Select the best answer and explain why
\fQuestion 5. (11 Marks) (1 Mark each) Select the best answer from the choices provided in each question. List your answers in the space provided. 1. Which of the following are categories that do not reflect the contingent nature of losses and the guiding criteria organized around probability of outcomes as provided by the IASB? a. Guaranteed. . Reasonably possible. . Remote. d. Probable. 2. Which of the following types of information is not a type of evidence that the auditor should obtain concerning contingencies? a. Information about major contracts in which contingencies may be present. b. Documentation of communication with internal and external legal counsel of the client. C. Accounts receivable confirmations. d. Documentation of contingent liabilities contained in corporate minutes, correspondence from governmental agencies, and bank confirmations. 3. Which of the following items does the auditor ask the client to send to its legal counsel requesting information about asserted claims? a. A letter of audit inquiry. b. A management representation letter. C. A management letter. d. A loss reserve confirmation. PE10. An emphasis of a matter may result in which of the following? a. A disclaimer of an audit opinion. b. A qualified audit opinion. C. An adverse opinion. d. An unmodified audit opinion with an explanatory paragraph either before or after the opinion paragraph. 11. A justified departure from GAAP may result in which of the following? a. A disclaimer of an audit opinion. b. An unqualified audit opinion with an explanatory paragraph either before or after the opinion paragraph. C. An adverse opinion. d. A qualified opinion.contingencies? 4. Which of the following items is not typically requested from the lawyer of a company regarding a. Any limitations on the lawyer's response such as not devoting substantial attention to the item or that the amounts are not material. b. Information about the attorney's other clients with similar contingencies. c. A description of each contingency, as well as progress and action that the company plans to take. d. A comment on the completeness of management's list of contingencies and an evaluation. 5. Which of the following is not an indicator of a potential going-concern problem? a. Negative trends in profitability. b. External matters increasing regulatory requirements. c. Significant changes in competition. d. Current ratio below 3.0. 6. If the auditor concludes that there may be a going-concern problem, which of the following is not typically evaluated to determine the reasonableness of management's plans to overcome this problem? a. Management's assumption about increasing prices or market share in relationship to current industry developments. b. Management's assumptions about cost savings related to a reduction in the work force should be recomputed and evaluated to determine any hidden costs. C. Management's past track record related to delaying unnecessary expenditures. d. Management's assumptions about selling off assets and their relationship to current market prices. NS WE PE 9
