12.

The statement that best expresses the auditor's responsibility with respect to
events occurring between the balance sheet date and the end of the audit is that:

A. The auditor has no responsibility for events occurring in the subsequent period
unless these events affect transactions recorded on or before the balance sheet
date.

B. The auditor's responsibility is to determine that a proper cutoff has been made
and that transactions recorded on or before the balance sheet date actually
occurred.

C. The auditor is fully responsible for events occurring in the subsequent period
and should extend all detailed procedures through the last day of field work.

D. The auditor is responsible for determining that a proper cutoff has been made
and performing a general review of events occurring in the subsequent period.
D. The auditor is responsible for determining that a proper cutoff has been made
and performing a general review of events occurring in the subsequent period.
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Terms in this set (56)
11. Analytical procedures are required as a part of the:

A. Detailed tests of balances.

B. Internal control assessment.

C. Procedures performed near the end of the audit.

D. Substantive testing.
C. Procedures performed near the end of the audit.

12. The statement that best expresses the auditor's responsibility with respect to
events occurring between the balance sheet date and the end of the audit is that:

A. The auditor has no responsibility for events occurring in the subsequent period
unless these events affect transactions recorded on or before the balance sheet
date.

B. The auditor's responsibility is to determine that a proper cutoff has been made
and that transactions recorded on or before the balance sheet date actually
occurred.

C. The auditor is fully responsible for events occurring in the subsequent period
and should extend all detailed procedures through the last day of field work.

D. The auditor is responsible for determining that a proper cutoff has been made
and performing a general review of events occurring in the subsequent period.
D. The auditor is responsible for determining that a proper cutoff has been made
and performing a general review of events occurring in the subsequent period.

13. Shortly after year-end, Zero Corporation was informed of the bankruptcy of
Bingo. Zero Corporation showed a receivable of $10,000 due from Bingo as of year-
end—none of which seems recoverable. The receivable had been questionable for some
time as Bingo had been experiencing financial difficulties for the past several
years. Yet, Bingo's bankruptcy did not occur until after Zero Corporation's year-
end. Under these circumstances:
The financial statements should be adjusted The event requires financial statement
disclosure, but no adjustment The auditor's report should be modified for a lack of
consistency
A. Yes No No
B. Yes No Yes
C. No Yes Yes
D. No Yes No

A. Option A

B. Option B

C. Option C

D. Option D
A. Option A

14. In auditing the balance sheet, most revenue and expense accounts are also
audited. Which accounts are most likely to be audited when auditing Accounts
Receivable?

A. Sales and Cost of Goods Sold.

B. Interest and Bad Debt Expense.

C. Sales and Bad Debt Expense.

D. Interest and Cost of Goods Sold.

C. Sales and Bad Debt Expense.

15. Auditors should perform audit procedures relating to subsequent events?

A. Through year-end.

B. Through issuance of the audit report.

C. Through the date of the audit report.

D. For a reasonable period after year-end.

C. Through the date of the audit report.

16. Which of the following procedures would an auditor most likely perform while
evaluating audit findings at the conclusion of an audit?

A. Obtain assurance from the entity's attorney that all material litigation has
been disclosed in the financial statements.

B. Verify the clerical accuracy of the entity's proof of cash and its bank cutoff
statement.

C. Determine whether reportable conditions have been corrected.

D. Develop an estimate of the total likely misstatement in the financial
statements.
D. Develop an estimate of the total likely misstatement in the financial
statements.

17. Which of the following ledger accounts would be least likely to be analyzed in
detail by auditors?

A. Miscellaneous revenue.

B. Professional fees.

C. Travel expense.

D. Repairs and maintenance.

C. Travel expense.

18. When auditing the statement of cash flows of a profitable, growing company
which combination is most likely?

Cash flows from operations Cash flows from investing

A. Positive Positive
B. Positive Negative
C. Negative Positive
D. Negative Negative

A. Option A

B. Option B

C. Option C

D. Option D
B. Option B

19. The audit of which of the following balance sheet accounts does not normally
result in verification of an income statement account?

A. Cash.

B. Accounts receivable.

C. Property, plant, and equipment.

D. Intangible assets.
A. Cash.

20. An example of an internal control weakness is to assign the payroll department

the responsibility for:

A. Preparing the payroll expense distribution.

B. Preparing the payroll checks.

C. Authorizing increases in pay.

D. Preparing journal entries for payroll expense.

C. Authorizing increases in pay.

21. An example of an internal control weakness is to assign the personnel

department responsibility for:

A. Distribution of paychecks.

B. Hiring personnel.

C. Authorizing deductions from pay.

D. Interviewing employees for jobs.

A. Distribution of paychecks.

22. Which of the following audit procedures is aimed at determining whether every
name on the company payroll is an employee actually on the job?

A. A surprise observation of a paycheck distribution.

B. A test of payroll extensions.

C. Analytical comparisons of budgeted to actual payroll expense.

D. Comparison of payee names on canceled payroll checks with the payroll register.
A. A surprise observation of a paycheck distribution.

23. Which of the following is not a procedure that is designed to provide evidence
about the existence of loss contingencies?

A. Obtaining a lawyers' letter.

B. Confirming accounts payable.

C. Reviewing the minutes of board of directors' meetings.

D. Review correspondence with banks.

B. Confirming accounts payable.

24. Which of the following types of matters do not generally require disclosure in
the financial statements?

A. General risk contingencies.

B. Commitments.

C. Loss contingencies.

D. Liabilities to related parties.

A. General risk contingencies.
25. Material loss contingencies should be recorded in the financial statements if
available information indicates it is probable that a loss had been sustained prior
to the balance sheet date and the amount of such loss can be reasonably estimated.
These considerations will affect the audit report as follows:

A. If a loss has been recorded in accordance with these criteria, the auditor may
issue an unqualified opinion but is required to point out the contingency in an
explanatory paragraph of the report.

B. If a loss meets these criteria but is disclosed in the financial statement notes
rather than being recorded therein, the auditor may issue an unqualified opinion,
but is required to point out the contingency in an explanatory paragraph of the
report.

C. If a loss meets these criteria but is disclosed in the financial statement notes
rather than being recorded therein, the auditor may issue an unqualified opinion,
but should consider adding an explanatory paragraph as a means of emphasizing the
disclosure.

D. If a loss is probable but the amount cannot be reasonably estimated and is

disclosed in the notes to the financial statements rather than being recorded
therein, the auditor may issue an unqualified opinion.
D. If a loss is probable but the amount cannot be reasonably estimated and is
disclosed in the notes to the financial statements rather than being recorded
therein, the auditor may issue an unqualified opinion.

26. A refusal by a lawyer to furnish information related to litigation included in

the letter of inquiry is likely to result in:

A. Confirmation of related lawsuits with the claimants.

B. Qualification of the audit report.

C. An assessment that loss of the litigation is probable.

D. An adverse opinion.
B. Qualification of the audit report.

27. If, after issuing an audit report, the auditors find that they have failed to
perform certain significant audit procedures they should first:

A. Attempt to determine whether their report is still being relied upon by third
parties.

B. Notify regulatory agencies.

C. Notify legal counsel.

D. Wait until the beginning of the next year's audit to determine whether
misstatements have occurred.
A. Attempt to determine whether their report is still being relied upon by third
parties.

28. Which of the following is not a procedure that auditors typically perform to
search for significant events during the period after year-end but prior to the
audit report date?
A. Review minutes of board of directors' meeting.

B. Review the latest available interim financial statements.

C. Inquire about any unusual adjustments made subsequent to the balance sheet date.

D. Review changes in internal control during the period subsequent to the balance
sheet date.
D. Review changes in internal control during the period subsequent to the balance
sheet date.

29. Which of the following subsequent events might require an adjustment to the
client's financial statements?

A. A business combination with another company.

B. Loss on the sale of a closely-held investment.

C. Loss of plant and equipment due to a fire.

D. Retirement of bonds payable at a loss.

B. Loss on the sale of a closely-held investment.

30. Authorization of which of the following is least likely to be found during a

review of the minutes of the board of directors?

A. Dividends.

B. New debt issuance.

C. New bank accounts.

D. Write-off of trade accounts receivable.

D. Write-off of trade accounts receivable.

31. Which of the following is not a procedure normally performed while completing
the audit of a public company?

A. Obtain a lawyer's letter.

B. Obtain a representations letter.

C. Perform an overall review using analytical procedures.

D. Confirm directly with shareholders the total capital stock held by each.
D. Confirm directly with shareholders the total capital stock held by each.