Which of the following auditing procedures most likely would assist an auditor in identifying related Partytransactions?

Answer : C

Explanation:
Choice "C" is correct. Leasing rather than purchasing operating facilities results in reduced (or at least delayed) expenditures, which is a mitigating factor in a going concern situation.
Choice "A" is incorrect. Mitigating factors in a going concern situation include plans to dispose of assets, plans to borrow money or restructure debt, plans to reduce or delay expenditures, or plans to increase ownership equity. Repurchasing stock is an outflow of cash that would reduce ownership equity; as such, it is not a mitigating factor.
Choice "B" is incorrect. Mitigating factors in a going concern situation include plans to dispose of assets, plans to borrow money or restructure debt, plans to reduce or delay expenditures, or plans to increase ownership equity. Issuing stock options does not fall into any of these categories and would not be considered a mitigating factor.
Choice "D" is incorrect. Mitigating factors in a going concern situation include plans to dispose of assets, plans to borrow money or restructure debt, plans to reduce or delay expenditures, or plans to increase ownership equity. Accelerating the due date of an existing mortgage would increase expenditures, and therefore would not be a mitigating factor.

20.CPA-02536Which of the following auditing procedures most likely would assist an auditor in identifying related partytransactions?a.Inspecting correspondence with lawyers for evidence of unreported contingent liabilities.b.Vouching accounting records for recurring transactions recorded just after the balance sheet date.c.Reviewing confirmations of loans receivable and payable for indications of guarantees.d.Performing analytical procedures for indications of possible financial difficulties.CPA-02536Choice "c" is correct.Reviewing confirmations of loans receivable and payable is useful for determiningthe existence of related party transactions because guarantees are commonly provided by or for relatedparties.Choice "a" is incorrect.Detection of unreported contingent liabilities is not a procedure that would assistthe auditor in identifying related party transactions.Choice "b" is incorrect.Recurring transactions after year-end are a usual business occurrence.Relatedparty transactions would most likely be nonrecurring.Choice "d" is incorrect.While financial difficulties may be associated with related party transactions, it isunlikely that analytical procedures would assist the auditor in identifying such transactions.Maxixishere Pdf Collection

a. Inspecting communications with law firms for evidence of unreported contingent liabilitiesb. Reviewing accounting records for nonrecurring transactions recognized near the balances sheet datec. Retesting ineffective controls previously reported to the audit committeed. Sending second requests for unanswered positive confirmations of accounts receivable

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An auditor most likely modifies the opinion if the entity's financial statements include a note on related party transactions:

A. Disclosing loans to related parties at interest rates significantly below prevailing market rates.
B. Describing an exchange of real estate for similar property in a non-monetary related party transaction.
C. Stating without substantiation that a particular related party transaction occurred on terms equivalent to those that would have prevailed in an arm's-length transaction.
D. Presenting the dollar volume of related party transactions and the effects of any change from prior periods in the method of establishing terms.

C

Which of the following auditing procedures most likely would assist an auditor in identifying related party transactions?

A. Retesting ineffective internal control procedures previously reported to the audit committee.
B. Sending second requests for unanswered positive confirmations of accounts receivable.
C. Reviewing accounting records for nonrecurring transactions recognized near the balance sheet date.
D. Inspecting communications with law firms for evidence of unreported contingent liabilities.

C

An auditor would be most likely to consider modifying an otherwise unmodified opinion if the client's financial statements include a note on related party transactions:

A. Representing without substantiation that certain related party transactions were consummated on terms equivalent to those obtainable in transactions with unrelated parties.
B. Presenting the dollar volume of related party transactions and the effects of any change in the method of establishing terms from that used in the prior period.
C. Explaining the business purpose of the sale of real property to a related party.
D. Disclosing compensating balance arrangements maintained for the benefit of related parties.

A

In auditing related party transactions, an auditor ordinarily places primary emphasis on:

A. The probability that related party transactions will recur.
B. Confirming the existence of the related parties.
C. Verifying the valuation of the related party transactions.
D. The adequacy of the disclosure of the related party transactions.

D

Which of the following statements is true about related party transactions?

A. In the absence of evidence to the contrary, related party transactions should be assumed to be outside the ordinary course of business.
B. An auditor should determine whether a particular transaction would have occurred if the parties had not been related.
C. An auditor should substantiate that related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions.
D. The auditor should consider whether an identified related party transaction outside the normal course of business is appropriately accounted for and disclosed.

D

After identifying a significant related party transaction outside the entity's normal course of business, an auditor should:

A. Add an emphasis-of-matter paragraph to the auditor's report to explain the transaction.
B. Perform analytical procedures to identify similar transactions that were not recorded.
C. Evaluate the business purpose of the transaction.
D. Substantiate that the transaction was consummated on terms equivalent to those of an arm's-length transaction.

C

Which of the following procedures most likely could assist an auditor in identifying related party transactions?
A. Performing tests of controls concerning the segregation of duties.
B. Evaluating the reasonableness of management's accounting estimates.
C. Reviewing confirmations of compensating balance arrangements.
D. Scanning the accounting records for recurring transactions.

C

An auditor who uses the work of an auditor's external specialist may refer to the specialist in the auditor's report if the:

A. Specialist's findings provide the auditor greater assurance of reliability about management's representations.
B. Reference is needed for an understanding of a modification of the opinion.
C. Auditor's use of the specialist's findings is different from that of prior years.
D. The specialist's findings fully corroborate management's financial statement assertions.

B

In which of the following instances would it be appropriate for the auditor to refer to the work of an appraiser in the auditor's report?

A. An unmodified opinion is expressed and no additional paragraph is added, but the auditor wishes to disclose the use of an auditor's specialist.
B. A qualified opinion is expressed because of a matter unrelated to the work of the auditor's external specialist.
C. An adverse opinion is expressed based on a difference of opinion between the client and the auditor's external specialist about the value of certain assets.
D. A disclaimer of opinion is expressed owing to a scope limitation imposed on the auditor by the auditor's external specialist.

C

Which of the following statements is true about the use of the work of an auditor's specialist?

A. The specialist need not agree to the auditor's use of the specialist's findings.
B. The auditor is required to perform substantive procedures to verify the specialist's assumptions and findings.
C. The auditor must keep client information confidential, but the specialist is not obligated to do so.
D. The auditor should obtain an understanding of the methods and assumptions used by the specialist.

D

A management's specialist most likely is useful to:

A. Assist the auditor in collecting sufficient appropriate audit evidence.
B. Provide the auditor advice on technical accounting issues.
C. Add credibility to the financial statements.
D. Assist the client in preparing the financial statements.

D

An auditor is required to establish an understanding in writing with a client regarding the services to be performed for each engagement. This understanding generally includes:

A. Management's responsibility for errors and the illegal activities of employees that may cause material misstatement.
B. The auditor's responsibility for ensuring that the audit committee is aware of any significant deficiencies or material weaknesses in control that come to the auditor's attention.
C. Management's responsibility for providing the auditor with an assessment of the risk of material misstatement due to fraud.
D. The auditor's responsibility for determining preliminary judgments about materiality and audit risk factors.

B

Which of the following statements would least likely appear in an auditor's engagement letter?

A. Fees for our services are based on our regular per diem rates, plus travel and other out-of-pocket expenses.
B. Management is responsible for making all financial records and related information available to us.
C. Our engagement is subject to the risk that material fraud or errors, if they exist, will not be detected.
D. After performing our preliminary analytical procedures, we will discuss with you the other procedures we consider necessary to complete the engagement.

D

An auditor's engagement letter most likely would include a statement regarding:
A. Management's responsibility to provide certain written representations to the auditor.
B. Conditions under which the auditor may modify the preliminary judgment about materiality.
C. Internal control activities that would reduce the auditor's assessment of control risk.
D. Materiality matters that could modify the auditor's preliminary assessment of fraud risk.

A

An auditor's engagement letter most likely would include a statement that
A. Lists potential significant deficiencies in internal control discovered during the prior-year's audit.
B. Explains the analytical procedures that the auditor expects to apply.
C. Describes the auditor's responsibility to evaluate going-concern issues.
D. Limits the auditor's responsibility to detect fraud and error.

D

Which of the following circumstances would permit an independent auditor to accept an engagement after the close of the fiscal year?

A. Issuance of a disclaimer of opinion as a result of inability to conduct certain tests required by generally accepted auditing standards due to the timing of the acceptance of the engagement.
B. An expectation of the effectiveness of internal control.
C. Receipt of an assertion from the preceding auditor that the entity will be able to continue as a going concern.
D. Remedy of limitations resulting from accepting the engagement after the close of the end of the year, such as those relating to the existence of physical inventory.

D

Which of the following statements most likely would be included in an engagement letter from an auditor to a client?
A. The CPA firm will provide absolute assurance about whether the financial statements are free of material misstatement.
B. The CPA firm is responsible for ensuring that the client complies with applicable laws.
C. The CPA firm will involve information technology specialists in the performance of the audit.
D. The CPA firm will adjust the financial statements to correct misstatements before issuing a report.

C

When an auditor of a parent nonissuer is also the auditor of a component, then each of the following factors would ordinarily influence the decision to obtain a separate engagement letter from the component, except:
A. The legal requirements regarding the appointment of the auditor.
B. Whether a separate audit report is to be issued on the component.
C. Whether there has been any turnover of the component's board members.
D. The degree of independence of the component's management from the parent entity.

C

In developing written audit plans, an auditor should design specific audit procedures that relate primarily to the
A. Timing of the audit.
B. Costs and benefits of gathering evidence.
C. Financial statements as a whole.
D. Financial statement assertions.

D

Audit plans should be designed so that:

A. Most of the required procedures can be performed as interim work.
B. The risks of material misstatement are assessed at a sufficiently low level.
C. The auditor can make constructive suggestions to management.
D. The audit evidence gathered supports the auditor's conclusions.

D

The audit plan usually cannot be finalized until the
A. Understanding of the entity and its environment has been completed.
B. Engagement letter has been signed by the auditor and the client.
C. Control deficiencies have been communicated to those charged with governance.
D. Search for unrecorded liabilities has been performed and documented.

A

Which of the following is a true statement about the required documentation in an audit performed in accordance with generally accepted auditing standards?
A. A written engagement letter formalizing the level of service to be rendered is recommended but not required.
B. A flowchart depicting the segregation of duties and authorization of transactions is required.
C. A documented audit plan describing the necessary procedures to be performed is required.
D. A memorandum setting forth the scope of the audit is required.

c

During the initial planning phase of an audit, a CPA most likely would
A. Identify specific internal control activities that are likely to prevent fraud.
B. Evaluate the reasonableness of the client's accounting estimates.
C. Discuss the timing of the audit procedures with the client's management.
D. Inquire of the client's attorney as to whether any unrecorded claims are probable of assertion.

C

Which of the following is an auditor least likely to perform in planning a financial statement audit?
A. Coordinating the assistance of entity personnel in data preparation.
B. Discussing matters that may affect the audit with firm personnel responsible for non-audit services to the entity.
C. Selecting a sample of vendors' invoices for comparison with receiving reports.
D. Reading the current year's interim financial statements.

c

In developing an audit plan, an auditor should:

A. Determine whether the allowance for sampling risk exceeds the achieved upper precision limit.
B. Evaluate findings from substantive procedures performed at interim dates.
C. Consider whether the inquiry of the client's attorney identifies any litigation, claims, or assessments not disclosed in the financial statements.
D. Perform risk assessment procedures.

d

Which of the following procedures would an auditor most likely include in the initial planning of a financial statement audit?
A. Obtaining a written representation letter from the client's management.
B. Examining documents to detect noncompliance with laws and regulations having a material effect on the financial statements.
C. Considering whether the client's accounting estimates are reasonable in the circumstances.
D. Determining the extent of involvement of the client's internal auditors.

d

Which of the following is a basic tool used by the auditor to control the audit work and review the progress of the audit?
A. Time and expense summary.
B. Engagement letter.
C. Progress flowchart.
D. Audit plan.

d

Which of the following procedures would an auditor most likely perform in the planning stage of an audit?
A. Make a preliminary judgment about materiality.
B. Confirm a sample of the entity's accounts payable with known creditors.
C. Obtain written representations from management that there are no unrecorded transactions.
D. Communicate management's initial selection of accounting policies to the audit committee.

A

Audit planning for an initial audit most likely includes:

A. Determining the opinion to be expressed.
B. Obtaining an engagement letter prepared by the auditee.
C. Performing procedures involving opening balances.
D. Selecting a sample of invoices for comparison with shipping reports.

C

Analytical procedures are required for which of the following?
A. Audit planning.
B. Tests of balances.
C. Client retention decision.
D. Internal control evaluation.

A

If the predecessor auditor refuses to give the current auditor of a nonissuer access to the documentation, what should the current auditor do?
A. Review the risk assessment of the opening balances of the financial statements.
B. Withdraw from the engagement.
C. Disclaim an opinion due to a scope limitation.
D. Discuss the matter with the client's legal counsel.

A

In addition to descriptions of the nature, timing, and extent of planned risk assessment procedures and planned further audit procedures, which of the following additional pieces of information should be documented in the audit plan?
A. Procedures performed to assess independence and the ability to perform the engagement.
B. The understanding of the terms of the engagement, including scope, fees, and resource allocation.
C. Other audit procedures to be performed to comply with generally accepted auditing standards.
D. Issues with management integrity that could affect the decision to continue the audit engagement.

c

The element of the audit-planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the
A. Evidence to be gathered to provide a sufficient basis for the auditor's opinion.
B. Procedures to be undertaken to discover litigation, claims, and assessments.
C. Pending legal matters to be included in the inquiry of the client's attorney.
D. Timing of inventory observation procedures to be performed.

d

Which of the following would a successor auditor ask the predecessor auditor to provide after accepting an audit engagement?
A. Disagreements between the predecessor auditor and management about significant accounting policies and principles.
B. The predecessor auditor's understanding of the reasons for the change of auditors.
C. Facts known to the predecessor auditor that might bear on the integrity of management.
D. Matters that may facilitate the evaluation of financial reporting consistency between the current and prior years.

d

Before accepting an engagement to audit a new client, an auditor is required to
A. Make inquiries of the predecessor auditor after obtaining the consent of the prospective client.
B. Obtain the prospective client's signature to the engagement letter.
C. Prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan.
D. Discuss the management representation letter with the prospective client's audit committee.

A

It would not be appropriate for the auditor to initiate discussion with the audit committee concerning
A. The extent to which the work of internal auditors will influence the scope of the audit.
B. Details of the procedures that the auditor intends to apply.
C. The extent to which change in the company's organization will influence the scope of the audit.
D. Details of potential problems that the auditor believes might cause a qualified opinion.

b

When planning an audit, an auditor should
A. Consider whether substantive procedures may be reduced based on the results of the internal control questionnaire.
B. Determine materiality for the financial statements as a whole.
C. Conclude whether changes in compliance with prescribed controls require a change in the reliance on controls.
D. Prepare a preliminary draft of the management representation letter.

b

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