Last Updated on January 31, 2022 by Admin 3
- Review the cut-off bank statements for the period after the year-end.
- Inquire of the client’s legal counsel concerning litigation.
- Investigate significant deficiencies in internal control previously communicated to the client.
- Analyze related party transactions to discover possible irregularities.
Explanation:
Choice “B” is correct. An auditor would most likely obtain a letter from the entity’s legal counsel describing any pending litigation, unasserted claims, or loss contingencies, to obtain evidence that might impact the year-end financial statements.
Choice “A” is incorrect. Reviewing cut-off
bank statements for the period after year-end generally is performed to evaluate the year-end cash balance, not to identify subsequent events.
Choice “C” is incorrect. Investigating significant deficiencies in internal control previously communicated to the client would be a procedure performed as part of the planning process and would provide the auditor with information regarding the internal control structure, not subsequent events.
Choice “D” is incorrect. Analyzing related party
transactions to discover possible irregularities generally is performed to evaluate financial statement disclosure, not to identify subsequent events.
- AUD CPA : All Parts
Chapter 10
Multiple Choice Questions
Subsequent Events
1.Which of the following is not among the characteristics of the procedures
performed in completing the audit?
a.They are optional since they have only an indirect impact on the opinion to
be expressed.
b.They involve many subjective judgments by the auditor.
c.They are performed after the balance sheet date.
d.They are usually performed by the audit managers or other senior members of
the audit team who have extensive audit experience with the client.
2.An audit has the responsibility to actively search for subsequent events that
occur subsequent to the:
a.Balance sheet date.
b.Date of the auditor’s report.
c.Balance sheet date, but prior to the audit report.
d.Date of the management representation letter.
3.“Subsequent events” for reporting purposes are events which occur subsequent to
the
a.Financial statement date.
b.Date of the auditor’s report.
c.Financial statement date but prior to the date of the auditor’s report.
d.Date of the auditor’s report and concern contingencies which are not
reflected in the financial statements.
4.When completing the audit, the auditor performs procedures designed to identify
subsequent events that may require adjustment of, on disclosure in, the
financial statements. Accordingly
Those that provide evidence Those that are indicative of
about conditions that conditions that aroseexisted at
period endsubsequent to period end
a.Will require adjustment.Will require adjustment.
b.Will require adjustment.Will require disclosure.
c.Will require disclosure.Will require disclosure.
d.will require disclosureWill require adjustment.
5.The auditor has completed his assessment of subsequent events. The proper
accounting for subsequent events that have a direct effect on the financial
statement is to:
a.Adjust the financial statements for the year under audit.
b.Disclose in the notes to financial statement the amount of the adjustment.
c.Duly note in the audit work papers that next year’s financial statement need
to be adjusted.
d.Make no adjustment of the financial statement for the year under audit.
6.Which of the following procedures should an auditor generally perform regarding
subsequent events?
a. Compare the latest available interim financial statement with the financial
statement being audited.