AC 432Multiple Choice Questions

Chapter 17

17-13 An auditor would be most likely to identify a contingent liability by obtaining a(n)a. Accounts payable confirmation.b. Transfer agent confirmation.c. Standard bank confirmation.d. Related-party transaction confirmation.

17-14 An auditor should request that an audit client send a letter of inquiry to those attorneys who have been consulted concerning litigation, claims, or assessments. The primary reason for this request is to providea. The opinion of a specialist as to whether loss contingencies are possible, probable, or

remote.b. A description of litigation, claims, and assessments that have a reasonable possibility

of unfavorable outcome.c. An objective appraisal of management’s policies and procedures adopted for

identifying and evaluating legal matters.d. Corroboration of the information furnished by management concerning litigation,

claims, and assessments.

17-15 An auditor issued an audit report that was dual dated for a subsequent event occurring after the completion of field work but before issuance of the auditor's report. The auditor's responsibility for events occurring subsequent to the completion of field work wasa. Extended to subsequent events occurring through the date of issuance of the report.b. Extended to include all events occurring since the completion of field work. c. Limited to the specific event referenced. d. Limited to events occurring up to the date of the last subsequent event referenced.

17-16 Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?a. Recompute a sample of large-dollar transactions occurring after year-end for arithmetic

accuracy.b. Investigate changes in stockholders' equity occurring after year-end. c. Inquire of the entity's legal counsel concerning litigation, claims, and assessments

arising after year-end.d. Confirm bank accounts established after year-end.

17-17 Analytical procedures used in the overall review stage of an audit generally includea. Considering unusual or unexpected amount balances that were not previously

identified.b. Testing transactions to corroborate management's financial statement assertions.c. Gathering evidence concerning account balances that have not changed from the

prior year.d. Retesting control procedures that appeared to be ineffective during the assessment of

control risk.

Chapter 17 Multiple-Choice Questions Page 2

17-18 Auditing standards (AU 380) encourages which of the following conversations about financial reportinga. A conversation with only the audit committee to discuss matters pertaining to financial

reporting.b. A conversation with only management to discuss matters pertaining to financial

reporting.c. A conversation with both management and the audit committee to discuss matters

pertaining to financial reporting.d. A conversation with the audit committee in which the committee reports on

management's views on matters pertaining to financial reporting.

17-19 Which of the following audit procedures is most likely to 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. Review compliance with the terms of debt agreements.b. Confirm accounts receivable from principal customers.c. Reconcile interest expense with outstanding debt.d. Confirm bank balances.

17-20 Which of the following matters is an auditor required to communicate to an entity's audit committee?

Significant Audit Adjustments Changes in Significant Accounting Policiesa. Yes Yesb. Yes No c, No Yesd. No No

7-21 Which of the following events occurring after the issuance of an auditor's report would be most likely to cause the auditor to make further inquiries about the previously issued financial statements?a. A technological development that could affect the entity's future ability to continue as a

going concern.b. The discovery of information regarding a contingency that existed before-the financial

statements were issued.c. The entity's sale of a subsidiary that accounts for 30 percent of the entity's consolidated

sales.d. The final resolution of a lawsuit explained in a separate paragraph of the auditor's

report.