17 Questions
What is the auditor's primary responsibility when discovering material misstatements in audited financial statements after they have been issued?
Request the client to immediately revise the financial statements and include an explanation for the revision
What is the purpose of the timeline for subsequent discovery of facts, as shown in Figure 24-9?
To provide a framework for the auditor's response to the discovery of misstatements
When is an immediate revision of the financial statements required, according to the text?
When the auditor learns of material misstatements after the financial statements have been issued
What is the auditor's primary concern when discovering material misstatements after the financial statements have been issued?
Ensuring that users of the financial statements are informed of the misstatements
What is the implication of the auditor's obligation to inform users of the financial statements when discovering material misstatements after issuance?
The auditor must ensure that users are informed of the misstatements
Which of the following subsequent events would require adjustment to the financial statements?
Declaration of bankruptcy by a customer with an outstanding accounts receivable balance
What type of audit procedure is used to identify subsequent events?
Procedures specifically designed to discover subsequent events
What is the primary purpose of reviewing subsequent events in an audit?
To assess the risk of material misstatement
Which of the following is an example of a subsequent event that may require disclosure but does not have a direct effect on the financial statements?
The issuance of bonds or equity securities
What is the auditor's responsibility regarding subsequent events?
To identify and assess the risk of material misstatement
What is the purpose of cutoff and valuation tests in the audit of subsequent events?
To verify year-end account balances
What is the primary objective of reviewing records prepared subsequent to the balance sheet date?
To obtain information for incorporation into the current year’s account balances or footnotes
What is the purpose of performing final analytical procedures during the completion of the audit?
To identify and correct material misstatements
What is the outcome if an unexpected relationship is found due to client misstatement during final analytical procedures?
The auditor proposes an adjustment if the misstatement is material
What is a key responsibility of the auditor regarding the going-concern assumption?
To evaluate whether there is a substantial doubt about a client’s ability to continue as a going concern
What is the purpose of reviewing minutes issued subsequent to the balance sheet date?
To obtain information for incorporation into the current year’s account balances or footnotes
Who is typically responsible for performing analytical procedures during the final review of the audit documentation?
Partner
Test your knowledge on subsequent events that require adjustment or disclosure in auditing, including events that have a direct effect on financial statements. Evaluate your understanding of events such as customer bankruptcy and litigation settlement.
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