If an attorney refuses to provide the auditor with information that is within the attorney's jurisdiction

and may directly affect the fair presentation of financial statements about material existing lawsuits
(asserted claims) or unasserted claims, the audit report would have to be

an adverse opinion.
an unqualified opinion with an explanatory paragraph.
a qualified opinion.
modified to reflect the lack of available evidence.

Which of the following scenarios regarding a lawsuit filed against a client by a third party would qualify
as a "contingent liability"?

A lawsuit has been filed and concluded with client winning.

A lawsuit has been filed but not yet resolved.
A lawsuit has been filed and concluded with third party winning an award of $100,000, which
client pays after the balance sheet date but before the statements are issued.
A lawsuit has been filed and concluded with third party winning an award of $100,000, but client
hasn't paid yet.

If the amount of a probable loss on a contingent liability cannot be reasonably estimated, the liability
should be

disclosed in the auditor's report but not disclosed on the financial statements.
neither accrued nor disclosed in footnotes.
accrued and indicated in the body of the financial statements.
disclosed in footnotes, but not accrued.
Which of the following statements is true?

It is equally difficult to verify recorded information and to discover unrecorded

transactions or events.
It is more difficult to discover unrecorded transactions or events than to verify recorded
information.
It is more difficult to verify recorded information than to discover unrecorded transactions or
events.
None of the above is true.

If the amount of a probable loss on a contingent liability is only reasonably possible, the liability should
be

accrued and indicated in the body of the financial statements.

disclosed in the auditor's report but not disclosed on the financial statements.
neither accrued nor disclosed in footnotes.
disclosed in footnotes, but not accrued.

If the auditor becomes aware after the audited financial statements have been released that some
information included in the statements is materially misleading, he or she has
 an obligation to inform the board of directors of the misleading statements.
an obligation to make certain that all users who are relying on the financial statements are
informed
no obligation to disclose it, assuming he or she acted in good faith and without negligence in
arriving at the audit opinion.

An auditor generally obtains from a client a formal written statement concerning the accuracy of
inventory. This particular letter of representation is used by the auditor to

confirm in writing the valuation basis used by the client to value the inventory at the
lower-of-cost-or-market.
reduce the scope of his or her physical inventory work but not the other inventory audit work
that is normally performed.
remind management that the primary responsibility for the overall fairness of the financial
statements rests with them and not with the auditor.
lessen the auditor's responsibility for the fair presentation of balance sheet inventories.

The auditor's formal review of subsequent events normally should be extended through the date of the

next formal interim financial statements.

mailing of the financial statements to the stockholders.
delivery of the audit report to the client.
auditor's report.
The primary objective of analytical procedures used in the final review stage of an audit is to

assist the auditor in assessing the validity of the conclusions reached.

satisfy doubts when questions arise about a client's ability to continue in existence.
obtain evidence from details tested to corroborate particular assertions.
identify areas that represent specific risks relevant to the audit.

Which of the following audit procedures would be least effective for detecting contingent liabilities?

confirming pending legal matters with the corporate attorney

examining confirmation replies from customers
abstracting the minutes of the meetings of the board of directors
reviewing the bank confirmation letter

If an attorney refuses to provide the auditor with information that is within the attorney's
jurisdiction and may directly affect the fair presentation of financial statements about material existing
lawsuits (asserted claims) or unasserted claims, the audit report would have to be

Your Answer: an adverse opinion.

Correct Answer: modified to reflect the lack of available evidence.

2. Which of the following scenarios regarding a lawsuit filed against a client by a third party
would qualify as a "contingent liability"?

Your Answer: A lawsuit has been filed and concluded with third party winning an award of $100,000,
which client pays after the balance sheet date but before the statements are issued.

Correct Answer: A lawsuit has been filed but not yet resolved.
3. If the amount of a probable loss on a contingent liability cannot be reasonably
estimated, the liability should be

Your Answer: disclosed in the auditor's report but not disclosed on the financial statements.

Correct Answer: disclosed in footnotes, but not accrued.

4. Which of the following statements is true?

Your Answer: It is more difficult to discover unrecorded transactions or events than to verify recorded
information.

5. If the amount of a probable loss on a contingent liability is only reasonably possible, the
liability should be

Your Answer: disclosed in the auditor's report but not disclosed on the financial statements.

Correct Answer: disclosed in footnotes, but not accrued.

6. If the auditor becomes aware after the audited financial statements have been released
that some information included in the statements is materially misleading, he or she has

Your Answer: an obligation to make certain that all users who are relying on the financial statements
are informed

7. An auditor generally obtains from a client a formal written statement concerning the
accuracy of inventory. This particular letter of representation is used by the auditor to

Your Answer: confirm in writing the valuation basis used by the client to value the inventory at the
lower-of-cost-or-market.
Correct Answer: remind management that the primary responsibility for the overall fairness of
the financial statements rests with them and not with the auditor.

8. The auditor's formal review of subsequent events normally should be extended through
the date of the

Your Answer: auditor's report.

9. The primary objective of analytical procedures used in the final review stage of an audit
is to

Your Answer: obtain evidence from details tested to corroborate particular assertions.

Correct Answer: assist the auditor in assessing the validity of the conclusions reached.

10. Which of the following audit procedures would be least effective for detecting
contingent liabilities?

Your Answer: examining confirmation replies from customers

A client acquired 25% of its outstanding capital stock after year-end and prior to completion of the
auditor's fieldwork. The auditor should

issue pro forma financial statements giving effect to the acquisition as if it had occurred
at year-end.
disclose the acquisition in the opinion paragraph of the auditor's report.
advise management to disclose the acquisition in the notes to the financial statements.
advise management to adjust the balance sheet to reflect the acquisition.

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

reconciling the cash balance per books with the cutoff bank statement and the bank
confirmation
confirming with third parties the details of arrangements to maintain financial support
inspecting title documents to verify whether any assets are pledged as collateral
comparing the entity's depreciation and asset capitalization policies to those of other entities in
the industry

An auditor should obtain written representations from management concerning litigation claims and
assertions. Their representations may be limited to matters considered either individually or collectively
material, provided an understanding on the limits of materiality for this purpose has been reached by

management and the auditor.

the auditor independently of management.
management, the client's lawyer, and the auditor.
the auditor and the client.
When auditing contingent liabilities, which of the following procedures would be least effective?

reviewing the bank confirmation letter

reading the minutes of the board of directors
examining customer confirmation replies
examining invoices for professional services

When obtaining evidence regarding litigation against a client, the auditor would be least interested in
determining

the probability of an unfavourable outcome.

an estimate of when the matter will be resolved.
the period in which the underlying cause of the litigation occurred.
an estimate of the potential loss.

An auditor is most likely to identify a contingent liability by mailing a (n)

accounts payable confirmation.

transfer agent confirmation.
related party transaction confirmation.
 standard bank confirmation.

Which of the following subsequent events will be least likely to result in an adjustment to the financial
statements?

culmination of events affecting the realization of accounts receivable owned as of the

balance sheet date
culmination of events affecting the realization of inventories owned as of the balance sheet date
material changes in the quoted market prices of listed investment securities since the balance
sheet date
material changes in the settlement of liabilities which were estimated as of the balance sheet
date

Which of the following is not an audit procedure that the independent auditor would perform with
respect to claims and possible claims?

Obtain assurance from management that it has disclosed all possible claims that the
lawyer has advised are probable of assertion and must be disclosed.
Confirm directly with the client's lawyer that all claims have been recorded in the financial
statements.
Obtain from management a description and evaluation of claims and possible claims that
existed at the balance sheet date.
Inquire of and discuss with management the policies and procedures adopted for identifying,
evaluating, and accounting for claims and possible claims.
Subsequent events for reporting purposes are defined as events that occur subsequent to the

balance sheet date.

balance sheet date but prior to the date of the auditor's report.
date of the auditor's report and concern contingencies that are not reflected in the financial
statements.
date of the auditor's report.

Which of the following material events occurring subsequent to the balance sheet date would require
an adjustment to the financial statements before they could be issued?

settlement of litigation in excess of the recorded liability

loss of a plant as a result of a flood
sale of long-term debt or share capital
major purchase of a business that is expected to double the sales volume
A client acquired 25% of its outstanding capital stock after year-end and prior to completion of the
auditor's fieldwork. The auditor should

Your Answer: disclose the acquisition in the opinion paragraph of the auditor's report.

Correct Answer: advise management to disclose the acquisition in the notes to the financial
statements.

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

Your Answer: confirming with third parties the details of arrangements to maintain financial support

3. An auditor should obtain written representations from management concerning

litigation claims and assertions. Their representations may be limited to matters considered either
individually or collectively material, provided an understanding on the limits of materiality for this
purpose has been reached by

Your Answer: management, the client's lawyer, and the auditor.

Correct Answer: the auditor independently of management.

4. When auditing contingent liabilities, which of the following procedures would be least
effective?

Your Answer: reading the minutes of the board of directors

Correct Answer: examining customer confirmation replies

5. When obtaining evidence regarding litigation against a client, the auditor would be least
interested in determining

Your Answer: an estimate of when the matter will be resolved.

6. An auditor is most likely to identify a contingent liability by mailing a (n)

Your Answer: transfer agent confirmation.

Correct Answer: standard bank confirmation.

7. Which of the following subsequent events will be least likely to result in an adjustment
to the financial statements?

Your Answer: culmination of events affecting the realization of inventories owned as of the balance
sheet date

Correct Answer: material changes in the quoted market prices of listed investment securities
since the balance sheet date

8. Which of the following is not an audit procedure that the independent auditor would
perform with respect to claims and possible claims?

Your Answer: Obtain assurance from management that it has disclosed all possible claims that the
lawyer has advised are probable of assertion and must be disclosed.

Correct Answer: Confirm directly with the client's lawyer that all claims have been recorded in
the financial statements.

9. Subsequent events for reporting purposes are defined as events that occur subsequent
to the

Your Answer: date of the auditor's report and concern contingencies that are not reflected in the
financial statements.

Correct Answer: balance sheet date but prior to the date of the auditor's report.
10. Which of the following material events occurring subsequent to the balance sheet date
would require an adjustment to the financial statements before they could be issued?

Your Answer: sale of long-term debt or share capital

Correct Answer: settlement of litigation in excess of the recorded liability