not being given proper
accounting recognition.
C. An auditor should determine whether a particular transaction would have occurred if the
parties had not been related.
D. 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.

9. An auditor searching for related party transactions should obtain an understanding of each
subsidiary's relationship to the total entity because
A. This may permit the audit of intercompany account balances to be performed as of
concurrent dates.
B. This may reveal whether particular transactions would have taken place if the parties had
not been related.
C. The business structure may be deliberately designed to obscure related party
transactions.

10. As used in PSA 560 "subsequent events" refers to the term

I. Events occurring between the date of the financial statements and the date of the auditor's
report.
I. Facts that become known to the auditor after the date of the auditor's report.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

11. Which of the following statements best describes the "date of the financial statements?"
A. 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.
 B. The date that the auditor's report and audited financial statements are made available to
third parties.
C. The date of the end of the latest period covered by the financial statements.
D. The date on which the auditor has obtained sufficient appropriate audit evidence on which
to base the opinion on the financial statements

12. 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
A. Date of the auditor's report.
B. Date of approval of the financial statements.
C. Date the financial statements are issued.
D. Date of the financial statements.

13. 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.

14. Which of the following procedures should an auditor ordinarily perform regarding subsequent
events?
A. Review the cutoff bank statements for several months after the year-end.
B. Compare the latest available interim financial statements with the financial statements
being audited.
C. Send second requests to the client's customers who failed to respond to initial accounts
receivable confirmation requests.
D. Communicate material weaknesses in internal control to the client's audit committee.

15. 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
A. Delivery of the auditor's report to the client.
B. Auditor's report.
C. Final review of the audit working papers.
D. Public issuance of the financial statements.

16. Which of the following statements best expresses the auditor's responsibility with respect to
facts which become known to the auditor after the date of the auditor's report but before the
date the financial statements are issued?
A. The auditor should amend the financial statements.
B. 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.
 C. The auditor should consider whether the financial statements need amendment, discuss
the matter with management, and consider taking actions appropriate in the
circumstances.
D. The auditor should withdraw from the engagement.

17. After issuing a report, an auditor has no obligation to make continuing inquiries or perform
other procedures concerning the audited financial statements, unless
A. Final determinations or resolutions are made of contingencies that had been disclosed in
the financial statements.
B. Information about an event that occurred after the date of the auditor's report comes to the
auditor's attention.
C. The control environment changes after issuance of the report.
D. Information, which existed at the report date and may affect the report, comes to the
auditor's attention.

18. 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?
A. A technological development that could affect the entity's future ability to continue as a
going concern.
B. The entity's sale of a subsidiary that accounts for 30% of the entity's consolidated sales.
C. The discovery of information regarding a contingency that existed before the financial
statements were issued.
D. The final resolution of a lawsuit disclosed in the notes to the financial statements.

19. After an audit report containing an unqualified opinion on "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
A. Describe the effects of this subsequently discovered information in a communication with
persons known to be relying on the financial statements.
B. Take no action because the auditor has no obligation to make any further inquiries.
C. Determine whether the information is reliable and, if determined to be reliable, request
that revised financial statements be issued.
D. Notify the entity that the auditor's report may no longer be associated with the financial
statements.

20. 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
A. Auditor
B. Entity's management.
C. Securities and Exchange Commission (SEC).
D. Entity's creditors.
21. Which of the following statements best describes the auditor's responsibility concerning the
appropriateness of the going concern assumption in the preparation of the' financial
statements?
A. The auditor's responsibility is to make a specific assessment of the entity's ability to
continue as a going concern.
B. The auditor's responsibility is to predict future events or conditions that may cause the
entity to cease to continue as a going concern.
C. 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.
D. 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.

22. 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. Cash flows from operating activities are negative.
B. Stock dividends replace annual cash dividends.
C. Significant related party transactions are pervasive.
D. Research and development projects are postponed.

23. 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?
A. Confirming with third parties the details of arrangements to maintain financial support.
B. Comparing the entity's depreciation and asset capitalization policies to other entities in the
industry.
C. Reconciling the cash balance per books with the cutoff bank statement and the bank
confirmation.
D. Inspecting title documents to verity whether any assets are pledged as collateral.

24. 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. Restrictions on the disposal of principal assets are present.
B. Usual trade credit from suppliers is denied.
C. Significant related party transactions are pervasive.
D. Arrearages in principal stock dividends are paid.

25. 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?
A. Confirmation of bank balances.
B. Confirmation of accounts receivable from major customers.
C. Reconciliation of interest expense with debt outstand.
D. Review of compliance with terms of debt agreements
26. 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
A. Postpone expenditures for research and development projects.
B. Purchase production facilities currently being leased from a related party.
C. Strengthen internal controls over cash disbursements,
D. Discuss with lenders the terms of all debt and loan agreements.

27. 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
A. Purchase equipment and production facilities currently being leased.
B. Accumulate treasury stock at prices favorable to Tansamjer's historic price range.
C. Negotiate reductions in required dividends being paid on preferred stock.
D. Accelerate research and development projects related to future products.

28. 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
A. Consider the adequacy of disclosure about the client's possible inability to continue as a
going concern.
B. Issue a qualified or adverse opinion, depending upon materiality, due to the possible effects
on the financial statements.
C. Report to the client's audit committee that management's accounting estimates may need
to be adjusted.
D. Reissue the prior year's auditor's report and add an emphasis of matter paragraph that
specifically refers to "substantial doubt" and "going concern."

29. Under PSA 580 (Written Representations), the auditor is required to obtain audit evidence that
management
I. Has fulfilled its responsibility for the fair presentation of the financial statements in
accordance with applicable financial reporting framework.
II. Has provided the auditor with all relevant information and access as agreed in the terms of
the audit engagement.
A. I, only
B. II only
C. Both I and II
D. Neither I nor Il

30. The date of the written representation shall be

A. After the date of the auditor's report.
B. After the date of approval of the entity's financial statements.
C. Before the entity's financial statements are issued.
D. As near as practicable to, but not after the date of the auditor's report on the financial
statements.
31. A purpose of a management representation letter is to reduce
A. The possibility of a misunderstanding concerning management's responsibility for the
financial statements.
B. The scope of an auditor's procedures concerning related party transactions and subsequent
events.
C. Audit risk to an aggregate level of misstatement that could be considered material.
D. An auditor's responsibility to detect material misstatements only to the extent that the
letter is relied on.

32. When an audit is made in accordance with generally accepted auditing standards, the auditor
should always
A. Observe the taking of physical inventory on the balance sheet date.
B. Obtain certain written representations from management.
C. Employ analytical procedures as substantive tests to obtain evidence about specific
assertions related to account balances.
D. 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.

33. When considering the use of management's written representations as audit evidence about
the completeness assertion, an auditor should understand that such representations
A. Constitute sufficient appropriate audit evidence to support the assertion when considered
in combination with a sufficiently low assessed level of control risk.
B. Are not part of the audit evidence considered to support the assertion.
C. Replace a low assessed level of control risk as audit evidence to support the assertion.
D. Complement, but do not replace, substantive tests designed to support the assertion.

34. The written representations shall be in the form of a representation letter addressed to the
A. Entity's management.
B. Auditor.
C. Entity's chief executive officer.
D. Entity's chief financial officer.

35. 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
A. Chief financial officer and the chair of the board of directors.
B. Chief executive officer and the chief financial officer,
C. Chief executive officer, the chair of the board of directors, and the client's lawyer.
D. Chair of the audit committee of the board of directors.

36. The following statements are ordinarily included in a management representation letter, except
A. The completeness and availability of minutes of stockholders' and directors' meetings.
B. Sufficient appropriate audit evidence has been made available to permit the expression of
an unqualified opinion.
C. 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.
 D. The financial statements are free of material misstatements, including omissions.

37. The primary source of information to be reported about litigation, claims, and assessments is
the
A. Independent auditor.
B. Client's management.
C. Court records.
D. Client's lawyer.

38. 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?
A. Confirm directly with the client's lawyer that all claims have been recorded in the financial
statements.
B. Make appropriate inquiries of management including obtaining representations.
C. Examine legal expense accounts.
D. Use any information regarding the entity’s business including information obtained from
discussions which any in-house legal department.

39. The primary reason an auditor requests that letters of inquiry be sent to a client's attorneys is to
provide the auditor with
A. A description and evaluation of litigation, claims, and assessments that existed at the
balance sheet date.
B. The attorneys’ opinions of the client's historical experiences in recent similar litigation.
C. Corroboration of the information furnished by management about litigation, claims, and
assessments.
D. The probable outcome of asserted claims and pending or threatened litigation.

40. The letter of audit inquiry should be

A. Prepared and sent by the auditor.
B. Prepared by management and sent by the auditor.
C. Prepared and sent by management.
D. Prepared by the auditor and sent by management.

41. An auditor should obtain evidence relevant to all of the following factors concerning third-party
litigation against a client except the
A. Jurisdiction in which the matter will be resolved.
B. Existence or a situation indicating an uncertainty as t the possible loss.
C. Probability of an unfavorable outcome.
D. period in which the underlying cause for legal action occurred.

42. The refusal of a client's lawyer to provide a representation on the legality of a particular act
committed by the client is ordinarily
A. Proper grounds to withdraw from the engagement.
B. Insufficient reason to modify the auditor's report because of the lawyer's obligation of
confidentiality.
C. Considered to be a scope limitation.
 D. sufficient reason to issue a "subject to" opinion.

43. Management's refusal to give the auditor permission to communicate with the entity's legal
counsel is most likely to lead to
A. An adverse opinion.
B. A qualified opinion or an adverse opinion.
C. An unqualified opinion.
D. A qualified opinion or a disclaimer of opinion.

44. 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?
A. "I believe that the action can be settled for less than the damages claimed.
B. "I believe that the company will be able to defend this action successfully.
C. C."I believe that the plaintiff's case against the company is without merit "
D. "I believe that the possible liability to the company is nominal in amount.”

45. The auditor should consider the status of legal matters up to the
A. Balance sheet date.
B. Date of the auditor's report.
C. Date of approval of the financial statements.
D. Date of issuance of the financial statements.

END