Question 1

Which of the following is a documentation requirement that an auditor should follow when auditing in accordance with Government Auditing Standards?

Accepted Answer

A)  The auditor should obtain written representations from management acknowledging responsibility for correcting instances of fraud, abuse, and waste. 
B)  Audit documentation should contain sufficient information so that supplementary oral Explanations are not required. 
C)  The auditor should document the procedures that assure discovery of all illegal acts and contingent liabilities resulting from noncompliance. 
D)  Audit documentation should contain a caveat that all instances of material errors and fraud may not be identified. 
A)  The auditor should obtain written representations from management acknowledging responsibility for correcting instances of fraud, abuse, and waste. 
B)  Audit documentation should contain sufficient information so that supplementary oral Explanations are not required. 
C)  The auditor should document the procedures that assure discovery of all illegal acts and contingent liabilities resulting from noncompliance. 
D)  Audit documentation should contain a caveat that all instances of material errors and fraud may not be identified. B

Question 2

Ordinarily, the predecessor auditor permits the successor auditor to review the predecessor's audit documentation relating to:

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D 
A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D A

Question 3

Which of the following statements is correct concerning an auditor's required communication of significant deficiencies in internal control noted during an audit of a nonissuer?

Accepted Answer

A)  A significant deficiency previously communicated during the prior year's audit that remains uncorrected causes a scope limitation. 
B)  An auditor should perform tests of controls on significant deficiencies before communicating them to the client. 
C)  An auditor's report on significant deficiencies should include a restriction on the distribution of the report. 
D)  An auditor should communicate significant deficiencies after tests of controls, but before commencing substantive tests. 
A)  A significant deficiency previously communicated during the prior year's audit that remains uncorrected causes a scope limitation. 
B)  An auditor should perform tests of controls on significant deficiencies before communicating them to the client. 
C)  An auditor's report on significant deficiencies should include a restriction on the distribution of the report. 
D)  An auditor should communicate significant deficiencies after tests of controls, but before commencing substantive tests. C

Question 4

Which of the following professional services would be considered an attest engagement?

Accepted Answer

A)  A management consulting engagement to provide EDP advice to a client. 
B)  An engagement to report on management's discussion and analysis (MD&
A) . 
C)  An income tax engagement to prepare federal and state tax returns. 
D)  The compilation of financial statements from a client's accounting records. 
A)  A management consulting engagement to provide EDP advice to a client. 
B)  An engagement to report on management's discussion and analysis (MD&
A) . 
C)  An income tax engagement to prepare federal and state tax returns. 
D)  The compilation of financial statements from a client's accounting records.

Question 5

In May X4, an auditor reissues the auditor's report on the X2 financial statements at a continuing client's request. The X2 financial statements are not restated and the auditor does not revise the wording of the report. The auditor should:

Accepted Answer

A)  Dual date the reissued report. 
B)  Use the release date of the reissued report. 
C)  Use the original report date on the reissued report. 
D)  Use the current-period auditor's report date on the reissued report. 
A)  Dual date the reissued report. 
B)  Use the release date of the reissued report. 
C)  Use the original report date on the reissued report. 
D)  Use the current-period auditor's report date on the reissued report.

Question 6

Which of the following is true regarding the auditor's responsibility to report on information accompanying the basic financial statements in a client-prepared document?

Accepted Answer

A)  The auditor may report on information accompanying the basic financial statements in a client prepared document only if he or she has been specifically engaged to do so. 
B)  The auditor is required to express an opinion on whether information accompanying the basic financial statements in a client-prepared document is fairly stated in all material respects in relation to the financial statements taken as a whole. 
C)  If an auditor chooses to report on information accompanying the basic financial statements in a client prepared document, the report should include a description of the character of the audit work performed. 
D)  If an auditor chooses to report on information accompanying the basic financial statements in a client prepared document, the report should include an opinion on the information but should not describe the character of the audit work performed. 
A)  The auditor may report on information accompanying the basic financial statements in a client prepared document only if he or she has been specifically engaged to do so. 
B)  The auditor is required to express an opinion on whether information accompanying the basic financial statements in a client-prepared document is fairly stated in all material respects in relation to the financial statements taken as a whole. 
C)  If an auditor chooses to report on information accompanying the basic financial statements in a client prepared document, the report should include a description of the character of the audit work performed. 
D)  If an auditor chooses to report on information accompanying the basic financial statements in a client prepared document, the report should include an opinion on the information but should not describe the character of the audit work performed.

Question 7

Audit evidence concerning proper segregation of duties ordinarily is best obtained by:

Accepted Answer

A)  Preparation of a flowchart of duties performed by available personnel. 
B)  Inquiring whether control activities operated consistently throughout the period. 
C)  Reviewing job descriptions prepared by the personnel department. 
D)  Direct personal observation of the employees who apply control activities. 
A)  Preparation of a flowchart of duties performed by available personnel. 
B)  Inquiring whether control activities operated consistently throughout the period. 
C)  Reviewing job descriptions prepared by the personnel department. 
D)  Direct personal observation of the employees who apply control activities.

Question 8

In reporting on compliance with laws and regulations during a financial statement audit in accordance with Government Auditing Standards, an auditor should include in the auditor's report:

Accepted Answer

A)  A statement of assurance that all controls over fraud and illegal acts were tested. 
B)  Material instances of fraud and illegal acts that were discovered. 
C)  The materiality criteria used by the auditor in considering whether instances of noncompliance were significant. 
D)  An opinion on whether compliance with laws and regulations affected the entity's goals and objectives. 
A)  A statement of assurance that all controls over fraud and illegal acts were tested. 
B)  Material instances of fraud and illegal acts that were discovered. 
C)  The materiality criteria used by the auditor in considering whether instances of noncompliance were significant. 
D)  An opinion on whether compliance with laws and regulations affected the entity's goals and objectives.

Question 9

Which of the following factors most likely would cause an auditor not to accept a new audit engagement?

Accepted Answer

A)  An inadequate understanding of the entity's internal control. 
B)  The close proximity to the end of the entity's fiscal year. 
C)  Concluding that the entity's management probably lacks integrity. 
D)  An inability to perform preliminary analytical procedures before accepting the engagement. 
A)  An inadequate understanding of the entity's internal control. 
B)  The close proximity to the end of the entity's fiscal year. 
C)  Concluding that the entity's management probably lacks integrity. 
D)  An inability to perform preliminary analytical procedures before accepting the engagement.

Question 10

This question presents independent factual situations an auditor might encounter in conducting an audit. List B represents the report modifications (if any) that would be necessary. Select as the best answer for each item, the action the auditor normally would take. The report modifications in List B may be selected once, more than once, or not at all. Assume: - The auditor is independent. - The auditor previously expressed an unqualified opinion on the prior year's financial statements. - Only single-year (not comparative) statements are presented for the current year. - The conditions for an unqualified opinion exist unless contradicted in the factual situations. - The conditions stated in the factual situations are material. - No report modifications are to be made except in response to the factual situation. Item to Be Answered In auditing the long-term investments account, an auditor is unable to obtain audited financial statements for an investee located in a foreign country. The auditor concludes that sufficient appropriate audit evidence regarding this investment cannot be obtained. List B Report Modifications

Accepted Answer

A)  Describe the circumstances in an explanatory paragraph preceding the opinion paragraph without modifying the three standard paragraphs. 
B)  Describe the circumstances in an explanatory paragraph following the opinion paragraph without modifying the three standard paragraphs. 
C)  Describe the circumstances in an explanatory paragraph preceding the opinion paragraph and modify the opinion paragraph. 
D)  Describe the circumstances in an explanatory paragraph following the opinion paragraph and modify the opinion paragraph. 
E)  Describe the circumstances in an explanatory paragraph preceding the opinion paragraph and modify the scope and opinion paragraphs.
F) Describe the circumstances in an explanatory paragraph following the opinion paragraph and modify the scope and opinion paragraphs.
G) Describe the circumstances within the scope paragraph without adding an explanatory paragraph.
H) Describe the circumstances within the opinion paragraph without adding an explanatory paragraph.
I) Describe the circumstances within the scope and opinion paragraphs without adding an explanatory paragraph.
J) Issue the standard auditor's report without modification. 
A)  Describe the circumstances in an explanatory paragraph preceding the opinion paragraph without modifying the three standard paragraphs. 
B)  Describe the circumstances in an explanatory paragraph following the opinion paragraph without modifying the three standard paragraphs. 
C)  Describe the circumstances in an explanatory paragraph preceding the opinion paragraph and modify the opinion paragraph. 
D)  Describe the circumstances in an explanatory paragraph following the opinion paragraph and modify the opinion paragraph. 
E)  Describe the circumstances in an explanatory paragraph preceding the opinion paragraph and modify the scope and opinion paragraphs.
F) Describe the circumstances in an explanatory paragraph following the opinion paragraph and modify the scope and opinion paragraphs.
G) Describe the circumstances within the scope paragraph without adding an explanatory paragraph.
H) Describe the circumstances within the opinion paragraph without adding an explanatory paragraph.
I) Describe the circumstances within the scope and opinion paragraphs without adding an explanatory paragraph.
J) Issue the standard auditor's report without modification.

Question 11

According to the profession's ethical standards, which of the following events may justify a departure from a Statement of Financial Accounting Standards?

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D 
A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 12

An independent auditor asked a client's internal auditor to assist in preparing a standard financial institution confirmation request for a payroll account that had been closed during the year under audit. After the internal auditor prepared the form, the controller signed it and mailed it to the bank. What was the major flaw in this procedure?

Accepted Answer

A)  The internal auditor did not sign the form. 
B)  The form was mailed by the controller. 
C)  The form was prepared by the internal auditor. 
D)  The account was closed, so the balance was zero. 
A)  The internal auditor did not sign the form. 
B)  The form was mailed by the controller. 
C)  The form was prepared by the internal auditor. 
D)  The account was closed, so the balance was zero.

Question 13

In a credit sales and cash receipts system flowchart symbol X could represent:

Accepted Answer

A)  Auditor's test data. 
B)  Remittance advices. 
C)  Error reports. 
D)  Credit authorization forms. 
A)  Auditor's test data. 
B)  Remittance advices. 
C)  Error reports. 
D)  Credit authorization forms.

Question 14

Which statement is true with respect to discussion among engagement personnel regarding the risk of material misstatement due to fraud?

Accepted Answer

A)  Discussion among engagement personnel regarding the risk of material misstatement due to fraud is recommended but not required. 
B)  All key members of the audit team should be brought to a single location to facilitate communication. 
C)  The discussion should occur only during the planning stage of the audit. 
D)  Audit documentation must include a description of the discussion. 
A)  Discussion among engagement personnel regarding the risk of material misstatement due to fraud is recommended but not required. 
B)  All key members of the audit team should be brought to a single location to facilitate communication. 
C)  The discussion should occur only during the planning stage of the audit. 
D)  Audit documentation must include a description of the discussion.

Question 15

Which of the following matters is an auditor required to communicate to those charged with governance?

Accepted Answer

A)  Adjustments that were suggested by the auditor and recorded by management that have a significant effect on the entity's financial reporting process. 
B)  The auditor's consideration of risk factors in assessing the risk of material misstatement arising from the misappropriation of assets. 
C)  The results of the auditor's analytical procedures performed in the review stage of the engagement that indicate significant variances from expected amounts. 
D)  Changes in the auditor's preliminary judgment about materiality that were caused by projecting the results of statistical sampling for tests of transactions. 
A)  Adjustments that were suggested by the auditor and recorded by management that have a significant effect on the entity's financial reporting process. 
B)  The auditor's consideration of risk factors in assessing the risk of material misstatement arising from the misappropriation of assets. 
C)  The results of the auditor's analytical procedures performed in the review stage of the engagement that indicate significant variances from expected amounts. 
D)  Changes in the auditor's preliminary judgment about materiality that were caused by projecting the results of statistical sampling for tests of transactions.

Question 16

When an entity changes its method of accounting for income taxes, which has a material effect on comparability, the auditor should refer to the change in an explanatory paragraph added to the auditor's report. This paragraph should identify the nature of the change and:

Accepted Answer

A)  Explain why the change is justified under generally accepted accounting principles. 
B)  Describe the cumulative effect of the change on the audited financial statements. 
C)  State the auditor's explicit concurrence with or opposition to the change. 
D)  Refer to the financial statement note that discusses the change in detail. 
A)  Explain why the change is justified under generally accepted accounting principles. 
B)  Describe the cumulative effect of the change on the audited financial statements. 
C)  State the auditor's explicit concurrence with or opposition to the change. 
D)  Refer to the financial statement note that discusses the change in detail.

Question 17

When an accountant performs more than one level of service (for example, a compilation and a review, or a compilation and an audit) concerning the financial statements of a nonissuer, the accountant generally should issue the report that is appropriate for:

Accepted Answer

A)  The lowest level of service rendered. 
B)  The highest level of service rendered. 
C)  A compilation engagement. 
D)  A review engagement. 
A)  The lowest level of service rendered. 
B)  The highest level of service rendered. 
C)  A compilation engagement. 
D)  A review engagement.

Question 18

For a nonissuer, a control deficiency would be considered a significant deficiency when the likelihood and magnitude of potential financial statement misstatements are:

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D 
A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 19

March, CPA, is engaged by Monday Corp., a client, to audit the financial statements of Wall Corp., a company that is not March's client. Monday expects to present Wall's audited financial statements with March's auditor's report to 1st Federal Bank to obtain financing in Monday's attempt to purchase Wall. In these circumstances, March's auditor's report would usually be addressed to:

Accepted Answer

A)  Monday Corp., the client that engaged March. 
B)  Wall Corp., the entity audited by March. 
C)  1st Federal Bank. 
D)  Both Monday Corp. and 1st Federal Bank. 
A)  Monday Corp., the client that engaged March. 
B)  Wall Corp., the entity audited by March. 
C)  1st Federal Bank. 
D)  Both Monday Corp. and 1st Federal Bank.

Question 20

When issuing an unqualified opinion, the auditor who evaluates the audit findings should be satisfied that the:

Accepted Answer

A)  Amount of known misstatement is documented in the management representation letter. 
B)  Estimate of the total misstatement is less than a material amount. 
C)  Amount of known misstatement is acknowledged and recorded by the client. 
D)  Estimate of the total likely misstatement includes the adjusting entries already recorded by the client. 
A)  Amount of known misstatement is documented in the management representation letter. 
B)  Estimate of the total misstatement is less than a material amount. 
C)  Amount of known misstatement is acknowledged and recorded by the client. 
D)  Estimate of the total likely misstatement includes the adjusting entries already recorded by the client.

Exam 1: CPA Auditing and Attestation Exam

Which of the following is a documentation requirement that an auditor should follow when auditing in accordance with Government Auditing Standards?

Ordinarily, the predecessor auditor permits the successor auditor to review the predecessor's audit documentation relating to:

Which of the following statements is correct concerning an auditor's required communication of significant deficiencies in internal control noted during an audit of a nonissuer?

Which of the following professional services would be considered an attest engagement?

In May X4, an auditor reissues the auditor's report on the X2 financial statements at a continuing client's request. The X2 financial statements are not restated and the auditor does not revise the wording of the report. The auditor should:

Which of the following is true regarding the auditor's responsibility to report on information accompanying the basic financial statements in a client-prepared document?

Audit evidence concerning proper segregation of duties ordinarily is best obtained by:

In reporting on compliance with laws and regulations during a financial statement audit in accordance with Government Auditing Standards, an auditor should include in the auditor's report:

Which of the following factors most likely would cause an auditor not to accept a new audit engagement?

According to the profession's ethical standards, which of the following events may justify a departure from a Statement of Financial Accounting Standards?

In a credit sales and cash receipts system flowchart symbol X could represent:

Which statement is true with respect to discussion among engagement personnel regarding the risk of material misstatement due to fraud?

Which of the following matters is an auditor required to communicate to those charged with governance?

When an entity changes its method of accounting for income taxes, which has a material effect on comparability, the auditor should refer to the change in an explanatory paragraph added to the auditor's report. This paragraph should identify the nature of the change and:

When an accountant performs more than one level of service (for example, a compilation and a review, or a compilation and an audit) concerning the financial statements of a nonissuer, the accountant generally should issue the report that is appropriate for:

For a nonissuer, a control deficiency would be considered a significant deficiency when the likelihood and magnitude of potential financial statement misstatements are:

When issuing an unqualified opinion, the auditor who evaluates the audit findings should be satisfied that the:

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