Question

Question 10  

• A model using certain ratios of an organization that evaluates the likelihood of a bankruptcy is often used by auditor as one tool to determine whether there is a going concern issue. What is that tool?

I.	Crescent wrench.
II.	Disclosure checklist.
III.	Management representation letter.
IV.	Altman Z-Scores.

Question 12  

• The purposes of the management representation letter are to help promote audit quality. List the three (3) purposes of the letter.

Answer 1

Question 10
A model using certain ratios of an organization that evaluates the likelihood of a bankruptcy is often used by auditor as one tool to determine whether there is a going concern issue. What is that tool?
I.	Crescent wrench.
II.	Disclosure checklist.
III.	Management representation letter.
IV.	Altman Z-Scores.	Correct
The Altman Z score is another form of expert opinion of whether the firm is in financial distress. It  has been admitted as  bankruptcy evidence in U.S. courts.
Question 12
The purposes of the management representation letter are to help promote audit quality. List the three (3) purposes of the letter.
1)  To remind the management of its primary responsibility for creating financial statements.
2) To verify that the information provided is accurate and disclosed to the auditors.
3) To take away some of the legal burdens of delivering wrong financial statements from the auditor to the company.