.

t ·on and Documentation -Audit Communication and Documentation

d ·t communica , c11apter 13
Chapter 13 - Au ,
n after the date of the auditor's report ct-tAPfER 13: SELF-TEST EXERCISES
d"t documentat1o
Revisions to au ~ new Information -;,uss10N QUESTIONS _ . .
A. Documentation1 of . is recehied after the date of the auditor's DI What are the c~mmon instances of communications between the auditor
·nformat1on d report
a when new . d rtY confirmation) the au itor should co . 1· nd those charged with governance?
. (e.g., a late th1r -pan audit procedure on the new information nbs1der ~hat responsibilities of the auditor should be communicated to those
to perform a . ased
whether d . 'ficance of the information. 2· li,arged ·wlth gover,nance?
h ture an s1gn1
on t e na . f ation suggests necessary procedures were ' ~hen is the auditor required to communicate its compliance with
• If new 1n orm not 3
· Independence requirements?
performed. b
. becomes aware of a su sequent event. Wliat is the proper form of communication of significant findings?
• If the auditor . d . 4
. f tion is added to working papers, ocumentation should · What is the purpose of obtaining a management representation letter?
b. If new in orma 5
· What are the basic elements of a management representation letter?
include d 6
• When and by whom changes were ma e and reviewed (if • ·who are the signatories of the management representation letter?
~ What is the purpose of sen d ing a management letter?
applicable). 8.
• Specific reasons for changes. _ Why is it important to maintain an experienced auditor mindset when
9
of changes on auditor's conclusions. documenting audit procedures?
• Effect, 1'f a ny,
10. What are the categories of audit documentation?
from the process of assembling and completing the
B. Changes resu 'ting
audit file . .
At any time prior to the documentati~n completion date, the auditor may 13r 1 TRUE OR FALSE
make changes in the audit documentation to . . . T 1. Written representations are considered audit evidence.
lete the documentation and assembly of audit evidence obtained,
C om P
a. discussed, f h d'
and agreed with relevant members o t e au 1t team prior r 2. If written mar:,agement representations are not provided, the auditor shall
assess its possible effects on the auditor's opinion.
to the date of the auditor's report
b. Perform routine file-assembling procedures such as deleting or
discarding superseded documentation, and sorting, collating, and
t 3. The addressee of the representation later is the intended users of the
financial sta..tements.
cross-referencing final working papers
c. Signing off file completion checklists t 4:-- For recurring audits, management letters may include a follow-up of the
prior year's recommendations and the status of their resolutions.
d. Add information received after the audit report date (e.g., a
confirmation that was previously faxed) f 5. Audit documentation should be done after the last day of audit fieldwork
and before the auditor's report date.
C. Changes after the documentation completion date
a. After the documentation completion date, the auditor must not delete t 6. Working papers serve as the basis for the formation and expression of the
or discard audit documentation before the end of the specified ~ opinion of the.-aud.itor.
retention period. . 7- Audit documentation should be accomplished with an "experienced
\
b. When the auditor finds it necessary to make an addition (i nclud'.ng
auditor' minds~t.
amendments) to audit documentation after the documentation
completion date the auditor should document the addition as t 8· Proper documentation of significant professional judgments exercised by
• When and by whom such changes were made and (where the auditor reinforces the quality of the judgment.
applicable) reviewed
• The specific reasons for the changes
t 9· Audit programs document the audit procedures to be conducted by the
,a.Uditor- while audit plans detail the procedures for each significant account
• The effect, if any, of the change on the auditor's conclusions
balance, classes of transactions, and disclosures.

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 . ·on and Documentation 3 _ Audit Communication and Documentation
d't communicat1 chapter 1
Chapter 13 - Au I
. Id be completed within 60 days after the d Th auditor's views about significant qualitative aspects of the entity' s
10. Au d
·t documentation shou
I ents
ate llf f lO, ac:ounting practices may lead to significant findings.
f the financial statem .
Written representations enhance the quality of management assertions.
t permitted to be used as a reference sou
11. working papers are no rce by 11.

f the client.
f Written representations may include matters related to required financial
12· statement disclosures but not on subsequent events.
Id d cument the understanding of the client's int
12 The auditor shou o d't
T . control obtained to plan the au I •
erna1 r Audit documentation may not be used as a reference when reconstructing
f 13, a client's accounting
· record s.
be regarded as a substitute for the cl·
13. Working papers may ient's
-t accounting records. f 14, I
t is not required to document every matter considered during the audit.
. n comparative financial statements, the independ current working papers contain historical data about the client that is of
14· When reporting O ent 1S'
. d'
auditor may isca
rd working papers after two years. f continuing relevance tot he au d'1t.

. k' g papers should not include any client-prepared papers

15 Audit wor in . . or
c; · ther than those prepared by the CPA or his assistant.
I documents o 13 _ 3 MULTIPLE CHOICE QUIZZERS
1. It is the record of audit procedures performed, relevant audit evidence
t obtained, and conclusions the auditor reached
13 - 2 TRUE OR FALSE . A. Audit report C. Working papers
f the key communications to those charged with governance is the e. Audit programs D. Audit memoranda
1
rt- . 0 ne o di'
1 audit timetable, key milestones, and dea mes.
2. Audit documentation serves a number of purposes except for
2. The auditor shall communicate with those charged with governance on a
0 A. Assisting the engagement team to plan and perform the audit.
f quarterly basis. B. Assisting members of the engagement team responsible for supervision
to direct and supervise the audit work, and to discharge their review
3. Effective communication may involve structured presentations and written
T reports but not less structured communications such as discussions. responsibilities
C. Enabling the engagement team to be accountable for its work
4. The communication of findings from the audit may include requesting D. Retaining a record of matters of continuing significance to prior audits
'f further information from those charged with governance in order to C
3. The objective of the auditor is to prepare documentation that provides
complete the audit evidence obtained.
I. A sufficient and appropriate record of the basis for the auditor's report
t 5. The identity and role of the engagement partner must be communicated to
key members of client management and those charged with governance.
II. Evidence that the audit was planned and performed in accordance with
PSAs and applicable legal and regulatory requirements

r 6. All identified control deficiencies must be communicated to those charged

with governance.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
4. An auditor's working papers serve mainly to

' aod
7. The auditor is permitted to communicate value-adding observations
A. Provide the principal support for the auditor's report.
recommendations in connection with the audit to management.
B. Satisfy the auditor's responsibilities concerning the Code of Ethics.
f 8. The auditor is required to communicate with those charged wilh C. Monitor the effectiveness of the CPA firm's quality control procedures.
governance its compliance with independence requirements. D. Document the level of independence maintained by the auditor.
9. Significant f d" d with
i in mgs must be communicated to those charge
governance in writing.

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Chapter 13 - Audit comm
chapter 13 - Audit Communication and Documentation
ent data are compiled and included .
· an audit engagem ' in th
( 5. Dun~g The working papers are e audit 11. If working p~pers_ are to have the characteristics that will ensure that they
working ~apers. d ecord of conclusions reached by the audi achieve their primary purposes, which of the following Is the most
A A chent-owne r tors
. rformed the engagement. Who important?
pe_ pporting financial statements. A. working papers must be of standard format and standard content.
B Evidence su . ·h
· rt f r the auditor's compliance wit generally accepted . B. working papers must be properly indexed and cross-referenced to the
c. Suppo o aud1tin draft audit report.
standards. . g
D. A record to be used as a basis for the following year's engagement. c. working papers must provide sufficient, competent, and useful
information to support the audit report.
6. Which of the following is no! a ~rimary purpose of audit working Papers? o. Working papers must be arranged in a logical order following the audit
L A. To coordinate the examination. . program sequence.
B. To assist in the preparation of the audit report.
C. To support the financial statements. 12 . Audit working papers are used to record the results of the auditor's
D. To provide evidence of the audit work performed. D evidence-gathering procedures. When preparing working papers, the
auditor should remember that working papers should be
h 7. According to PSA 230 "Audit Documentation", working papers do not A. Kept on the client's premises so that the client can have access to them
y A. Assist in the planning and performance of the audit. fc;r reference purposes.
B. Assist in the supervision and review of the audit work. B. The primary support for the financial statements being examined.
c. Record the audit evidence resulting from the audit work performed to C. Considered as a part of the client's accounting records that are retained
support an auditor's opinion. by the auditor.
D. Prove the independence of the auditor. o. Designed to meet the circumstances and the auditor's needs on each
engagement.
V 8. Which of the following does not describe one of the functions of audit
workpapers? b 13. During the course of an audit engagement, an auditor prepares and
A. Facilitates third-party reviews. accumulates audit working papers. The primary purpose of the audit
working papers is to
B. Aids in the planning, performance, and review of audits.
A. Aid the auditor in adequately planning his work.
C. Provides the principal evidential support for the auditor's report.
B. Provide a point of reference for future audit engagements.
D. Aids in the professional development of the operating staff.
C. Support the underlying concepts included in the preparation of the
9. Under the requirements of PSA 230, audit documentation must contain basic financial statements.
sufficient information to allow what type of auditor to understand the D. Support the auditor's opinion.
nature, timing, extent, and results of procedures performed?
(,, 14. Working papers prepared by a CPA in connection with an audit engagement
A. An experienced audit team member.
are owned by the CPA, subject to certain limitations. The rationale for this
B. An experienced auditor having no previous connection with the rule is to
engagement.
A. Protect the working papers from being subpoenaed.
C. Any certified public accountant.
B. Provide the basis for excluding admission of the working papers as
D. An auditor qualified as a peer review specialist.
evidence because of the privileged communication rule.
lO. Audi~ documentation may be recorded on paper or electronic or 0ther C. Provide the CPA with evidence and documentation which may be
b helpful in the event of a lawsuit.
media. The following are examples of audit documentation except
A. Audit programs ' D. Establish a continuity of relationship with the client whereby
B. Letters of confirmation and representation indiscriminate replacement of CPAs is discouraged.
C. Correspondence
. ('meIud'tng e-mail) concerning significant matters
D. The entity's accounting records

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Chapter 13 - Audit comm
ct,apter 13 - Audit Communication and Documentation
. is a form of evidence

~
15. Documen~at1on financial statement audit
A Used in every I d" The audit working paper that reflects the ma·o
. .
B Used in mos
t financial statement au it
. . . b . 0 6· reported in the financial statements
is the J r components of an amount
· d the rare occasions when 1t 1s oth readily avail b A Inter-bank transfer schedule c Carry f 0
c Use on a le a · • h · • rward schedule
. costly than other procedu_res . nd less B. supporting sc edule D. Lead schedule
nothing is available that 1s more competent
h
D. used w en
A schedule set up to combine similar general ledge
7. h . r accounts the total 0 f
B which appears on t e working trial balance as a sin ' .
g1e amount, 1s referred
to as a:
13-4 MULTIPLE CHOICE QUIZZERS . A. Supporting schedule.
1 I the case of recurring audits, some working paper files may b . C. Corroborating schedule.
B. Lead schedule. D. Reconciling schedule.
· n d"it files that are updated with new information of e classified
as au . . conti .
importance. This type of audit file 1s known as: .
A. current audit file
.
C. Electronic audit file
nu1ng
k s. A schedule listing account balances for the current and pr •
. . . . ev1ous years, and
columns for adJusting and reclassifying entries proposed by th d'
. . . e au 1tors to
B. Permanent audit file arrive at the final amount that will appear in the financ·ial st t
D. Planning memorandum file a ements, .1s
referred to as a
; 2. working papers which contain information relating primar'I1 Ytothe A. Working trial balance C. Lead schedule
audit of a single period. B. Summarizing schedule D. Supporting schedule
A. Temporary files C. Permanent audit files
B. Current audit files D. Correspondence files ~ 9. Which of the following workpapers would one normally expect to find in
the permanent file?
~ 3. The current file of the auditor's working papers generally should include A. A copy of a long-term bond indenture.
A. A flowchart of the internal controls B. The working trial balance.
B. A copy of the financial statements C. An analysis of additions and disposals relating to marketable securities.
C. Organization charts D. A workpaper analyzing customer replies to confirmation requests.
D. Copies of bond and note indentures
L 10. The understanding between the client and the auditor as to the degree of
A 4. The permanent file portion of the auditor's working papers generally responsibility to be assumed by each is normally set forth in a(n)
should include A. Representation letter. C. Engagement letter.
A. A copy of the engagement letter. B. Management letter. D. Comfort letter.
B. A copy of key customer confirmation. b 11. The permanent (continuing) file of an auditor's working paper most likely
C. Names and addresses of audit staff personnel on the engagements. would include copies of the
D. Time and expense reports. A. Lead schedules C. Bank statements
D s. The permanent file section of the working papers that are kept for each
(
B. Attorney's letter D. Debt agreements
12• What do you call the type of working paper where matters of importance
audit client most likely contains
A. Review notes pertaining to questions and comments regarding the are noted down for further verification?
audit work performed. A. Summary sheet C. Agenda sheet
8· A s~hedule of time spent on the engagement by B. Supporting schedules D. Audit program
each individual
auditor.
C. Correspond •h • pending
D 13· Which of the following is a basic tool used by the auditor to control the
.. ence wit the client's legal counsel concerning audit work and review the progress of the audit?
litigation.
A. Time and expense summary. C. Progress flowchart.
D. Narrative descriptions of the client's internal control policies and B. Engagement letter. D. Audit program.
procedures.

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Chapter
13 - Audit com
. and Documentation
municat1on
working trial balance resembling th
chapter13
-Audit Communication and Documentation

. advantage of properly indexed working papers is to

. ·Iy uses a but containing. . coIumns f or e fina nc1aI
. The main fi
·tor ord1nan 4. R duce the size of the 1le.
14 An audI t footnotes, ·f· .
vr · statements withou . and asse
rtions c. Reclass1 1cat1ons
.
and adi·u t
s me C A, ~ w division of labor within the audit team.
Audit objectives . k marks D. Cash flow increases and d nts B. Ao h k'
A. T tions and tic ecrease Better organize t e wor mg pap~rs.
B Reconc1 ia s c. Facilitate the efficient use of audit staff.
. . an example of: D.
15
The audit time budget is c. A corroborative working Pa . c·ipal purpose for cross-indexing audit working papers is to
.
Q · A A lead schedule. d D. An administrative working Per. 5· The pnn
A Give the working papers a professional appearance.
. A supporting sche uIe. Paper.
B. · Explain the use of tick marks.
B. Provide an explanation of the audit steps performed.
CHOICE QUIZZERS c. Provide a trail for the auditor and the reviewer.
D.
13-5 MULTIPLE f !lowing documentation is required for an aud· .
Which of the o 1t 1n An auditor's working papers will generally be least likely to include
6
0 1. accordance with PSA? . . A ' documentation showing how the
A An internal control quest1onna1re A. Client's schedules were prepared.
. A client engagement letter .
B. A planning memorandum or checklist 8 Engagement had been planned.
C. A client representation letter
C.· Client's internal.control structure had been reviewed and evaluated.
D. o. unusual matters were resolved.
following documentation is required for an audit in
Which of the In documenting the nature, timing, and extent of audit procedures
l 2.
accordance with PSAs? . .
l, 7.
performed, the auditor should record
A. A flowchart or an internal control questionnaire that evaluates the
1. Who performed the audit work and the date such work papers were
effectiveness of the entity's controls. completed
B. A client engagement letter that summarizes the timing and detailsof II. Who reviewed the audit work and the date and extent of such review
the auditor's planned fieldwork. . A. I only C. Both I and II
c. An indication in the working papers that the accounting records agree 8. II only D. Neither I nor II
or reconcile with the financial statements.
D. The basis for the auditor's conclusions when the assessed level of b s. When reviewing audit working papers, the primary responsibility of an
control risk is at the maximum level for all financial statement audit supervisor is to determine that:
assertions. A. Each worksheet is properly identified with a descriptive heading.
8 . Working papers are properly referenced and kept in logical groupings.
!) 3. During the working paper review, an audit supervisor finds that the C. Standard departmental procedures are adhered to with regard to work
auditor's reported findings are not adequately cross-referenced to paper prepijration and technique.
supporting documentation. The supervisor will most likely instruct the D. Working papers adequately support the audit findings, conclusions,
auditor to
and report.
A. Prepare a working paper to indicate that the full scope of the audit was
carried out.
· h.1m/ herself with the sequence of working papers so that
B. Fa mi·1·ianze
b 9
. Why must audit documentation be reviewed?
ed A. To ensure that the audit meets the CPA firm's standard of
~e(she) will be able to answer questions about the conclusions stat performance.
m the report. B. To evaluate the performance of inexperienced personnel.
C. Eliminate a ince the C. To counteract bias that often enters into the auditor's judgment.
. ny cross-references to other working papers s
st
sy em 1s unclear. D. All of the above are reasons for review of audit documentation
D. Provide a work . the relationshiP
betw f" . paper indexing system that shows
een Indings •
' cone1usions, and the related facts.

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. ditor decides that work papers are complete
10. The m-charge ~~ d that the audit objectives have been met Au dit matters of governance interest to be communicated to th ose charge d
A- A. Whe~ sat1s ie support the conclusions. and the p 15, with .,. . • d
governance orgman 1y me1u e
wm~~~~~ h A. Audit adjustments, •whether or not recorded by the entity th t h
k' papers make reference to t e steps outlined in th ff a as, or
B. When wor mg e audit coold have, a materia 1e ect on its financial statements.
program. d h k. B. Expected modifications to the auditor's report.
0 I fter the auditor who prepare t e wor mg papers has sign d
C. n Ya e and c. Material uncertainties related to events and conditions that may cast
dated them. . significarit doubt on the entity's ability to continue as a going concern.
o. When proper cross-references to other working papers are noted. A. I and II C. I and 111
A this term is used to describe the role of persons ent B. 11 and Ill D. I, 11, and 111
11. Under PS 260, . . f . rusted
with the supervision, control, and direct10~ o ~n entity.
A Oversight. C. Direction.
13- 6 MULTIPLE CHOICE QUIZZERS
B.· Governance. D. Control.
l . The following are ordinarily excluded from audit documentation:
12_ PSA 260 requires the auditor to ~etermine the ~elevant persons Who are 1. Superseded drafts of working papers and financial statements
l charged with governance and with whom audit matters of governa
. db nee
11. Notes that reflect incomplete or preliminary thinking
interest are communicated. For corporat1o~s c?ver~ y
the SEC Code of 111. Previous copies of documents corrected for typographical or other
corporate Governance, which of the following Is primarily responsible for errors
corporate governance? IV. Duplicates of documents
A. President. C. Board of Directors. A. I, II and Ill C. II, Ill, and IV
B. Controller. D. Management. B. I, II, and IV D. I, II, Ill, and IV

C 13. Those charged with governance and management have responsibility over In.-
2. The completion of the assembly of the final audit file after the date of the
Those charged with governance Management auditor's report does not ordinarily involve
A Preparation of financial Oversight of the financial reporting A. The performance of new audit procedures or the drawing of new
statements process conclusions.
B Execution of business objectives Development of business objectives B. Sorting, collating, and cross-referencing working papers.
and plans and plans C. Deleting or discarding superseded documentation.
C Entity's strategic direction Entity's conduct of operations D. Signing off on completion checklists relating to the file assembly
D Entity's conduct of operations Entity's strategic direction process.
; 3. Which statement is correct concerning the deletion of audit
~ 14. According to PSA 260, those matters that arise from the audit of financial
statements and, in the opinion of the auditor, are both important and documentation?
relevant to those charged with governance in overseeing the financial A. Superseded audit documentation should always be deleted from the
reporting and disclosure process are called audit file.
A. Audit matters of governance interest. B. After the· audit file has been completed, the auditor should not delete
B. Significant audit matters. or discard audit documentation.
C. Auditor's findings. C. Auditors should use professional skepticism in determining which audit
D. Mate· I · documentation should be deleted.
na misstatements in the financial statements.
D. Audit documentation should never be deleted from the audit file.

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d't r should complete the assembly of the financial audit fl
(l 4. T_he au 'o_ fter the date of the auditor's report. As PSQM 1 . I~ on a statement 1: Working pape~s are the property of the auditor.
timely basis a . r' . d' 1nd1cat 8
J) · statement 2: Although port1o~s of or extracts from the working papers may
r the date of the aud1to s report 1s or marily an ap es,
days afte bl f Proprj A be made available to the _entity at th~ discretion of the auditor, they may
-:---• 't within which to complete the assem y o the financial aud· .ate
time 11m1 C. 90 it file. be 8 substitute for the entity's accounting records.
A. 30 A, only statement one '.s correct C. Both statements are correct
D.120
B. 60 B. Only statement two 1s correct D. Both statements are incorrect
the assembly of the final audit file has been completed, the .
D 5. AfterId not delete or discard audit
. .
documentation
b
efore the
auditor
end f . 9
In general, which of the following statements is correct with respect to
hs ou h'I' . th t . . o its · ownership, possession, or access to working papers prepared by a CPA firm
·on period In the P 11ppmes, e re ent1on period for
ret entl · audit in connection with an audit?
engagement ordinarily is no shorter than __ years from the date of the A. The working papers may be obtained by third parties where they
auditor's report appear to be relevant to issues raised in litigation.
A. 3
C. 7
B. The working papers are subject to the privileged communication rule
B. 5 D.10
which, in a majority of jurisdictions, prevents third-party access to the
Which of the following statements is incorrect? working papers.
~ 6. c. The working papers are the property of the client after the client pay
A. Documentation prepared at the time the work is performed is likely to
be more accurate than documentation prepared subsequently. the fees.
B. The auditor ordinarily includes from audit documentation superseded
o. The working papers must be retained by the CPA firm for a period of
drafts of working papers and financial statements, notes that reflect ten years.
incomplete or preliminary thinking, previous copies of documents 10. Which of the following is incorrect?
corrected for typographical or other errors, and duplicates of A. Working papers are the property of the auditor.
documents. B. Although portions of or extracts from the working papers may be made
c. It is neither necessary nor practicable to document every matter the available to the entity at the discretion of the auditor, they may be a
auditor considers during the audit. substitute for the entity's accounting records.
D. Oral explanations by the auditor, on their own, do not represent C. The auditor should prepare working papers that are sufficiently
adequate support for the work the auditor performed or conclusions complete and detailed to provide an overall understanding of the audit.
the auditor reached, but may be used to explain or clarify information D. The auditor should record in the working papers information on
contained in the audit documentation. planning the audit work, the nature, timing, and extent of the audit
procedures performed, the results thereof, and the conclusions drawn
7. Which of the following is generally included or shown in the auditor's
D working papers?
from the audit evidence obtained.
A. The procedures used by the auditor to verify the personal financial (, 11. The auditor shall communicate with those charged with governance the
status of members of the client's management team. responsibilities of the auditor in relation to the financial statement audit,
B. Analyses that are designed to be a part of, or a substitute for, the including that
client's accounting records. I. The auditor is responsible for forming and expressing an opinion on the
C. Excerpts from authoritative pronouncements that support the financial statements
underlying generally accepted accounting principles used in preparing II. The audit of the financial statements does not relieve management or
the financial statements. those charged with governance of their responsibilities
D. The procedures performed by the auditor to obtain sufficient A. I only C. Both I and II
appropriate evidence. B. II only D. Neither I nor II

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Chapter 13 - AU i _ Audit Commu nication and Docume ntation
. ate with those charged with governa chapter 13
. h II commun1c nee
12 The auditor s a .
?,- . A. On a timely basis Uent represe ntation letter is:
B. Quarterly 2- Ac prepare d on the CPA's letterhe ad.
C
c. Annually . die and end of the engage ment : · addressed to the client.
At the start, mid ' . c: signed by high-lev el officials (e.g., the president and chief financial
D. . stateme nts relating to commun ication officer).
. f the following
13. Which o interest is incorrec t ?. of aud·
it D. dated as of the client's year-end .
f governance
l3 matters O
d't matters o g
I d
f overnance interest inc u e only those rnatt
The date the auditor grants the client permission to use the audit report
A. Au I the attentio n of the au d'1tor as a result ers that 3 in
have come to
erformance of the audit.
. of the B · connect ion with the financia l stateme nts is the:
. A. Report cutoff date. C. Last day of significant fieldwor k.
P d' . accordance w ith PSAs, the auditor should design .
B In an au it in B. Report release date. D. Representation date.
· for the specific purpose o f I'dent1fying.
rnatte
audit
procedures rs of
overnance interest. A purpose of a manage ment represe ntation letter is to reduce
. (, 4.
~he auditor should identify relevan t persons who are charged With A. Audit risk to an aggregate level of misstate ment that could
be
C. conside red materia l.
governance and with whom audit matters of governa nce interest areto
be communicated. B. An auditor' s respons ibility to detect material misstatements only
. . . to the
he auditor's commun ications with those charged with governance extent that the letter is relied on.
D. T .
may be made orally or in writing. c . The possibil ity of a misunderstanding concerning manage
ment' s
respons ibility for the financia l statements.
When considering commun icating with a subgrou p of those charged D. The scope of an auditor' s procedures concerning
14 With related- party
·
governance, the auditor may take into accoun t such matters
A
as transact ions and subsequ ent events.
8 C D
Responsibilities of the subgrou p and the governi ng Yes (, 5. A represe ntation letter issued by a client
No Yes Yes
A. Is essentia l for the prepara tion of the audit program .
body
B. Is a substitu te for testing.
Nature of the matter to be commun icated Yes Yes Yes Ye1
C. Does not reduce the auditor' s respons ibility.
Relevant legal or regulatory requirem ents Yes No Yes No
D. Reduces the auditor' s respons ibility only to the extent it is
Authority of the subgroup to take action in relation Yes Yes No Ye1 relied upon.
to the information commun icated 6. Which of the followin g stateme nts ordinari ly is not included among
the
written client represe ntations made by the chief executive officer and
n 15. Statement 1: Written commun ications need to include all matters
that
the
chief financia l officer?
!J arose during the course of the audit.
A. "Sufficie nt audit evidenc e has been made available to the auditor
Statement 2: The auditor shall commu nicate with those charged with to
permit the issuance of an unqualif ied opinion."
governance on a timely basis.
B. "There are no unasser ted claims or assessments that our lawyer
A. Only statement one is correct C. Both stateme nts are correct has
advised us are probabl e of assertion and must be disclosed."
B. Only statement two is correct D. Both stateme nts are incorrect C. "We have no plans or intentio ns that may material ly affect the carrying
value or classific ation of assets and liabilities."
D. "No events have occurre d subsequent to the balance sheet
13 - 7 MULTIPLE CHOICE QUIZZERS date that
would require adjustm ent to, or disclosure in, the financia
l 1. Which of the following auditing procedu res is ordinar ily performed 5t
la ? stateme nts."
l
A. Reading of the minutes of the director s' meeting s.
B. Confirming accounts payable .
C. Obt~ining a management represe ntation letter.
D. Testing of the purchasing function .
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~
 . and Documentation -Audit Communication and Documentation
municat1on
13 - Audit com ct,apter 13
Chapter ments regarding the letter of repres ditor would least likely initiate a discussion with those charged with
. f the following state entati()n i 12- An a\ance of an audit client concerning
7 . Which o 1
gover
The methods used to account f or s1gm
. 'f',cant unusual transactions.
I) not correct? don the client's letterhead.
A It is prepare t the CPA firm .
B A- 'The maximum peso amount of misstatements that could exist without
~ 1 1 corporate officials, usually the Pres·ct 6
s.· ItIt isis addressed
. d by high-
s1gne
eve I ent a
nd
· ausing the financial statements to be materially misstated.
C· ~ndications of fraud and illegal acts committed by a corporate officer
ial officer. d' b ·
chief financ uired that the au 1tor o tam such a lett c. that was discovered by the auditor.
It is optional, not req , er frol'II Disagreements with management as to accounting principles that were
D. t
managemen. o. resolved during the current year's audit.
. g matters would materiality limits not app\
. h Of the followin y Whe
s · To whic •
. . g written c11e
• nt representations? n Which of the following statements is correct about an auditor's required
13 · ommunication with those charged with governance of an audit client?
obta1nin . of state labor regulations.
A. Violations fr e-of-credit arrangements.
B ~- Any matters communicated to the entity's audit committee also are
B. Disclosur~ o bin t related party transactions. required to be communicated to the entity's management.
C Information a ou t The auditor is required to inform those charged with governance about
o.. Instances of fraud involving managemen . B.
significant misstatements discovered by the auditor and subsequently
. f wing is not correct relating to representation letters? corrected by management.
th 0 II
V 9. Which of e d~ rily dated as of the date of the audit report.
A They are or ma c. Disagreements with management about the application of accounting
s.· They are s1gne . d by members of top management.
. principles are required to be communicated in writing to those charged
C They must be obtained for audits. with governance.
0
·_ They often serve as a substitute for the application of other o. Weaknesses in internal control previously reported to those charged
procedures. with governance need not be recommunicated.
's refusal to furnish a written representation on a mattei 14. Which of the following matters is an auditor required to communicate to an
10. Management
. h the auditor
. .
considers essential, constitutes
· A entity's audit committee?
wh IC • I t t
A. Prima fade evidence that the financ1a statemen s are no presented I. Disagreements with management about matters significant to the
fairly. entity's financial statements that have been satisfactorily resolved.
s. A violation of the Foreign Corrupt Practices Act. II. Initial selection of significant accounting policies in emerging areas that
c. An uncertainty sufficient to preclude an unqualified opinion. lack authoritative guidance.
o. A scope limitation sufficient to preclude an unqualified opinion. A. I only. C. Both I and II.
B. II only. D. Neither I nor II.
11. Which of the following statements is correct concerning an auditor's
required communication with those charged with governance of an audit
c.., 15. Should an auditor communicate the following matters to those charged
with governance of an audit client?
I client?
I. Significant audit adjustments recorded by the entity
j A. This communication is required to occur before the auditor's report on
II. Management's consultation with other accountants about significant
I the financial statements is issued.
accounting matters
l B. This communication should include a discussion of any significant
disagreements with management concerning the financial statements.
A. I only. C. Both I and II.
B. 11 only. D. Neither I nor II.
C. Any significant matter communicated to the audit committee also
should be communicated to management. "Faith and hope work hand in hand, however, while hope focuses on the
D. Significant audit adjustments proposed by the auditor and recorded: future, faith focuses on the now."

-
management need not be communicated to those charged w DAVID ODUNAIYA
governance.
End of Chapter
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