Loan covenants
Require the borrower to maintain certain financial characteristics
Which of the following is not an off-balance sheet item
Capitalized lease
All corporate capital stock transactions should ultimately be traced to the
Minutes of the meetings of the board of directors
An audit plan for the examination of the retained earnings account should include a step that requires verification of the
Authorization for both cash and stock dividends
In an audit test of recorded interest expense and accrued interest, the auditor was able to detect that the recorded interest expense was higher than the calculations showed. This may indicate
Interest was paid on an unknown debt or unrecorded liability
Which of the following events or activities may occur following the audit report release date?
Subsequently discovered facts
An important method used by auditors to learn material contingencies is
Obtaining responses to an attorney letter
What is the primary purpose of obtaining written representations?
To impress upon management its primary responsibility for the financial statements
At the review stage of an audit, the application of analytical procedures is
Required by auditing standards
Why is it the client's decision to record adjustments to the financial statements?
The financial statements are the responsibility of the client's management
To whom should written representations be addressed?
Auditors
Subsequent events occur between which two dates?
date of the financial statements; date of the auditors' report
If the date of an entity's financial statements is Dec 31, the date of the auditor's report is Feb 20, and the audit report release date is Feb 22, which of the following is considered a subsequent event?
A significant acquisition that was announced on Feb 1 and will be finalized on Oct 1
If financial statements contain a material but nonpervasive departure from GAAP, the auditors should render a
qualified opinion with reference to departure
Auditors will issue an adverse opinion when
A violation of GAAP is sufficiently material and pervasive that a qualified opinion is not justified
In which of the following circumstances may auditors issue a standard report on the entity's financial statements
The entity changed accounting principles having an immaterial effect of the entity's financial position, results of operations, and cash flows
When auditors lack independence, which of the following is true about the report on the entity's financial statements that should be issued?
The auditors should disclaim an opinion and should state specifically that they are not independent
Auditors should disclose the substantive reasons for expressing an adverse opinion on the entity's financial statements in an additional paragraph
Preceding the opinion paragraph
When audited financial statements are presented in a document containing other information (such as an annual report) the auditors should
Read the other information to determine that it is consistent with the audited financial statements
The set of items about which a statement is made in a sampling application is referred to as a
Population