Who generally signs the legal letter?

Who generally signs the legal letter? 

A. The board of directors.
B. The audit partner.
C. The CEO of the entity being audited.
D. The entity's attorneys.


Answer: The CEO of the entity being audited.

After issuance of the auditor's report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by that report unless

After issuance of the auditor's report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by that report unless 

A. A final resolution of a contingency that had resulted in a qualification of the auditor's report is made.
B. A development occurs that may affect the entity's ability to continue as a going concern.
C. An investigation of the auditor's practice by a peer review committee ensues.
D. New information is discovered concerning undisclosed related party transactions of the previously audited period.


Answer: New information is discovered concerning undisclosed related party transactions of the previously audited period.

After an auditor has issued an audit report on a nonpublic entity, there is no obligation to make any further audit tests or inquiries with respect to the audited financial statements covered by that report unless

After an auditor has issued an audit report on a nonpublic entity, there is no obligation to make any further audit tests or inquiries with respect to the audited financial statements covered by that report unless 

A. New information comes to the auditor's attention concerning an event that occurred prior to the date of the auditor's report that may have affected the auditor's report.
B. Material adverse events occur after the date of the auditor's report.
C. Final determination or resolution was made on matters that had resulted in a qualification in the auditor's report.
D. Final determination or resolution was made of a contingency that had been disclosed in the financial statements and no liability arose from the resolution.


Answer: New information comes to the auditor's attention concerning an event that occurred prior to the date of the auditor's report that may have affected the auditor's report.

After issuance of the auditor's report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by an auditor's report unless

After issuance of the auditor's report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by an auditor's report unless 

A. A lawsuit in which risk of loss was considered remote is resolved in the company's favor.
B. A development occurs that may affect the entity's ability to continue as a going concern.
C. A material fraud is initiated by an employee after the report is issued.
D. Evidence of significant, non-arms-length, related party transactions that happened prior to year-end is discovered.


Answer: Evidence of significant, non-arms-length, related party transactions that happened prior to year-end is discovered.

Key Co. plans to present comparative financial statements for the years ended December 31, 2012 and 2013, respectively. Smith, CPA, audited Key's financial statements for both years and plans to report on the comparative financial statements on May 1, 2014. Key's current management team was not present until January 1, 2013. What period of time should be covered by Key's management representation letter?

Key Co. plans to present comparative financial statements for the years ended December 31, 2012 and 2013, respectively. Smith, CPA, audited Key's financial statements for both years and plans to report on the comparative financial statements on May 1, 2014. Key's current management team was not present until January 1, 2013. What period of time should be covered by Key's management representation letter? 

A. January 1, 2012 through December 31, 2013.
B. January 1, 2012 through May 1, 2014.
C. January 1, 2013 through December 31, 2013.
D. January 1, 2013 through May 1, 2014.


Answer: January 1, 2012 through May 1, 2014.

For which of the following matters should an auditor obtain written management representations?

For which of the following matters should an auditor obtain written management representations? 

A. Management's cost-benefit justifications for not correcting internal control weaknesses.
B. Management's knowledge of future plans that may affect the price of the entity's stock.
C. Management's compliance with contractual agreements that may affect the financial statements.
D. Management's acknowledgment of its responsibility for employees' violations of laws.


Answer: Management's compliance with contractual agreements that may affect the financial statements.

Which of the following statements is correct concerning an auditor's required communication with those charged with governance?

Which of the following statements is correct concerning an auditor's required communication with those charged with governance? 

A. This communication is required to occur before the auditor's report on the financial statements is issued.
B. This communication should include management changes in the application of significant accounting policies.
C. Any significant matter communicated to those charged with governance also should be communicated to management.
D. Significant audit adjustments proposed by the auditor and recorded by management need not be communicated to those charged with governance.


Answer: This communication should include management changes in the application of significant accounting policies.

Which of the following statements is correct about an auditor's required communication with management and those charged with governance?

Which of the following statements is correct about an auditor's required communication with management and those charged with governance? 

A. Any matters communicated to those charged with governance are also required to be communicated to the entity's management.
B. The auditor is required to inform those charged with governance about significant errors discovered by the auditor and subsequently corrected by management.
C. The auditor does not have any requirement to communicate with anyone outside of management.
D. Weaknesses in internal control previously reported to those charged with governance are required to be communicated to those charged with governance after each subsequent audit until the weaknesses are corrected.


Answer: The auditor is required to inform those charged with governance about significant errors discovered by the auditor and subsequently corrected by management.

Which of the following statements ordinarily is included among the written management representations obtained by the auditor?

Which of the following statements ordinarily is included among the written management representations obtained by the auditor? 

A. Compensating balances and other arrangements involving restrictions on cash balances have been disclosed.
B. Management acknowledges responsibility for illegal actions committed by employees.
C. Sufficient evidential matter has been made available to permit the issuance of an unqualified opinion.
D. Management acknowledges that there are no material weaknesses in the account balances.


Answer: Compensating balances and other arrangements involving restrictions on cash balances have been disclosed.

A disclosure of a contingent liability in the footnotes is made rather than adjusting the financial statement accounts when

A disclosure of a contingent liability in the footnotes is made rather than adjusting the financial statement accounts when 

A. The outcome of the event is judged to be reasonably possible and the loss can be reasonably estimated.
B. The loss can be reasonably estimated, but the outcome is unknown.
C. The outcome of the event is judged to be reasonably possible but the loss cannot be reasonably estimated.
D. The outcome is unknown and the loss is reasonably estimable but the entity does not want to book the loss.


Answer: The outcome of the event is judged to be reasonably possible but the loss cannot be reasonably estimated.

A Type I subsequent event usually requires

A Type I subsequent event usually requires 

A. An adjustment to the financial statements.
B. No adjustment to the financial statements.
C. Withdrawal from the engagement.
D. No action.


Answer: An adjustment to the financial statements.

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

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.
B. Accept responsibility for all events between year-end and the audit report date.
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.


Answer: Extend auditing procedures.

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

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

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


Answer: "I believe that the action can be settled for less than the damages claimed."

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

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

A. A description and evaluation of litigation, claims, and assessments that existed at the date of the balance sheet.
B. An expert opinion as to whether a loss is possible, probable, or remote.
C. The opportunity to examine the documentation concerning litigation, claims, and assessments.
D. Corroboration of the information furnished by management concerning litigation, claims, and assessments.


Answer: Corroboration of the information furnished by management concerning litigation, claims, and assessments.

Auditors often request that the entity send a letter of inquiry to those attorneys who have been consulted with respect to litigation, claims, and/or assessments. The primary reason for this request is to provide the auditor with

Auditors often request that the entity send a letter of inquiry to those attorneys who have been consulted with respect to litigation, claims, and/or assessments. The primary reason for this request is to provide the auditor with 

A. An estimate of the dollar amount of the probable loss.
B. An expert opinion as to whether a loss is possible, probable, or remote.
C. Information concerning the progress of cases to date.
D. Corroborative inquiries made of the entity by the auditor.


Answer: Corroborative inquiries made of the entity by the auditor.

An entity has violated a minor requirement of its bond indenture that could result in the trustee requiring immediate payment of the principal amount due. The entity refuses to seek a waiver from the bond trustee. Request for immediate payment is not considered likely. Under these circumstances, the auditor must

An entity has violated a minor requirement of its bond indenture that could result in the trustee requiring immediate payment of the principal amount due. The entity refuses to seek a waiver from the bond trustee. Request for immediate payment is not considered likely. Under these circumstances, the auditor must 

A. Require classification of bonds payable as a current liability.
B. Contact the bond trustee directly.
C. Disclose the situation in the auditor's report.
D. Obtain an opinion from the company's attorney as to the likelihood of the trustee's enforcement of the requirement.


Answer: Disclose the situation in the auditor's report.

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

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

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


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

On February 25, a CPA issued an auditor's report expressing an unqualified opinion on financial statements for the year ended January 31. On March 2, the CPA learned that, on February 11, the entity incurred a material loss on an uncollectible trade receivable as a result of the ongoing deterioration of the financial condition of the entity's principal customer, which finally led to the customer's bankruptcy. Management then refused to adjust the financial statements for this subsequent event. The CPA determined that the information is reliable and that there are creditors currently relying on the financial statements. The CPA's next course of action most likely would be to

On February 25, a CPA issued an auditor's report expressing an unqualified opinion on financial statements for the year ended January 31. On March 2, the CPA learned that, on February 11, the entity incurred a material loss on an uncollectible trade receivable as a result of the ongoing deterioration of the financial condition of the entity's principal customer, which finally led to the customer's bankruptcy. Management then refused to adjust the financial statements for this subsequent event. The CPA determined that the information is reliable and that there are creditors currently relying on the financial statements. The CPA's next course of action most likely would be to 

A. Notify the entity's creditors that the financial statements and the related auditor's report should no longer be relied upon.
B. Notify each member of the entity's board of directors about management's refusal to adjust the financial statements.
C. Issue revised financial statements and distribute them to each creditor known to be relying on the financial statements.
D. Issue a revised auditor's report and distribute it to each creditor known to be relying on the financial statements.


Answer: Notify each member of the entity's board of directors about management's refusal to adjust the financial statements.

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

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

A. An uninsured natural disaster occurs that may affect the entity's ability to continue as a going concern.
B. A contingency is resolved that had been disclosed in the audited financial statements.
C. New information is discovered concerning undisclosed lease transactions in the audited period.
D. A subsidiary that accounts for 25 percent of the entity's consolidated net income is sold.


Answer: New information is discovered concerning undisclosed lease transactions in the audited period.

Communications between the auditor and those charged with governance should include all of the following except:

Communications between the auditor and those charged with governance should include all of the following except: 

A. A summary of specific audit procedures used.
B. Significant audit adjustments.
C. Consultations with other accountants.
D. Major issues discussed with management before the auditor was retained.


Answer: A summary of specific audit procedures used.