SOLVED

Learning Objective 24-1 1) Auditors often integrate procedures for presentation and disclosure objectives with: A) Tests for planning objectives Tests for balance-related objectives Yes Yes B) Tests for planning objectives Tests for balance-related objectives No No C) Tests for planning objectives Tests for balance-related objectives Yes No D) Tests for planning objectives Tests for balance-related objectives No Yes 2) The auditor’s primary concerns relative to presentation and disclosure-related objectives is: A) accuracy. B) existence. C) completeness. D) occurrence. Learning Objective 24-2 1) If a potential loss on a contingent liability is remote, the liability usually is: A) disclosed in footnotes, but not accrued. B) neither accrued nor disclosed in footnotes. C) accrued and indicated in the body of the financial statements. D) disclosed in the auditor’s report but not disclosed on the financial statements. 2) A commitment is best described as: A) an agreement to commit the firm to a set of fixed conditions in the future. B) an agreement to commit the firm to a set of fixed conditions in the future that depends on company profitability. C) an agreement to commit the firm to a set of fixed conditions in the future that depends on current market conditions. D) a potential future obligation to an outside party for an as yet to be determined amount. 3) At the completion of the audit, management is asked to make a written statement that it is not aware of any undisclosed contingent liabilities. This statement would appear in the: A) management letter. B) letter of inquiry. C) letters testamentary. D) management letter of representation. 4) Which of the following groups has the responsibility for identifying and deciding the appropriate accounting treatment for recording or disclosing contingent liabilities? A) auditors B) legal counsel C) management D) management and the auditors 5) You are auditing Rodgers and Company. You are aware of a potential loss due to non-compliance with environmental regulations. Management has assessed that there is a 40% chance that a $10M payment could result from the non-compliance. The appropriate financial statement treatment is to: A) accrue a $4 million liability. B) disclose a liability and provide a range of outcomes. C) since there is less than a 50% chance of occurrence, ignore. D) since there is greater that a remote chance of occurrence, accrue the $10 million. 6) Which of the following is not a contingent liability with which an auditor is particularly concerned? A) Notes receivable discounted Product warranties Yes Yes B) Notes receivable discounted Product warranties No No C) Notes receivable discounted Product warranties Yes No D) Notes receivable discounted Product warranties No Yes 7) Audit procedures related to contingent liabilities are initially focused on: A) accuracy. B) completeness. C) existence. D) occurrence. 8) With which of the following client personnel would it generally not be appropriate to inquire about commitments or contingent liabilities? A) Controller B) President C) Accounts receivable clerk D) Vice president of sales 1