True or false: Type II subsequent events require an adjustment to the financial statements to reflect the effects of the event.

TrueFalse

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Which of the following audit procedures is designed to help auditors identify unusual account relationships that may indicate an increased risk of material misstatement?

Reperformance of loss contingency estimatesAnalytical proceduresAccounts receivable confirmationsObserving physical inventory counts

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Which of the following is most likely to result in a contingent liability disclosure as a footnote to the financial statements?

A civil judgment against your client resulting in a non$-$appealable damages penaltyAn impending safety recall following a federal safety regulator$$s adverse report on a vehicle manufactured by your audit clientAn accrual of sales tax throughout the year by a client in the retail industryAn accounts payable balance owed by your client to a vendor that is on the verge of bankruptcy

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True or false: A subsequent event occurs after year$-$end but prior to the client$$s issuance of the financial statements.

TrueFalse

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Three weeks prior to the end of the fiscal year, an uncontrolled wildfire destroys a large stockyard of lumber, equipment, and a significant number of partially$-$built tract homes for a homebuilder client.$$Because of a lull in new home construction, the homebuilder was already struggling to earn a profit and pay its bills.$$The builder does not have fire insurance to cover the losses incurred.$$Is this a subsequent event?$$If so$,$ is it a Type I or Type II event?

Type I Subsequent EventType II Subsequent EventNot a subsequent event

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True or false: Type I subsequent events require an adjustment to the financial statements to reflect the effects of the event.

TrueFalse

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If the auditor determines that substantial doubt exists about the entity$$s ability to continue as a going concern, to whom does the auditor have a responsibility to share these$$concerns$?$

The auditor is required to discuss this issue with both management and the audit committeeThe auditor is only required to discuss this issue to the audit committeeThe auditor is only required to discuss this issue with management

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Which of the following qualitative characteristics about an identified misstatement would cause the auditor the greatest concern?

An intentional understatement of operating expensesA known misstatement based on a detected transposition errorA likely misstatement involving a difference of management and auditor opinions on a sophisticated estimation processAn unintentional overstatement of sales revenue

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True or false: An audit engagement quality control reviewer can be any senior member of the same audit firm.

TrueFalse

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Three weeks prior to the end of the fiscal year, an uncontrolled wildfire destroys a large stockyard of lumber, equipment, and a significant number of partially$-$built tract homes for a homebuilder client.$$Because of a lull in new home construction, the homebuilder was already struggling to earn a profit and pay its bills.$$The builder does not have fire insurance to cover the losses incurred.$$If this were your audit client, which of the following issues would you be most concerned about relating to this event?

Contingent liabilitiesSubsequent eventsGoing concern issuesAll of the above