If a misstatement is immaterial to the financial statements of the entity for the current period, but is expected to have a material effect in future periods

AUDITING MULTIPLE CHOICE

1. (TCO 2) If a misstatement is immaterial to the financial statements of the entity for the current period, but is expected to have a material effect in future periods, it is appropriate to issue a(n): (Points: 2)

2. (TCO 2) When a client has not applied GAAP consistently from the prior year to the current year, the auditor does not concur with the appropriateness of the change, and the change in GAAP has a material effect on the financial statements, the auditor should issue a(n): (Points: 2)

3. (TCO 2) Which of the following is not an essential condition for issuing the standard unqualified audit opinion? (Points: 2)

4. (TCO 2) An adverse opinion is issued when the auditor believes: (Points: 2)

5. (TCO 11) A principal purpose of a letter of representation from management is to (Points: 2)

6. (TCO 11) A client representation letter is: (Points: 2)

7. (TCO 11) Inquiries of management regarding the possibility of unrecorded contingencies will not be useful in uncovering: (Points: 2)

8. (TCO 11) The audit step most likely to reveal the existence of contingent liabilities is (Points: 2)

9. (TCO 2) The standards which govern the CPA’s association with unaudited financial statements are: (Points: 2)

10. (TCO 2) A CPA firm can issue a compilation report: (Points: 2)

Click here for the solution: If a misstatement is immaterial to the financial statements of the entity for the current period, but is expected to have a material effect in future periods

Barbara Whitley had great expectations about her future as she sat in her graduation ceremony in May 2010

4-28 Barbara Whitley had great expectations about her future as she sat in her graduation ceremony in May 2010. She was about to receive her Master of Accountancy degree, and next week she would begin her career on the audit staff of Green, Thresher & Co., CPAs. Things looked a little different to Barbara in February 2011. She was working on the audit of Delancey Fabrics, a textile manufacturer with a calendar year- end. The pressure was enormous. Everyone on the audit team was putting in 70- hour weeks, and it still looked as if the audit wouldn’t be done on time. Barbara was doing work in the property area, vouching additions for the year. The audit program indicated that a sample of all items over $ 20,000 should be selected, plus a judgmental sample of smaller items. When Barbara went to take the sample, Jack Bean, the senior, had left the client’s office and couldn’t answer her questions about the appropriate size of the judgmental sample. Barbara forged ahead with her own judgment and selected 50 smaller items. Her basis for doing this was that there were about 250 such items, so 50 was a reasonably good proportion of such additions. Barbara audited the additions with the following results: The items over $ 20,000 contained no misstatements; however, the 50 small items contained a large number of misstatements. In fact, when Barbara projected them to all such additions, the amount seemed quite significant. A couple of days later, Jack Bean returned to the client’s office. Barbara brought her work to Jack in order to apprise him of the problems she found and got the following response: “ Gosh, Barbara, why did you do this? You were only supposed to look at the items over $ 20,000 plus 5 or 10 little ones. You’ve wasted a whole day on that work, and we can’t afford to spend any more time on it. I want you to throw away the schedules where you tested the last 40 small items and forget you ever did them.”
When Barbara asked about the possible audit adjustment regarding the small items, none of which arose from the first 10 items, Jack responded, “ Don’t worry, it’s not material anyway. You just forget it; it’s my concern, not yours.’’ a. In what way is this an ethical dilemma for Barbara? b. Use the six- step approach discussed in the book to resolve the ethical dilemma.

Click here for the solution: Barbara Whitley had great expectations about her future as she sat in her graduation ceremony in May 2010