Chapter 17 – Completing the Audit Engagement
66. For which of the following matters should an auditor obtain written management
representations?
67. Key Co. plans to present comparative financial statements for the years ended December 31,
2010 and 2011, respectively. Smith, CPA, audited Key’s financial statements for both years and
plans to report on the comparative financial statements on May 1, 2012. Key’s current
management team was not present until January 1, 2011. What period of time should be
covered by Key’s management representation letter?
Chapter 17 – Completing the Audit Engagement
68. 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
69. 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
Chapter 17 – Completing the Audit Engagement
70. 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
71. Who generally signs the legal letter?
Chapter 17 – Completing the Audit Engagement
72. Your audit client, Pretty People Incorporated, is the defendant in a pending discrimination
lawsuit. What information about the lawsuit would you, as an auditor, need to know to decide
whether to disclose the litigation in the financial statements?
Chapter 17 – Completing the Audit Engagement
73. Define the term “contingent liability” and discuss the criteria used to classify these events or
conditions. Provide some examples of contingent liabilities.
Chapter 17 – Completing the Audit Engagement
74. From the list below, select the procedures that an auditor would use to test for contingent
liabilities.
75. While auditing other business processes, an auditor may identify information about
contingent liabilities. What specific audit procedures relating to other business processes could
uncover these liabilities?
Chapter 17 – Completing the Audit Engagement
76. What information is typically requested in a legal letter to a client’s attorney?
77. What is an unasserted claim and why would an attorney and/or client be reluctant to
disclose an unasserted claim in the financial statements?
Chapter 17 – Completing the Audit Engagement
78. What is the difference between a contingent liability and a commitment?
79. Identify the two primary types of subsequent events that require consideration by
management and evaluation by the auditor and give two examples of each type.
Chapter 17 – Completing the Audit Engagement
80. Discuss the steps used by an auditor to evaluate an entity’s ability to continue as a going
concern.
Chapter 17 – Completing the Audit Engagement
81. Discuss the internal control communication requirements of the PCAOB. What must
auditors of public companies report to those charged with governance?
82. State the two primary purposes of the client letter of representation.
Chapter 17 – Completing the Audit Engagement
83. The field work for the December 31, 2011 audit of Pumpkin Corporation ended on March
13, 2012. The financial statements and auditor’s report were issued and mailed to stockholders
on March 23, 2012. In each of the situations below, select from the list at the end of the problem
the appropriate action to be taken by the auditor. Assume all situations are material.
Possible Actions: