[jeff]

Welcome to the Q1 2016 CPA Exam Study Group for AUD.

Some BLITZ videos to help your exams: https://www.another71.com/ninja-blitz

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[FAR_WARS]

@Peter:

C because “the ordinary course of business” does not impair independence.

FAR- 80
BEC- 75
AUD- 78
REG- ?

[Pete]

Answer (C) is correct.

Other entities in the consolidated group and their employees may not be (1) promoters, (2) underwriters, (3) directors, (4) officers, or (5) voting trustees of an attest client. However, with these exceptions, indirect superiors and other consolidated entities may provide services to an attest client that a member could not without impairing independence. For example, a bank’s provision of trustee and asset custody services in the ordinary course of business does not impair independence if the bank is not subject to the independence rules in their entirety (e.g., because it is not significantly influenced by a direct superior).

[Pete]

i am studying from wiley and i didn't see this info there 🙁

[SaveBandit]

From Ninja:

Zero Corp. suffered a loss that would have a material effect on its financial statements on an uncollectible trade account receivable due to a customer's bankruptcy. This occurred suddenly due to a natural disaster 10 days after Zero's balance sheet date, but one month before the issuance of the financial statements and the auditor's report. Under these circumstances:

I.the financial statements should be adjusted.
II.the event requires financial statement disclosure, but no adjustment.
III.the auditor's report should be modified for a lack of consistency.

A. I only

B. Both I and III

C. Both II and III

D. II only

Answer D. Only financial statement disclosure is required when a material loss occurs after the balance sheet date but before the issuance of the auditor's report. No adjustment is required since the condition (the customer's bankruptcy due to a natural disaster) did not exist at the balance sheet date. Disclosure is required to keep the financial statements from being misleading. Consistency in the application of generally accepted accounting principles is not affected.

I swear Becker has a similar question but the answer is A because the receivable is basically worthless at the end of the year, so you have to write it off. Thoughts?

4 for 4

FAR 85
AUD 94
BEC 86
REG 90

[FAR_WARS]

@SaveBandit:
You need to know your rules for Type 1 and Type 2 subsequent events.
i.e. Did a condition exist at the BS date? (Mainly a FAR concept)

FAR- 80
BEC- 75
AUD- 78
REG- ?

[SaveBandit]

@FARWARS

That's total crap; I took FAR already. I'd like to forget it now.

But…you are right. Bankruptcy due to deteriorating financial conditions after BS date = adjustment. Bankruptcy due to natural disaster after BS date = disclosure. Who knew.

4 for 4

FAR 85
AUD 94
BEC 86
REG 90

[Pandarama]

The key part of that question was when it stated when the subsequent event occurred. It happened after the balance sheet date so we only need to disclose the event. If it happened before the balance sheet date but we weren't aware of it until afterwards, then we would need to adjust the financial statements.

BEC - 80
AUD - 64, 75 - credit lost, 90!!
REG - 73, 74, 83
FAR - 61, 72, 85

Feels good finishing on my best note. Time to watch the mailbox.

[SaveBandit]

@pandarama

Not necessarily.

AU-C 560.04 “Identifying events that require adjustment of the financial statements
under the criteria stated above calls for the exercise of judgment and knowledge
of the facts and circumstances. For example, a loss on an uncollectible trade
account receivable as a result of a customer's deteriorating financial condition
leading to bankruptcy subsequent to the balance-sheet date would be indicative
of conditions existing at the balance-sheet date, thereby calling for adjustment
of the financial statements before their issuance.”

4 for 4

FAR 85
AUD 94
BEC 86
REG 90

[FAR_WARS]

The question is whether a condition existed @ BS date. Not whether or not the event has occurred.

FAR- 80
BEC- 75
AUD- 78
REG- ?

[FAR_WARS]

Are Projections and Forecasts considered Prospective statements? or something different? Have never really been clear on this.

FAR- 80
BEC- 75
AUD- 78
REG- ?

[SaveBandit]

@FARWARS

Yes.

“Financial forecasts and projections are two types of prospective financial statements that attempt to reflect a company's expected financial position and expected results of operations.” Per Becker A2-85

4 for 4

FAR 85
AUD 94
BEC 86
REG 90

[Pete]

1- In obtaining written representations from management, materiality limits ordinarily would apply to representations related to

A. Fraud involving members of management.
B. Amounts concerning related party transactions.
C. The completeness of minutes of directors’ meetings.
D. The availability of financial records.

what's the materiality limit ?

[Pete]

2- If an accountant concludes that unaudited financial statements of an issuer on which the accountant is disclaiming an opinion also lack adequate disclosure, the accountant should suggest appropriate revision. If the client does not accept the accountant’s suggestion, the accountant should

A. Accept the client’s inaction because the statements are unaudited and the accountant has disclaimed an opinion.
B. Express an adverse opinion and describe the appropriate revision in the report.
C. Refer to the appropriate revision and issue a modified report expressing limited assurance.
D. Describe the appropriate revision to the financial statements in the accountant’s disclaimer of opinion.

[Pete]

3- A CPA is considered not associated with unaudited financial statements of a public entity when (s)he

A. Performed a review of an issuer’s unaudited financial statements that are presented in a quarterly report to the shareholders.
B. Received all input data from the client, analyzed it, and returned it to the client for processing by an independent computer service company.
C. Assisted in the preparation of the unaudited financial statements for an issuer.
D. Completed an audit and reported on the financial statements that, without the CPA’s consent, were part of a prospectus including unaudited financial statements.

[FAR_WARS]

B. Amounts concerning related party transactions.

The answer is B because a “materiality limit” must apply to a dollar amount. The other choices are not quantitative, so it would be impossible to set a materiality limit.

FAR- 80
BEC- 75
AUD- 78
REG- ?

[Author]

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