Completion of Audit Set 1

Analytical procedures used in the overall review stage of the audit generally include

• Retesting controls that appeared to be ineffective during the assessment of control risk.

• Considering unusual or unexpected account balances that were not previously identified.

• Gathering evidence concerning account balances that have not changed from the prior year.

• Performing tests of transactions to corroborate management's financial statement assertions.

The responsibility for the identification and disclosure of related parties and transactions with such parties rests with the

• Auditor.

• Entity's management.

• Financial Reporting Standards Council (FRSC).

• Securities and Exchange Commission (SEC).

Which of the following events most likely indicates the existence of related parties?

• Making a loan without scheduled terms for repayment of the funds.

• Discussing merger terms with a company that is major competitor.

• Selling real estate at a price that differs significantly from its book value.

• Borrowing a large sum of money at a variable rate of interest.

Which of the following statements best describes the "date of the financial statements?"

• The date on which those with the recognized authority assert that they have prepared the entity’s complete set of financial statements, including the related notes, and that they have taken responsibility for them.

• The date that the auditor's report and audited financial statements are made available to third parties.

• The date of the end of the latest period covered by the financial statements.

• The date on which the auditor has obtained sufficient appropriate audit evidence on which to base the opinion on the financial statements

Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?

• Inquiring as to whether any unusual adjustments were made after the date of the financial statements.

• Confirming a sample of material accounts receivable established after the date of the financial statements.

• Comparing the financial statements being reported on with those of the prior period.

• Investigating personnel changes in the accounting department occurring after the date of the financial statements.

An auditor is concerned with completing various phases of the audit after the balance sheet date. This subsequent period extends to the date of the

• Delivery of the auditor's report to the client.

• Auditor's report.

• Final review of the audit working papers.

• Public issuance of the financial statements.

PSA 570 (Going Concern) states that a fundamental principle in the preparation of financial statements is the going concern assumption. Under this assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws and regulations. The responsibility to make an assessment of an entity's ability to continue as a going concern rests with the

• A. Auditor

• B. Entity's management.

• C. Securities and Exchange Commission (SEC).

• D. Entity's creditors.

Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?

• A. Cash flows from operating activities are negative.

• B. Stock dividends replace annual cash dividends.

• C. Significant related party transactions are pervasive.

• D. Research and development projects are postponed.

Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?

• A. Restrictions on the disposal of principal assets are present.

• B. Usual trade credit from suppliers is denied.

• C. Significant related party transactions are pervasive.

• D. Arrearages in principal stock dividends are paid.

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

• A. Postpone expenditures for research and development projects.

• B. Purchase production facilities currently being leased from a related party.

• C. Strengthen internal controls over cash disbursements,

• D. Discuss with lenders the terms of all debt and loan agreements.