Completion of Audit 2

Analytical procedures performed in the overall review stage of an audit suggest that several accounts have unexpected relationships. The results of these procedures most likely indicate that

• A. The communication with the audit committee should be revised.

• B. Irregularities exist among the relevant account balances.

• C. Additional substantive tests of details are required

• D. Internal control activities are not operating effectively.

Which of the following would not necessarily be a related party transaction?

• A. A purchase from another corporation that is controlled by the corporation's chief shareholder.

• B.     A loan from the corporation to a major shareholder.

• C. Sale of land to the corporation by the spouse of director.

• D. A sale to another corporation with a similar name.

Which of the following statements concerning related party transactions is correct?

• A. In the absence of evidence to the contrary, related party transactions should be assumed to be outside the ordinary course of business.

• B. The audit procedures directed toward identifying related party transactions should include considering whether transactions are occurring but are not being given proper accounting recognition.

• C. An auditor should determine whether a particular transaction would have occurred if the parties had not been related.

• D. An auditor should substantiate that related party transactions were consummated on terms equivalent to those that prevail in arm’s length transactions to those that prevail in arm's-length transactions.

The auditor is required to perform procedures designed to obtain sufficient appropriate audit evidence to identify all events that may require adjustment of, or disclosure in, the financial statements up to the

• A. Date of the auditor's report.

• B. Date of approval of the financial statements.

• C. Date the financial statements are issued.

• D. Date of the financial statements.

Which of the following procedures should an auditor ordinarily perform regarding subsequent events?

• A. Review the cutoff bank statements for several months after the year-end.

• B. Compare the latest available interim financial statements with the financial statements being audited.

• C. Send second requests to the client's customers who failed to respond to initial accounts receivable confirmation requests.

• D. Communicate material weaknesses in internal control to the client's audit committee.

Which of the following statements best expresses the auditor's responsibility with respect to facts which become known to the auditor after the date of the auditor's report but before the date the financial statements are issued?

• A. The auditor should amend the financial statements.

• B. If the facts discovered will materially affect the financial statements, the auditor should issue a new report which contains either a qualified opinion or an adverse opinion.

• C. The auditor should consider whether the financial statements need amendment, discuss the matter with management, and consider taking actions appropriate in the circumstances.

• D. The auditor should withdraw from the engagement.

Which of the following statements best describes the auditor's responsibility concerning the appropriateness of the going concern assumption in the preparation of the' financial statements?

• A. The auditor's responsibility is to make a specific assessment of the entity's ability to continue as a going concern.

• B. The auditor's responsibility is to predict future events or conditions that may cause the entity to cease to continue as a going concern.

• C. The auditor's responsibility is to consider the appropriateness of management's use of the going concern assumption and consider whether there are material uncertainties about the entity's ability to continue as a going concern that need to be disclosed in the financial statements.

• D. The auditor's responsibility is to give a guarantee in the audit report that the entity has the ability to continue as a going concern.

Which of the following audit procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

• A. Confirming with third parties the details of arrangements to maintain financial support.

• B. Comparing the entity's depreciation and asset capitalization policies to other entities in the industry.

• C. Reconciling the cash balance per books with the cutoff bank statement and the bank confirmation.

• D. Inspecting title documents to verify whether any assets are pledged as collateral.

Which if the following audit procedures would most likely assist an auditor in identifying conditions and events that may indicate there could be substantial doubt about an entity’s ability to continue as going concern?

• A. Confirmation of bank balances.

• B. Confirmation of accounts receivable from major customers.

• C. Reconciliation of interest expense with debt outstand.

• D. Review of compliance with terms of debt agreements

Harry, CPA, believes there is substantial doubt about the ability of Tansamjer Corp. to continue as a going concern for a reasonable period of time. In evaluating Tansamjer's plans for dealing with the adverse effects of future conditions and events, Harry most likely would consider, as a mitigating factor, Tansamjer's plans to

• A. Purchase equipment and production facilities currently being leased.

• B. Accumulate treasury stock at prices favorable to Tansamjer's historic price range.

• C. Negotiate reductions in required dividends being paid on preferred stock.

• D. Accelerate research and development projects related to future products.