Final Review - Econ 116

Misstatements in the financial statements are most likely to occur when there is a/an

• failure to disclose major estimates made in the financial statements.
• omission of notes to the financial statements.
• omission of the auditor's report.
• failure to disclose major judgments made in the financial statements.

The first step for an auditor who concludes an illegal act exists is to

• bring the matter to the attention of the audit committee.
• assess the impact of the illegal act on the financial statements.
• assess the impact of the illegal act on the auditor's opinion.
• bring the matter to the attention of the SEC.

Confidential client information can be disclosed outside the entity without violating the AICPA Code of Professional Conduct in each of the following situations except when

• it is reported to the SEC under Section 10A of the Securities Exchange Act.
• it is to comply with the Private Securities Litigation Reform Act.
• it is allowed for under the Dodd–Frank Financial Reform Act.
• it protects the auditor’s accounting for fraud and illegal acts.

The purpose of the fraud triangle is to identify

• the causes of when there is a lack of independence in performing an audit.
• the causes of illegal acts.
• the causes of and reasons for fraud when there may be intentional misstatements or omissions of amounts or disclosures in the financial statements.
• the causes of when the audit opinion should be qualified.

Which of the following is not one of the evaluations of the control environment of an organization?

• whether management's philosophy and operating style promote effective internal control over financial reporting
• whether the Board or audit committee understands and exercises oversight responsibility over financial reporting and internal control
• whether the company has an anonymous hotline
• whether sound integrity and ethical values, particularly of top management, are developed and understood

The auditors' responsibility to communicate findings with respect to fraud can best be summarized as

• communicating to the audit committee the existence of fraud but not the amount involved.
• communicating to the appropriate level of management both material and immaterial amounts of fraud that are detected.
• communicating to the SEC both material and immaterial amounts of fraud that are detected.
• communicating to the SEC the existence of fraud but not the amount involved.

Typically, when a going concern issue exists the auditor should

• withdraw from the engagement.
• issue a modified opinion and explain the reasons for the going concern issue.
• issue a disclaimer of opinion.
• issue an unmodified opinion with an emphasis-of-matter paragraph.

Which of the following is the most likely reason for an auditor to issue a modified opinion with a qualification?

• an ongoing concern issue
• misstatements that are material and pervasive
• misstatements that are material but not pervasive
• an inability to gather any sufficient relevant information to form the basis for the opinion

When would it be appropriate for an auditor to withdraw from an engagement?

• when the auditor concludes that management cannot be trusted
• when that auditor cannot observe the taking of inventory or is unable to confirm receivables
• in order to avoid issuing an adverse opinion
• when the auditor has overbooked too much work

Which of the following is not correct about materiality?

• Materiality should be predictable from audit to audit so the readers of financial statements know what constitutes materiality.
• An auditor's consideration of materiality is influenced by the auditor's perception of the needs of the readers of the financial statements.
• The concept of materiality recognizes that some matters are more important for fair presentation of financial statements.
• Materiality judgments are made in light of surrounding circumstances and necessarily involve quantitative and qualitative judgments.