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Ch16+SM+7-24-07+REV - Solutions for Chapter 16 Completing...

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Solutions for Chapter 16 Completing the Audit Review Questions: 16-1. The purpose of performing analytical procedures on revenue and expenses at the end of the audit is to provide evidence on whether certain relationships make sense in light of the knowledge obtained during the audit 16-2. The purposes of the concurring partner review are to help assure that the audit and audit documentation are complete and support the audit opinion on the financial statements and, for public companies, on the client’s internal controls. 16-3. The primary source of information concerning litigation, claims, and assessments is the client's management. The primary source of corroborative evidence is the client's legal counsel. 16-4. Attorneys are hesitant to provide much information to auditors. They know that the auditors will document that information in the audit working papers, which are, in most states, not protected by privileged communication. Information that is not privileged can be subpoenaed by a court of law and serve as evidence against the client. Attorneys usually have privileged communications with their clients. 16-5. The letter of audit inquiry is sent by the client to the lawyer because of the confidentiality of the information requested. The lawyer should send their response directly to the auditor. 16-6. This is a scope limitation and the auditor should issue either a qualified opinion or a disclaimer. 16-7. It is impossible to remember all of the matters that should be considered for disclosure. A disclosure checklist serves as a reminder of possible items that should be considered for disclosure. There may be items that should be disclosed that are not covered by the checklist. The auditor, therefore, should not blindly follow a checklist, but use good audit judgment when there are unusual circumstances of which the users should be aware. 16-8. A management representation letter is a letter signed by the CEO and CFO, dated as of the audit report date, and is prepared by the auditor. It is a reminder to management of their primary responsibility for the financial statements. It covers information previously obtained orally from the client, confirms their continuing appropriateness, and reduces the possibility of misunderstandings. It must be obtained in each audit. The report certifying the financial statements signed by the CFO and CEO accompanies the financial statements in the annual report to the SEC and stockholders, whereas the management
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16-2 Solutions for Chapter 16 – Completing the Audit representation letter becomes part of the auditor’s documentation and is not disseminated to others. 16-9. A summary of possible adjustments working paper helps the auditor determine whether the financial statements are fairly presented by summarizing uncorrected misstatements identified during the audit. The auditor can then determine whether their aggregate effects are material to the financial statements. Misstatements are summarized by their
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