Chapter 17 – Completing the Audit Engagement
1. Every contingent liability must be recorded.
2. An example of a contingent liability is an income tax dispute.
3. Reading contracts and loan agreements is one way to identify unrecorded contingent
liabilities.
Chapter 17 – Completing the Audit Engagement
4. A legal letter will include and evaluate all contingent liabilities of the company.
5. Type II subsequent events are conditions that require an adjustment to the account balance
shown on the financial statements.
6. An example of a Type I event or condition is the settlement of a lawsuit after the balance
sheet date for an amount different from the amount recorded in the year-end financial
statements.
Chapter 17 – Completing the Audit Engagement
7. An example of a Type II event or condition is an uncollectible account receivable resulting
from continued deterioration of a customer’s financial condition leading to bankruptcy after the
balance sheet date.
8. Dual dating is used to identify unrecorded contingent liabilities.
9. The auditor must perform final analytical procedures before deciding on the appropriate
audit report to issue for the entity.
Chapter 17 – Completing the Audit Engagement
10. If there is substantial doubt about the entity’s ability to continue as a going concern, the
auditor should obtain information about the management’s plans to mitigate the problem and
assess the likelihood that such plans can be implemented.
11. When auditing contingent liabilities, which of the following procedures would be least
effective?
Chapter 17 – Completing the Audit Engagement
12. When obtaining evidence regarding litigation against a client, the CPA would be least
interested in determining
13. The auditor’s primary means of obtaining corroboration of management’s information
concerning litigation is a
Chapter 17 – Completing the Audit Engagement
14. An auditor should obtain evidential matter relevant to all the following factors concerning
third-party litigation against a client except the:
15. An auditor will ordinarily examine invoices from lawyers primarily in order to
Chapter 17 – Completing the Audit Engagement
16. If a lawyer refuses to furnish corroborating information regarding litigation, claims, and
assessments, the auditor should
17. The refusal of a client‘s attorney to provide a representation on the legality of a particular act
committed by the client is generally
Chapter 17 – Completing the Audit Engagement
18. Which of the following material events occurring subsequent to the balance sheet date
would require an adjustment to the financial statements before they could be issued?
19. Which of the following situations would require adjustment to or disclosure in the financial
Chapter 17 – Completing the Audit Engagement
20. An example of a Type I subsequent event is
21. An auditor issued an audit report that was dual dated for a subsequent event that occurred
after the completion of field work but before issuance of the auditor’s report. The auditor’s
responsibility for events occurring subsequent to the completion of field work was
Chapter 17 – Completing the Audit Engagement
22. Which of the following procedures should an auditor generally perform regarding
subsequent events?
23. The purpose of analytical procedures at the completion of the audit includes all of the
following except:
Chapter 17 – Completing the Audit Engagement
24. Which of the following auditing procedures is ordinarily performed last?
25. The date of the management representation letter should coincide with the
Chapter 17 – Completing the Audit Engagement
26. Which of the following items should an auditor communicate to those charged with
governance in a publicly traded company?
27. The management letter is used
Chapter 17 – Completing the Audit Engagement
28. Ajax, Inc., is an affiliate of the audit client and is audited by another audit firm. Which of
the following is most likely to be used by the auditor to obtain assurance that all guarantees by
the client of the affiliate’s indebtedness have been detected?
29. Generally, loss contingencies that are judged to be remote
Chapter 17 – Completing the Audit Engagement
30. Which of the following procedures would an auditor most likely perform to obtain evidence
about an entity’s subsequent events?
31. Which of the following procedures would an auditor ordinarily perform during the review
of subsequent events?
Chapter 17 – Completing the Audit Engagement
32. Which of the following is not an audit procedure that the independent auditor would
perform with respect to litigation, claims, and assessments?
33. An attorney is responding to an independent auditor as a result of the audit client’s letter of
inquiry. The attorney may appropriately limit the response to
Chapter 17 – Completing the Audit Engagement
34. Which of the following is generally requested in a legal letter?
35. Which of the following subsequent events will be least likely to result in an adjustment to
the financial statements?
Chapter 17 – Completing the Audit Engagement
36. Subsequent events for which the auditor has a responsibility to actively search are defined
as events that occur subsequent to the
37. An auditor is concerned with completing various phases of the examination after the
balance sheet date. This “subsequent period” involving formal audit procedures extends to the
date of the
Chapter 17 – Completing the Audit Engagement
38. A major customer of an audit client suffers a fire after year-end, but just prior to completion
of audit field work. The audit client believes that this event could have a significant direct effect
on the financial statements. The auditor should
39. If an auditor dates the auditor’s report on financial statements for the year ended December
31, 2011, as of February 10, 2012, except for Note J, as to which the date is March 3, 2012, the
auditor is acknowledging responsibility to actively search for and ensure proper handling by
management of
Chapter 17 – Completing the Audit Engagement
40. Harvey, CPA is preparing an audit program for the purpose of ascertaining the occurrence
of subsequent events that may require adjustment or disclosure essential to a fair presentation of
the financial statements in conformity with generally accepted accounting principles. Which
one of the following procedures would be least appropriate for this purpose?
41. A Type II subsequent event usually requires
Chapter 17 – Completing the Audit Engagement
42. After field work audit procedures are completed, a partner of the CPA firm who has not
been involved in the audit performs a second or wrap-up review of the working papers. This
second review usually focuses on
43. In the course of the examination of financial statements for the purpose of expressing an
opinion, the auditor normally prepares a schedule of unadjusted differences for which the
auditor did not propose adjustments when they were discovered. What is the primary purpose of
this schedule?