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AICPA CPA-Auditing Exam
CPA Auditing and Attestation (AUD) (Page 21 )

Updated On: 9-Feb-2026
Page 21 of 207
PDF with 1026 Questions

After issuing a report, an auditor has no obligation to make continuing inquiries or perform other procedures concerning the audited financial statements, unless:

  1. Information, which existed at the report date and may affect the report, comes to the auditor's attention.
  2. Management of the entity requests the auditor to reissue the auditor's report.
  3. Information about an event that occurred after the date of the auditor's report comes to the auditor's attention.
  4. Final determinations or resolutions are made of contingencies that had been disclosed in the financial statements.

Answer(s): A

Explanation:

Choice "a" is correct. After issuing a report, an auditor has no obligation to make continuing inquiries or perform other procedures concerning the audited financial statements, unless information, which existed at the report date and may affect the report, comes to the auditor's attention. In this case the auditor would perform procedures to determine if the information affects the report and is important to the external users.
Choice "b" is incorrect. The auditor has no obligation to perform other procedures if management of the entity requests the auditor to reissue the auditor's report (if no significant changes have occurred since the report date).
Choice "c" is incorrect. The auditor has no obligation to perform other procedures if information about an event that occurred after the date of the auditor's report comes to the auditor's attention (and the auditor has not been asked to reissue the report). Choice "d" is incorrect. Most contingencies are eventually resolved; however, such resolution does not require the auditor to perform other procedures.



Which of the following procedures would an auditor most likely perform in obtaining evidence about subsequent events?

  1. Examine a sample of transactions that occurred since the year-end to verify the effectiveness of computer controls.
  2. Inquire of management whether there have been significant changes in working capital since the year-end.
  3. Recompute depreciation charges for plant assets sold for substantial gains since the year-end.
  4. Reperform the tests of controls that indicated significant deficiencies in the operation of internal control.

Answer(s): B

Explanation:

Choice "b" is correct. In obtaining evidence about subsequent events, the auditor would most likely inquire of management whether there have been significant changes in working capital since year- end.
Such changes could be indicative of a going concern problem, which would require financial statement disclosure.
Choice "a" is incorrect. Subsequent events are material events or transactions occurring subsequent to the balance sheet date, but prior to the issuance of the financial statements, that require adjustment to or disclosure in the financial statements. Reviewing a sample of transactions occurring after year-end to verify the effectiveness of computer controls would not be likely to provide information about subsequent events.
Choice "c" is incorrect. Subsequent events are material events or transactions occurring subsequent to the balance sheet date, but prior to the issuance of the financial statements, that require adjustment to or disclosure in the financial statements. Recomputing depreciation related to assets sold after year-end is not likely to provide information about subsequent events. Sales occurring after year-end are not considered to be subsequent events. Choice "d" is incorrect. Subsequent events are material events or transactions occurring subsequent to the balance sheet date, but prior to the issuance of the financial statements, that require adjustment to or disclosure in the financial statements. Control deficiencies do not fall within this definition, so reperforming tests of controls would not provide evidence about subsequent events.



Which of the following events occurring after the issuance of an auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements?

  1. A lawsuit is resolved that is explained in a separate paragraph of the prior-year's auditor's report.
  2. New information is discovered concerning undisclosed related party transactions of the prior year.
  3. A technological development occurs that affects the entity's ability to continue as a going concern.
  4. The entity sells a subsidiary that accounts for 35% of the entity's consolidated sales.

Answer(s): B

Explanation:

Choice "b" is correct. If an auditor becomes aware of material information that existed at the date of the auditor's report, and which would have affected that report, the auditor needs to take appropriate action.
Since related party transactions should be disclosed in the financial statements, it is likely that the auditor would need to make further inquiries to determine whether the lack of disclosure will affect the previously issued report.
Choice "a" is incorrect. Resolution of a lawsuit that was disclosed in the prior year's audit report would not be likely to affect the audit report, as auditors are not required to update their reports for events occurring after the fact.
Choice "c" is incorrect. A technological development that affects the entity's ability to continue as a going concern would not be likely to affect the previous year's audit report, as auditors are not required to update their reports for events occurring after the fact. Choice "d" is incorrect. Sale of a subsidiary would not be likely to affect the previous year's audit report, as auditors are not required to update their reports for events occurring after the fact.



On February 9, Brown, CPA, expressed an unqualified opinion on the financial statements of Web Co. On October 9, during a peer review of Brown's practice, the reviewer informed Brown that engagement personnel failed to perform a search for subsequent events for the Web engagement.
Brown should first:

  1. Request Web's permission to perform substantive procedures that would provide a satisfactory basis for the opinion.
  2. Inquire of Web whether there are persons currently relying, or likely to rely, on the financial statements.
  3. Take no additional action because subsequent events have no effect on the financial statements that were reported on.
  4. Assess the importance of the omitted procedures to Brown's present ability to support the opinion.

Answer(s): D

Explanation:

Choice "d" is correct. If an omitted audit procedure is discovered, the auditor should assess the importance of the omitted procedure to the auditor's ability to support the opinion. It might be the case that other audit procedures tended to compensate for the omitted procedure, in which case no further action would be necessary.
Choice "a" is incorrect. The auditor would only request permission to perform substantive procedures if no other procedures compensated for the missing one, and if there were persons relying (or likely to rely) on the financial statements. Choice "b" is incorrect. The auditor would need to determine whether there were persons relying (or likely to rely) on the financial statements, but this would not be done unless it had already been determined that no other audit procedures compensated for the missing one. Choice "c" is incorrect. If the omitted audit procedure impairs the auditor's ability to support the opinion, no other procedures compensated for the missing one, and there were persons relying (or likely to rely) on the financial statements, the auditor would need to apply substantive procedures.
Taking no action would not be an acceptable response.
Reporting on Other Information



Which of the following is not true regarding an engagement to provide a written report on the application of accounting principles?

  1. An accountant is prohibited from providing a report on the application of accounting principles to a transaction not involving the facts and circumstances of a specific entity.
  2. The accountant's written report on the application of accounting principles should include an identification of the specific entity involved.
  3. An accountant is prohibited from providing a report on the application of accounting principles to a proposed future transaction involving the facts and circumstances of a specific entity.
  4. The accountant's written report on the application of accounting principles should include a paragraph restricting the use of the report.

Answer(s): C

Explanation:

Choice "c" is correct. An accountant may report on the application of accounting principles to a proposed future transaction as long as the transaction involves the facts and circumstances of a specific entity.
Choice "a" is incorrect. An accountant is prohibited from providing a report on the application of accounting principles to "hypothetical transactions," which are defined as those not involving the facts and circumstances of a specific entity.
Choices "b" and "d" are incorrect. The accountant's written report on the application of accounting principles should include an identification of the specific entity involved, a description of the transaction(s), a statement of the relevant facts, circumstances, and assumptions (and a statement that any changes therein may change the report), a statement about the source of the information, a statement describing the appropriate accounting principles or type of opinion that may be rendered, the reasons for the accountant's conclusions, a statement regarding management's responsibility, and a restrictive use paragraph.






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