AUD

AUD practice questions, page 18 of 41, with answer review and explanations.

Question 86

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?

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

Question 87

Which of the following procedures would an auditor most likely perform in obtaining evidence about subsequent events?

  1. Determine that changes in employee pay rates after year-end were properly authorized.
  2. Recompute depreciation charges for plant assets sold after year-end.
  3. Inquire about payroll checks that were recorded before year-end but cashed after year-end.
  4. Investigate changes in long-term debt occurring after year-end.

Question 88

An auditor is considering whether the omission of a substantive procedure considered necessary at the time of an audit may impair the auditor's present ability to support the previously expressed opinion. The auditor need not apply the omitted procedure if the:

  1. Financial statements and auditor's report were not distributed beyond management and the board of directors.
  2. Auditor's previously expressed opinion was qualified because of a departure from GAAP.
  3. Results of other procedures that were applied tend to compensate for the procedure omitted.
  4. Omission is due to unreasonable delays by client personnel in providing data on a timely basis.

Question 89

Subsequent to the issuance of an auditor's report, the auditor became aware of facts existing at the report date that would have affected the report had the auditor then been aware of such facts. After determining that the information is reliable, the auditor should next:

  1. Determine whether there are persons relying or likely to rely on the financial statements who would attach importance to the information.
  2. Request that management disclose the newly discovered information by issuing revised financial statements.
  3. Issue revised pro forma financial statements taking into consideration the newly discovered information.
  4. Give public notice that the auditor is no longer associated with financial statements.

Question 90

On March 15, X4, Kent, CPA, issued an unqualified opinion on a client's audited financial statements for the year ended December 31, X3. On May 4, X4, Kent's internal inspection program disclosed that engagement personnel failed to observe the client's physical inventory. Omission of this procedure impairs Kent's present ability to support the unqualified opinion. If the stockholders are currently relying on the opinion, Kent should first:

  1. Advise management to disclose to the stockholders that Kent's unqualified opinion should not be relied on.
  2. Undertake to apply alternative procedures that would provide a satisfactory basis for the unqualified opinion.
  3. Reissue the auditor's report and add an explanatory paragraph describing the departure from generally accepted auditing standards.
  4. Compensate for the omitted procedure by performing tests of controls to reduce audit risk to a sufficiently low level.