ONE:The Bronys Bikes auditors should have become aware of the restrictive covenants associated with the Bank Two loan that was granted in 20X9 ( )

Answers:

As part of understanding the entity prior to conducting the audit

As part of the final review of the audited financial statements

As part of the confirmation of trade receivables

As part of the inventory observation

Feedback:AU 315.App A specifically states that the auditor must understand how the entity is financed, including any restrictive covenants related to that financing.

TWO:With respect to AU 260 and AU 265 requirements the auditor ( )

Answers:

Complies with either AU 260 or 265 but not both AU sections

Complies with AU 265 for communications about internal controls

Complies with AU 260 only if the auditors opinion is modified

Complies with AU 260 only for compliance audits

Feedback:AU 260 and 265 both deal with matters that the auditor must communicate with others. AU 260 has a lengthy exhibit that lists 13 specific instances in which other standards require direct communications with those charged with governance of the client

THREE:AU 265 identifies two different degrees of importance of deficiencies in internal controls. Each of the 13 proposed audit adjustments in Excel file 20X9 aje sol deals with misstatements identified during the Bronys Bikes audit. It is likely that the Bronys Bike auditor would consider audit adjustment ( ) as the best evidence of a material weakness in internal controls.

Answers:

# 5

# 6

# 9

#12

FeedbacK;Adjustment #5 indicates that all of the improperly recorded revenues were recognized in the last few days of 20X9. The control related to numbered shipping documents being used in numerical order is been violated several times. There are also absent controls related to bills of lading not being controlled.

FOUR:Refer to AU 265. A material weakness ( )

Answers:

Is only of concern to SEC registered entities

Is just another way of referring to a significant deficiency

Is a more serious issue than a significant deficiency

Is always accompanied by one or more significant deficiencies

Feedback:AU 265 glossary defines both terms. A material weakness is more serious than a significant deficiency. AU sections apply to all audits however certain AU sections have been replaced or modified by the Public Company Accounting Oversight Board. Those standards apply only to SEC registered entities.