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Gleim Exam Questions and Explanations
Updates to Auditing and Systems
18th Edition, 1st Printing
August 2013
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The updates in this PDF are the result of customer feedback, revisions based on the
Clarity Standards, and miscellaneous error corrections.
Study Unit 2 – Professional Responsibilities
Page 55, Subunit 2.2, Question 28.
28. A CPA who performs primary actuarial services
for a nonissuer client normally is precluded from
expressing an opinion on the financial statements of
that client if the
A. Fees for the actuarial services have not been
paid.
B. Actuarial services are a major determinant of
the pension expense.
C. CPA prepared an actuarial report using
assumptions determined by the CPA and not
approved by the client.
D. Actuarial assumptions used are not in
accordance with GAAS.
Answer (C) is correct. (CPA, adapted)
REQUIRED: The situation in which a CPA could not provide
actuarial and auditing services to a nonissuer client.
DISCUSSION: Under Interpretation 101-3, a member must
evaluate the effect on his/her independence of performing other
nonattest services. The member should not perform assume
management functions or make management decisions
responsibilities for the attest client. An example given in the
Interpretation of another attest service that impairs independence
is the preparation of an appraisal, valuation, or actuarial report
using assumptions determined by the member and not approved
by the client.
Answer (A) is incorrect. Unless the fees have been unpaid
for over a year at the date of the current year’s report and thus
might be deemed to be a loan to the client, the CPA may accept
the audit engagement. Answer (B) is incorrect. Even if the
results of the actuarial services are incorporated into the financial
statements, the auditor’s independence is not impaired as long
as the nonissuer client performs management functions and
makes management decisions if those results are not material,
and the services do not involve significant subjectivity. Valuation
of a pension liability ordinarily does not require significant
subjectivity. However, the auditor is precluded from performing
actuarial services for an issuer. Answer (D) is incorrect. The
assumptions should be in accordance with GAAP, not GAAS.
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Study Unit 3 – Planning and Risk Assessment
Page 90, Subunit 3.2, Question 23.
23. In designing developing written audit plans, an
auditor should select design specific audit
procedures that relate primarily to the
A. Timing of the audit procedures.
B. Cost-benefit Costs and benefits of gathering
evidence.
C. Selected audit techniques Financial
statements as a whole.
D. Financial statement assertions.
Answer (D) is correct. (CPA, adapted)
REQUIRED: The item to which specific audit objectives
procedures primarily relate.
DISCUSSION: Most audit work consists of obtaining and
evaluating evidence about relevant financial statement
assertions. They are management representations embodied in
the financial statements that are used by the auditor to consider
the types of possible material misstatements.
Answer (A) is incorrect. Timing is important in developing
audit plans, but the relationship with relevant assertions is
paramount it is not the primary basis for determining the
audit procedures to be performed. Answer (B) is incorrect. The
cost-benefit costs and benefits of gathering evidence is are
important to the auditor but is are not the primary consideration in
basis for determining the audit procedures to be performed.
Answer (C) is incorrect. Financial statement assertions determine
the specific audit techniques Most audit procedures are performed
at the assertion level.
Page 98, Subunit 3.3, Question 45.
45. Madison Corporation has a few large accounts
receivable that total $1,000,000. Nassau
Corporation has a great number of small accounts
receivable that also total $1,000,000. The
importance of a misstatement in any one account is
therefore greater for Madison than for Nassau. This
is an example of the auditor’s concept of
A. Materiality.
B. Comparative analysis.
C. Reasonable assurance.
D. Audit risk.
Answer (A) is correct. (CPA, adapted)
REQUIRED: The concept applicable to the relative size of
individual accounts receivable.
DISCUSSION: The concept of materiality requires the
auditor to evaluate the relative importance of items to users of
financial statements. In an entity with few but large accounts
receivable, the individual accounts are relatively more important
and the possibility of material misstatement of the financial
statements as a whole is greater than in an entity with many small
accounts.
Answer (B) is incorrect. Comparative analysis is a term that
is associated with analytical procedures. Answer (C) is incorrect.
The auditor must obtain reasonable assurance about whether the
financial statements as a whole are free from material
misstatement, whether due to fraud or error. Moreover, reasonable
assurance is mentioned in the auditor’s responsibility section in the
report. Answer (D) is incorrect. AU-C 200 and AS No. 8 define
audit risk as “the risk that the auditor expresses an inappropriate
audit opinion when the financial statements are materially
misstated.” Thus, the results may provide only a broad initial
indicator of whether a material misstatement exists. In these
circumstances, considering other information obtained when
identifying risks of material misstatement may help the auditor to
evaluate the results of the analytical procedures (AU-C 315).
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Study Unit 12 – Evidence -- The Purchases-Payables-Inventory Cycle
Page 285, Subunit 12.2, Question 28.
28. A client maintains perpetual inventory records in
both quantities and dollars. If the assessed
assessment of the risks of material misstatement is
high, an auditor will probably
A. Apply gross profit tests to ascertain the
reasonableness of the physical counts.
B. Increase the extent of tests of controls
relevant to the inventory cycle.
C. Request the client to schedule the physical
inventory count at the end of the year.
D. Insist that the client perform physical counts
of inventory items several times during the
year.
Answer (C) is correct. (CPA, adapted)
REQUIRED: The auditor’s action if control risk assessment
of the RMMs for inventory is high.
DISCUSSION: If the assessment of the RMMs is high,
extending work done on an interim basis to year end might be
inappropriate. Thus, attending physical inventory counting at
year end provides the best evidence as to existence.
Answer (A) is incorrect. Comparing the gross profit test
results with the prior year’s results provides evidence about sales
and cost of goods sold but not inventory. Answer (B) is incorrect.
If the auditor believes controls are unlikely to be effective, tests of
controls would are not be performed. But the auditor needs to be
satisfied that performing only substantive procedures will reduce
audit risk to an acceptably low level. Answer (D) is incorrect. The
risk is that year-end inventory would be is misstated.
Study Unit 14 – Evidence -- Key Considerations
Page 317, Subunit 14.1, Question 7.
7. Legal counsel’s response to an auditor’s inquiry
concerning about litigation, claims, and assessments
may be limited to matters that are considered
individually or collectively material to the client’s
financial statements. Which parties should may reach
an understanding on the limits of materiality for this
purpose that are stated in the letter of inquiry?
A. The auditor and the client’s management.
B. The client’s audit committee and legal
counsel.
C. The client’s management and legal counsel.
D. Legal counsel and the auditor.
Answer (D A) is correct. (CPA, adapted)
REQUIRED: The parties responsible for setting
materiality limits for legal counsel’s response to an auditor’s
stated in the letter of inquiry concerning about litigation, claims,
and assessments.
DISCUSSION: The letter of audit inquiry is prepared by
management and sent by the auditor to the entity’s legal
counsel. Among other things, the letter requests a statement
about the nature of, and reasons for, any limitation on legal
counsel’s response. Legal counsel may limit the response to
matters to which (s)he has given substantive attention in the
form of legal consultation or representation. Furthermore, legal
counsel’s response may be limited to those matters that are
considered individually or collectively material to the financial
statements, provided legal counsel and the auditor have
reached an understanding on the limits of materiality for this
purpose such as when the entity and the auditor have agreed
on materiality limits, and management has stated the limits in
the letter of inquiry (AU-C 501).
NOTE: According to the American Bar Association’s
statement of policy, legal counsel may wish to reach an
understanding with the auditor about the test of materiality.
However, legal counsel need not do so if (s)he assumes
responsibility for the criteria.
Answer (A) is incorrect. The auditor and the client should
have an understanding about the limits of materiality for the
purpose of the inquiry. Legal counsel and the auditor should
agree about materiality for the purpose of the response.
Answer (B) is incorrect. The auditor must judge whether items
are material relative to the financial statements. Legal counsel
and the audit committee do not draft the letter of inquiry or
agree on its terms. Answer (C) is incorrect. The auditor must
judge whether items are material relative to the financial
statements. Legal counsel may reach an understanding with
the auditor about materiality but does not draft the letter of
inquiry. Moreover, the auditor ultimately must make materiality
judgments relevant to the audit. Answer (D) is incorrect. Legal
counsel does not determine the content of the letter of inquiry.
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Page 317, Subunit 14.1, Question 8.
8. A client is a defendant in a patent infringement
lawsuit against a major competitor. Which of the
following items would least likely be included in the
attorney’s response to the auditor’s letter of inquiry?
A. A description of potential litigation in other
matters or related to an unfavorable verdict in
unrelated to the patent infringement lawsuit.
B. A discussion of case progress and the strategy
currently in place by client management to
resolve the lawsuit.
C. An evaluation of the probability of loss and a
statement of the amount or range of loss if an
unfavorable outcome is reasonably possible.
D. An evaluation of the ability of the client to
continue as a going concern if the verdict is
unfavorable and maximum damages are
awarded.
Answer (D) is correct. (CPA, adapted)
REQUIRED: The items least likely included in the
attorney’s response to the auditor’s letter of inquiry.
DISCUSSION: An inquiry letter response from the
client’s legal counsel will normally include information or
comment about each pending or threatened litigation,
claim, or assessment. Legal counsel should (1) address
the progress of the case, (2) describe the action the
company plans to take, (3) evaluate the likelihood of an
unfavorable outcome, and (4) estimate (if possible) the
range of any potential loss. Legal counsel does not
have the expertise or appropriate information to make a
judgment about the client’s ability to continue as a going
concern. The auditor normally makes that judgment.
Answer (A) is incorrect. An evaluation of the
probability of loss and a statement of the amount or
range of loss, if an unfavorable outcome is reasonably
possible, A description of potential litigation in other
matters unrelated to the patent infringement lawsuit is
included in the attorney’s response letter. Answer (B) is
incorrect. A discussion of case progress and the
strategy currently in place by client management to
resolve the lawsuit is included in the attorney’s response
letter. Answer (C) is incorrect. An evaluation of the
probability of loss and a statement of the amount or
range of loss if an unfavorable outcome is reasonably
possible is included in the attorney’s response letter.
Page 325, Subunit 14.2, Question 34.
34. Which of the following events occurring after the
date of the report most likely will cause the auditor to
make further inquiries about the previously issued
financial statements?
A. A technological development that could affect the
entity’s future ability to continue as a going
concern.
B. The discovery of information regarding a
contingency that existed before the financial
statements were issued.
C. The entity’s sale of a subsidiary that accounts for
30% of the entity’s consolidated sales.
D. The final resolution of a lawsuit explained in a
separate paragraph of the auditor’s report.
Answer (B) is correct. (CPA, adapted)
REQUIRED: The event occurring after the date of
the report most likely resulting in further inquiries.
DISCUSSION: Facts may be discovered by the
auditor after the report release date of the report that, if
known at that date, might have caused the auditor to
revise the report. In this case, the auditor should (1)
discuss the matter with management and (2) determine
whether the statements should be revised and, if so,
how management intends to address the matter in the
statements (AU-C 560).
Answer (A) is incorrect. An event occurring after
the date of the report need not be considered by the
auditor if it would not affect the report. Answer (C) is
incorrect. An event occurring after the date of the report
need not be considered by the auditor if it would not
affect the report. Answer (D) is incorrect. The auditor
need not consider final determinations or resolutions of
contingencies that were disclosed in the financial
statements or that resulted in a modification of the
auditor’s report.
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Study Unit 16 – Reports -- Opinions and Disclaimers
Page 385, Subunit 16.3, Question 36.
36. In May Year 3, an auditor reissues the auditor’s
report on the Year 1 financial statements at a continuing
former client’s request. The Year 1 financial statements
are to be presented comparatively with subsequent
audited statements. They are not restated, and the
auditor does not revise the wording of the report. The
auditor should
A. Dual date the reissued report.
B. Use the release date of the reissued report.
C. Use the original report date on the reissued
report.
D. Use the current-period auditor’s report date on
the reissued report.
Answer (C) is correct. (CPA, adapted)
REQUIRED: The date of a reissued report.
DISCUSSION: Use of the original date in a
reissued report removes any implication that records,
transactions, or events after such date have been
audited or reviewed. The auditor will thus have no
responsibility to carry out procedures relating to the
period between original issuance and reissuance.
However, the predecessor auditor should perform the
following procedures to determine whether the report is
still appropriate: (1) read the statements of the
subsequent period, (2) compare the prior statements
with the current statements, and (3) obtain written
representations from management and the successor
auditor about information obtained or events that
occurred subsequent to the original date of the report.
Answer (A) is incorrect. The report is dual dated
only if it has been revised since the original reissue
date. Answer (B) is incorrect. The release date of the
reissued report implies that additional audit procedures
have been applied. Answer (D) is incorrect. Use of the
current report date implies that the report has been
updated for additional audit procedures applied between
the original issue date and the current auditor’s report
date.
Page 386, Subunit 16.3, Question 39.
39. On September 30, Year 2, Miller was asked to
reissue an auditor’s report, dated March 31, Year 2, on
a client’s financial statements for the year ended
December 31, Year 1. Miller will submit the reissued
report to the client in a document that contains
information in addition to the client’s basic financial
statements. However, Miller discovered that the client
suffered substantial losses on receivables resulting from
conditions that occurred since March 31, Year 2. Miller
should
A. Request the client to disclose the event in a
separate, appropriately labeled note to the
financial statements and reissue the original
report with its original date.
B. Request the client to restate the financial
statements and reissue the original report with a
dual date.
C. Reissue the original report with its original date
without regard to whether the event is disclosed
in a separate note.
D. Not reissue the original report but express a
“subject to” qualified opinion that discloses the
event in a separate paragraph.
Answer (A) is correct. (CPA, adapted)
REQUIRED: The auditor action regarding
reissuance of a report and a disclosable subsequent
event conditions occurring after the report date.
DISCUSSION: The subsequent event concerned
conditions that arose after the balance sheet date and
thus required disclosure only no restatement. If an event
of this kind occurs between after the date of the report
and the date of its reissuance, and it comes to the
auditor’s attention, it may be disclosed in a note. The
caption may be as follows: Event (Unaudited)
Subsequent to the Date of the Independent Auditor’s
Report. In this case, the auditor’s report would have the
same date as the original report.
Answer (B) is incorrect. Restatement is not
necessary. The conditions arose after the balance sheet
date. Also, the auditor is not assuming responsibility for
the subsequent event conditions and thus should not
dual date the report. The conditions do not constitute a
subsequent event or a subsequently discovered fact.
Answer (C) is incorrect. When financial statements are
reissued, a note is required if disclosure of the
subsequent event is necessary management may
revise them by including disclosures about events
occurring after the report date to prevent the statements
from being misleading. Answer (D) is incorrect. A
“subject to” opinion is never permissible.
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Page 6 of 9
Page 390, Subunit 16.4, Question 51.
51. An auditor expresses a qualified opinion because of
a material misstatement related to specific amounts in
the financial statements. Which of the following phrases
should be included in the opinion paragraph when an
auditor expresses a qualified opinion?
“When Read
in Conjunction with
Note X”
“With the Foregoing
Explanation”
A.
Yes
No
B.
No
Yes
C.
Yes
Yes
D.
No
No
Answer (D) is correct. (CPA, adapted)
REQUIRED: The phrase(s) used in an qualified
opinion qualified because of a material misstatement
related to specific amounts in the financial statements.
DISCUSSION: The auditor should use the phrase
“except for” to qualify for any qualification of an opinion,
followed by the basis for the qualification and a
reference to the basis for qualified opinion paragraph
preceding the opinion paragraph. Depending on the
nature of the misstatement Given a qualification
because of a material misstatement related to specific
amounts in the financial statements, the basis
paragraph should describe the matter resulting in the
qualification. It also should include (1) a description and
quantification of the financial effects, if practicable;
(2) an explanation of how narrative disclosures are
misstated; or (3) omitted information, if practicable, and
a description of its nature. However, if financial-effects
disclosures are made in a note to the statements, the
basis paragraph may refer to it. Furthermore, the notes
are part of the financial statements, and a phrase such
as “when read in conjunction with Note X” in the opinion
paragraph is likely to be misunderstood. Also, wording
such as “with the foregoing explanation” is neither clear
nor forceful enough.
Answer (A) is incorrect. The phrase “when read in
conjunction with Note X” is unacceptable. Answer (B) is
incorrect. The phrase “with the foregoing explanation” is
unacceptable. Answer (C) is incorrect. The phrases
“when read in conjunction with Note X” and “with the
foregoing explanation” are unacceptable.
Page 402, Subunit 16.6, Question 92.
92. Morris, CPA, suspects that a pervasive scheme of
illegal bribes exists throughout the operations of
Worldwide Import-Export, Inc., a new audit client. Morris
notified the audit committee and Worldwide’s legal
counsel, but neither would assist Morris in determining
whether the amounts involved were material to the
financial statements or whether senior management
was involved in the scheme. Under these
circumstances, Morris most likely should
A. Express an unmodified opinion with an
emphasis-of other-matter paragraph.
B. Disclaim an opinion on the financial statements.
C. Express an adverse opinion on the financial
statements.
D. Issue a special report regarding the illegal bribes.
Answer (B) is correct. (CPA, adapted)
REQUIRED: The auditor action when (s)he cannot
determine the amounts involved in material
noncompliance with laws or regulations or the extent of
management’s involvement.
DISCUSSION: Bribery is a violation of laws or
governmental regulations. If the auditor is precluded by
management or those charged with governance (e.g.,
the audit committee) from obtaining sufficient
appropriate evidence to evaluate whether material
noncompliance with laws or regulations has (or is likely
to have) occurred, the auditor should disclaim an
opinion or express an unqualified opinion.
Answer (A) is incorrect. An unmodified opinion is
not justified. Answer (C) is incorrect. An adverse opinion
is expressed only when the financial statements are not
presented fairly. Answer (D) is incorrect. Special reports
as defined in AU-C 805 are not issued on such topics.
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Study Unit 17 – Reports -- Other Modifications
Page 405, Introductory paragraph.
This study unit covers explanatory additional language added to modifying the auditor’s report.
These modifications normally do not affect the auditor’s opinion on the financial statements. They
permit the users of the financial statements and readers of the auditor’s report to better understand
the responsibility assumed by the auditor. They also provide information about the client’s financial
statements that the auditor considers important. The following summarizes these modifications:
1. A group auditor’s opinion is based in part on the report of a component auditor -- Modify the
auditor’s responsibility section and opinion paragraph.
2. A material accounting change affects consistency -- Add an emphasis-of-matter paragraph.
3. Substantial doubt exists about the entity’s ability to continue as a going concern -- Add an
emphasis-of-matter paragraph.
4. The auditor changes the opinion for a prior period when reporting on current statements in
comparative form -- Add an emphasis-of-matter or other-matter paragraph.
5. Predecessor auditor’s report for a prior period is not presented when reporting on current
financial statements in comparative form -- Add an other-matter paragraph.
6. A matter needs to be emphasized An auditor needs to draw users’ attention by additional
communication -- Add an emphasis-of-matter or other-matter paragraph.
Page 410, Subunit 17.1, Question 15.
15. The group engagement partner has identified a
significant component of the group that is being audited
by a component auditor. The group auditor intends to
assume responsibility for the work of the component
auditor. Accordingly,
A. A qualified opinion should be expressed on that
component.
B. The component auditor should become a
member of the group engagement team.
C. The group engagement team should either audit
the component directly or have the component
auditor audit the information on its behalf.
D. The group engagement team should obtain a
representation letter from component
management.
Answer (C) is correct. (Publisher, adapted)
REQUIRED: The requirement when a significant
component is identified in a group audit with no reference
to the component auditor.
DISCUSSION: A significant component is one that is
(1) of individual financial significance to the group or
(2) likely to include significant risks of material misstatement of the group financial statements. When the group
engagement partner assumes responsibility for the audit of
the component, the audit report does not refer to the audit
of the component auditor. Thus, the group engagement
team should (1) audit the financial information directly or
(2) have the component auditor audit the information on its
behalf, using appropriate component materiality.
Answer (A) is incorrect. The opinion is based on the
evidence obtained, not on how it is audited. Answer (B) is
incorrect. The component auditor may or may not become
part of the group engagement team. Answer (D) is
incorrect. The group engagement team’s understanding of
the component auditor addresses his/her compliance with
(1) ethical requirements (especially independence) and (2)
professional competence. Although the group engagement
team may communicate with the component auditor, a
management representation letter is not required. The
communication requested from the component auditor
should include exceptions in the written representations
that (s)he requested from component management. Thus,
the group engagement team’s involvement in the work of
the component auditor does not necessarily require
obtaining a representation letter from component
management.
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Page 8 of 9
Page 416, Subunit 17.3, Question 35.
35. If an auditor is satisfied that sufficient evidence
supports management’s assertions about an uncertainty
and its presentation or disclosure, the auditor should
A. Express an unmodified opinion.
B. Express an unmodified opinion with a separate
emphasis-of-matter paragraph.
C. Disclaim an opinion.
D. Express a qualified opinion or disclaim an
opinion, depending upon the materiality of the
loss.
Answer (A) is correct. (CPA, adapted)
REQUIRED: The opinion expressed when the
likelihood is remote that an uncertainty will have a
material effect sufficient appropriate evidence supports
assertions about an uncertainty.
DISCUSSION: In the absence of a material
misstatement, for example, because of inadequate
disclosure or a scope limitation, an uncertainty does not
require modification of the opinion. If sufficient appropriate evidence supports management’s assertions
about an uncertainty and its presentation or disclosure,
the opinion ordinarily is unmodified (AU-C 705).
Answer (B) is incorrect. An emphasis-of-matter
paragraph is not required. Answer (C) is incorrect. A
disclaimer is appropriate only when the possible effects
of an inability to obtain sufficient appropriate evidence
are pervasive. Answer (D) is incorrect. A disclaimer is
appropriate only when the possible effects of an inability
to obtain sufficient appropriate evidence are pervasive.
Moreover, an uncertainty does not, by itself, require any
report modification.
Study Unit 18 – Related Reporting Topics
Page 425, Table of Contents.
18.1
18.2
Interim Financial Information (AU-C 930) . . . . . . . . . . . . . . . . . . . .
(8 questions) 425
Letters for Underwriters and Certain Other Requesting Parties
(AU-C 920) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11 questions) 428
18.3 Filings under Federal Securities Statutes with the U.S. Securities
and Exchange Commission under the Securities Act of 1933
(AU-C 925) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8 questions) 431
18.4 Other Information in Documents Containing Audited Financial
Statements (AU-C 720) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4 questions) 434
18.5 Required Supplementary Information (RSI) (AU-C 730) . . . . . . . .
(3 questions) 435
18.6 Supplementary Information in Relation to the Financial Statements
as a Whole (AU-C 725) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2 questions) 436
18.7 Engagements to Reporting on Summary Financial Statements
(AU-C 810) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3 questions) 437
18.8 Financial Statements Prepared in Accordance with a Financial
Reporting Framework Generally Accepted in Another Country
(AU-C 910) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1 question) 438
18.9 Reports on Application of Requirements of an Applicable Financial
Reporting Framework (AU-C 915) . . . . . . . . . . . . . . . . . . . . . . .
(3 questions) 438
18.10 Audits of Financial Statements Prepared in Accordance with
Special Purpose Frameworks (AU-C 800) . . . . . . . . . . . . . . . . .
(9 questions) 439
18.11 Audits of Single Financial Statements and Specific Elements,
Accounts, or Items of a Financial Statement (AU-C 805) . . . . . . (5 questions) 442
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Page 9 of 9
Page 427, Subunit 18.1, Question 5.
5. The extent to which the procedures for a review of
interim financial information are to be applied depends
on each of the following considerations except
A. The auditor’s time budget allotted for the tests.
B. Conditions indicating the possible inability of the
entity to continue as a going concern.
C. Litigation, claims, and assessments.
D. Questions raised in performing other
procedures.
Answer (A) is correct. (Publisher, adapted)
REQUIRED: The matter not considered in
determining the extent of procedures applied.
DISCUSSION: The procedures in a review of IFI
include (1) analytical procedures; (2) reading the
minutes of meetings; (3) reading the IFI to consider
whether it is in accordance with the applicable reporting
framework; (4) obtaining reports of other auditors who
have reviewed interim information of components of the
entity; (5) inquiries of management; (6) reconciling the
IFI with the accounting records; (7) obtaining written
representations from management; (8) reading other
information accompanying the IFI; and (9) obtaining an
understanding of the entity and its environment,
including its internal control (AU-C 930). IFI is not in
accordance with the framework. However, the auditor’s
time budget should not be a determining factor. The
matter of the difficulty, time, or cost involved in
performing such procedures is not in itself a valid basis
to omit a procedure for which there is no alternative
(AU-C 200).
Answer (B) is incorrect. A review is not intended to
identify conditions indicating the possible inability of the
entity to continue as a going concern. However, if they
existed at the date of the previous statements or if the
auditor becomes aware of them, (s)he should (1) inquire
of management about its plans to deal with the
conditions and (2) consider the adequacy of disclosure.
Answer (C) is incorrect. Information about litigation,
claims, and assessments that raises questions about
whether the IFI is in accordance with the framework
may come to the auditor’s attention. In these
circumstances, the auditor should inquire of legal
counsel. Answer (D) is incorrect. A matter that calls into
question whether the IFI is in accordance with the
framework may come to the auditor’s attention. In this
case, the auditor should make additional inquiries or
perform other procedures.
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