10 May WHICH OF THE FOLLOWING STATEMENTS IS CORRECTREGARDING THE ASSESSMENT OF GOING CONCERN?
Question 1(1 point) CAS 230 Audit Documentation considers factors affecting the form content and extent of working papers. Which of the following statements is true as it relates to audit working papers? Question 1 options: The audit file should be prepared in such a way that an individual who is not familiar with auditing should be able to review the audit file and understand how the audit has been conducted and whether the evidence collected supports the audit opinion. The audit file should be prepared in such a way that an individual who is familiar with auditing but not familiar with the industry of the client should be able to review the audit file and understand how the audit has been conducted and whether the evidence collected supports the audit opinion. The audit file should be prepared in such a way that an individual who is familiar with auditing and the industry of the client but not the client itself should be able to review the audit file and understand how the audit has been conducted and whether the evidence collected supports the audit opinion. The audit file should be prepared in such a way that an individual who is not familiar with auditing or with the client should be able to review the audit file and understand how the audit has been conducted and whether the evidence collected supports the audit opinion. Question 2(1 point) Going concern is a fundamental principle in the preparation of financial statements. Which of the following statements is correctregarding the assessment of going concern? Question 2 options: The period of management’s assessment of going concern should cover a minimum of 12 months up to and including the date of the financial statements; if management is unwilling to meet this minimum period a qualified opinion or adverse opinion may be appropriate. The period of management’s assessment of going concern should cover a minimum of 12 months from the date of the financial statements; if management is unwilling to meet this minimum period a qualified opinion or disclaimer of opinion may be appropriate. The period of the auditor’s assessment of going concern should consider the same period used by management and extend it six months further. The period of the auditor’s assessment of going concern should be a minimum of 24 months from the date of the financial statements. Question 3(1 point) Anil an auditor for Dragonfly Ltd. is conducting a subsequent events review to ensure that any events that occur after the balance sheet date (December 31 20X5) which may require adjustment or disclosure in the financial statements have been identified. Which of the following will Anil say is correct regarding the subsequent event identified? Question 3 options: A major accounts receivable customer is in liquidation due to a destructive fire that occurred on January 10 20X6 (prior to the audit report being issued): an adjustment should be made to the financial statements. A major accounts receivable customer is in liquidation due to a destructive fire that occurred on January 10 20X6 (prior to the audit report being issued): there is no need for an adjustment or notes disclosure. Dragonfly finalized a large insurance claim on December 27 20X5 with the payout occurring on January 10 20X6 (prior to the audit report being issued): an adjustment should be made to the financial statements. Dragonfly finalized a large insurance claim on December 27 20X5 with the payout occurring on January 10 20X6 (prior to the audit report being issued): there should be a notes disclosure only. Question 4(1 point) Toward the end of an audit the auditor obtains a representation letter from management. Which of the following is correct as it relates to written representations under Canadian Auditing Standards? Question 4 options: The representation letter should be dated as near as possible to the date of the audit report but is obtained before the audit report is signed. The representation letter should be dated after the date of the audit report but is obtained before the audit report is signed. The representation letter should be provided on the audit firm’s letterhead and signed by the client’s management team. If management refuses to provide a representation letter that the auditor considers necessary the auditor should either qualify or include a disclaimer of opinion in the auditor’s report. Question 5(1 point) North Ridge Inc. is a publicly listed entity that has engaged Edwards and Little LLP (E&L) a nationally recognized accounting firm to do its audit again this year. In the past two to three years North Ridge has been involved in product development and major capital expenditures. A new audit team from E&L will be conducting the audit. Which of the following would the audit team find most useful during the planning for the upcoming audit? Question 5 options: Review the audit planning memorandum from the prior year audit. Review the summary review memorandum from the prior year audit. Review the financial disclosure checklist from the prior year audit. Review the issues to carry forward from the prior year audit. Question 6(1 point) In any audit engagement the audit process must be controlled to ensure both that quality service is provided to the client and that professional standards are complied with. Which of the following is correct as it relates to controlling the engagement in an audit firm? Question 6 options: Quality control procedures respond to specific engagement risks such as an inappropriate audit opinion. Only the engagement partner is responsible for implementing quality control procedures as he or she sets an example for the entire team. Normally the audit partner will directly review the work of the audit manager the audit senior and the junior members on the team. Normally the audit senior has the overall responsibility for controlling the engagement. Question 7(1 point) Amit auditor for Smith & Gill LLP is unsure where in the auditor’s report the reference to “internal controls to ensure the preparation of financial statements are free from material misstatement whether due to fraud or error” should appear. Where should this reference appear according to the elements in an audit report specified in CAS 700 Forming an Opinion and Reporting on Financial Statements? Question 7 options: Introductory paragraph Responsibilities of management paragraph Responsibilities of the auditor paragraph Auditor’s opinion paragraph Question 8(1 point) Which of the following would be correct with regard to management’s failure to disclose related party transactions? Question 8 options: Nature of matter Opinion Scope limitation Qualified or disclaimer (depending on materiality and pervasiveness) Scope limitation Qualified or adverse (depending on materiality and pervasiveness) GAAP departure Qualified or adverse (depending on materiality and pervasiveness) GAAP departure Qualified or disclaimer (depending on materiality and pervasiveness) Question 9(1 point) Jeff auditor for Ernest and Lyle LLP (E&L) has performed the testing on the going-concern assumption for the audit client Mooney Brothers and Co. and he concludes that there is likely a material uncertainty. Which of the following will Jeff most likely do? Question 9 options: If adequate disclosure is not made Jeff should express a qualified opinion or a disclaimer of opinion. If adequate disclosure is not made Jeff should express a qualified opinion or an adverse opinion. If disclosure is made Jeff should express an unmodified opinion and include an emphasis of matter paragraph just before the opinion paragraph. If disclosure is made Jeff should express a modified opinion and include an emphasis of matter paragraph just before the opinion paragraph. Question 10(1 point) A group audit is often needed when the client is a parent company holding one or more subsidiaries. Which of the following istrue about group audits involving the audit of consolidated financial statements? Question 10 options: In most cases the group auditor will issue one audit opinion and will perform two audits consisting of the parent company’s individual financial statements and the consolidated financial statements. In most cases the group auditor will issue two audit opinions and will perform two audits consisting of the parent company’s individual financial statements and the consolidated financial statements. In most cases the component auditor will issue two audit opinions and will perform two audits consisting of the subsidiary’s individual financial statements and the consolidated financial statements. In most cases the component auditor will issue two audit opinions and will perform two audits consisting of the parent company’s individual financial statements and the consolidated financial statements.
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