Question 1

Which of the following statements is correct concerning statistical sampling in tests of controls?

Accepted Answer

A)  As the population size increases, the sample size should increase proportionately. 
B)  Deviations from specific control activities at a given rate ordinarily result in misstatements at a lower rate. 
C)  There is an inverse relationship between the expected population deviation rate and the sample size. 
D)  In determining tolerable rate, an auditor considers detection risk and the sample size. 
A)  As the population size increases, the sample size should increase proportionately. 
B)  Deviations from specific control activities at a given rate ordinarily result in misstatements at a lower rate. 
C)  There is an inverse relationship between the expected population deviation rate and the sample size. 
D)  In determining tolerable rate, an auditor considers detection risk and the sample size.

Question 2

Processing data through the use of simulated files provides an auditor with information about the operating effectiveness of controls. One of the techniques involved in this approach makes use of:

Accepted Answer

A)  Controlled reprocessing. 
B)  An integrated test facility. 
C)  Input validation. 
D)  Program code checking. 
A)  Controlled reprocessing. 
B)  An integrated test facility. 
C)  Input validation. 
D)  Program code checking.

Question 3

Which option best describes the level of assurance provided in the following special reports?

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 4

An auditor concludes that a client has committed an illegal act that has not been properly accounted for or disclosed. The auditor should withdraw from the engagement if the:

Accepted Answer

A)  Auditor is precluded from obtaining sufficient appropriate evidence about the illegal act. 
B)  Illegal act has an effect on the financial statements that is both material and direct. 
C)  Auditor cannot reasonably estimate the effect of the illegal act on the financial statements. 
D)  Client refuses to accept the auditor's report as modified for the illegal act. 
A)  Auditor is precluded from obtaining sufficient appropriate evidence about the illegal act. 
B)  Illegal act has an effect on the financial statements that is both material and direct. 
C)  Auditor cannot reasonably estimate the effect of the illegal act on the financial statements. 
D)  Client refuses to accept the auditor's report as modified for the illegal act.

Question 5

Before accepting an engagement to audit a new client, an auditor is required to:

Accepted Answer

A)  Make inquiries of the predecessor auditor after obtaining the consent of the prospective client. 
B)  Obtain an understanding of the entity and its environment, including its internal control. 
C)  Prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan. 
D)  Discuss the management representation letter with the prospective client's audit committee. 
A)  Make inquiries of the predecessor auditor after obtaining the consent of the prospective client. 
B)  Obtain an understanding of the entity and its environment, including its internal control. 
C)  Prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan. 
D)  Discuss the management representation letter with the prospective client's audit committee.

Question 6

The adverse effects of events causing an auditor to believe there is substantial doubt about an entity's ability to continue as a going concern would most likely be mitigated by evidence relating to the:

Accepted Answer

A)  Ability to expand operations into new product lines in the future. 
B)  Feasibility of plans to purchase leased equipment at less than market value. 
C)  Marketability of assets that management plans to sell. 
D)  Committed arrangements to convert preferred stock to long-term debt. 
A)  Ability to expand operations into new product lines in the future. 
B)  Feasibility of plans to purchase leased equipment at less than market value. 
C)  Marketability of assets that management plans to sell. 
D)  Committed arrangements to convert preferred stock to long-term debt.

Question 7

Which of the following statements would least likely appear in an auditor's engagement letter?

Accepted Answer

A)  Fees for our services are based on our regular per diem rates, plus travel and other out-of-pocket expenses. 
B)  During the course of our audit we may observe opportunities for economy in, or improved controls over, your operations. 
C)  Our engagement is subject to the risk that material errors or fraud, including defalcations, if they exist, will not be detected. 
D)  After performing our preliminary analytical procedures we will discuss with you the other procedures we consider necessary to complete the engagement. 
A)  Fees for our services are based on our regular per diem rates, plus travel and other out-of-pocket expenses. 
B)  During the course of our audit we may observe opportunities for economy in, or improved controls over, your operations. 
C)  Our engagement is subject to the risk that material errors or fraud, including defalcations, if they exist, will not be detected. 
D)  After performing our preliminary analytical procedures we will discuss with you the other procedures we consider necessary to complete the engagement.

Question 8

Which of the following should be the first step in reviewing the financial statements of a nonissuer?

Accepted Answer

A)  Comparing the financial statements with statements for comparable prior periods and with anticipated results. 
B)  Completing a series of inquiries concerning the entity's procedures for recording, classifying, and summarizing transactions. 
C)  Obtaining a general understanding of the entity's organization, its operating characteristics, and its products or services. 
D)  Applying analytical procedures designed to identify relationships and individual items that appear to be unusual. 
A)  Comparing the financial statements with statements for comparable prior periods and with anticipated results. 
B)  Completing a series of inquiries concerning the entity's procedures for recording, classifying, and summarizing transactions. 
C)  Obtaining a general understanding of the entity's organization, its operating characteristics, and its products or services. 
D)  Applying analytical procedures designed to identify relationships and individual items that appear to be unusual.

Question 9

On February 9, Brown, CPA, expressed an unqualified opinion on the financial statements of Web Co. On October 9, during a peer review of Brown's practice, the reviewer informed Brown that engagement personnel failed to perform a search for subsequent events for the Web engagement. Brown should first:

Accepted Answer

A)  Request Web's permission to perform substantive procedures that would provide a satisfactory basis for the opinion. 
B)  Inquire of Web whether there are persons currently relying, or likely to rely, on the financial statements. 
C)  Take no additional action because subsequent events have no effect on the financial statements that were reported on. 
D)  Assess the importance of the omitted procedures to Brown's present ability to support the opinion. 
A)  Request Web's permission to perform substantive procedures that would provide a satisfactory basis for the opinion. 
B)  Inquire of Web whether there are persons currently relying, or likely to rely, on the financial statements. 
C)  Take no additional action because subsequent events have no effect on the financial statements that were reported on. 
D)  Assess the importance of the omitted procedures to Brown's present ability to support the opinion.

Question 10

An auditor may not issue a qualified opinion when:

Accepted Answer

A)  An accounting principle at variance with GAAP is used 
B)  The auditor lacks independence with respect to the audited entity. 
C)  A scope limitation prevents the auditor from completing an important audit procedure. 
D)  The auditor's report refers to the work of a specialist. 
A)  An accounting principle at variance with GAAP is used 
B)  The auditor lacks independence with respect to the audited entity. 
C)  A scope limitation prevents the auditor from completing an important audit procedure. 
D)  The auditor's report refers to the work of a specialist.

Question 11

Green, CPA, concludes that there is substantial doubt about JKL Co.'s ability to continue as a going concern. If JKL's financial statements adequately disclose its financial difficulties, Green's auditor's report should:

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

Which of the following procedures most likely would not be an internal control procedure designed to reduce the risk of errors in the billing process?

Accepted Answer

A)  Comparing control totals for shipping documents with corresponding totals for sales invoices. 
B)  Using computer programmed controls on the pricing and mathematical accuracy of sales invoices. 
C)  Matching shipping documents with approved sales orders before invoice preparation. 
D)  Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger. 
A)  Comparing control totals for shipping documents with corresponding totals for sales invoices. 
B)  Using computer programmed controls on the pricing and mathematical accuracy of sales invoices. 
C)  Matching shipping documents with approved sales orders before invoice preparation. 
D)  Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger.

Question 13

At December 31, 20X2, Curry Co. had the following balances in selected asset accounts:   Curry also had current liabilities of $1,000 at December 31, 20X2, and net credit sales of $7,200 for the year then ended. What is Curry's acid-test ratio at December 31, 20X2?

Accepted Answer

A)  1.5 
B)  1.6 
C)  2.0 
D)  2.1 
A)  1.5 
B)  1.6 
C)  2.0 
D)  2.1

Question 14

During consideration of internal control in a financial statement audit, an auditor is not obligated to:

Accepted Answer

A)  Search for all significant deficiencies in the operation of internal control. 
B)  Understand the internal control environment and the accounting system. 
C)  Determine whether the control activities relevant to audit planning have been implemented. 
D)  Perform procedures to understand the design of internal control. 
A)  Search for all significant deficiencies in the operation of internal control. 
B)  Understand the internal control environment and the accounting system. 
C)  Determine whether the control activities relevant to audit planning have been implemented. 
D)  Perform procedures to understand the design of internal control.

Question 15

In auditing a client's retained earnings account, an auditor should determine whether there are any restrictions on retained earnings that result from loans, agreements, or state law. This procedure is designed to corroborate management's financial statement assertions with respect to:

Accepted Answer

A)  Transactions and events. 
B)  Account balances. 
C)  Presentation and disclosure. 
D)  Audit risk and materiality. 
A)  Transactions and events. 
B)  Account balances. 
C)  Presentation and disclosure. 
D)  Audit risk and materiality.

Question 16

In which of the following situations would an auditor ordinarily issue an unqualified audit opinion without an explanatory paragraph?

Accepted Answer

A)  The auditor wishes to emphasize that the entity had significant related party transactions. 
B)  The auditor decides to make reference to the report of another auditor as a basis, in part, for the auditor's opinion. 
C)  The entity issues financial statements that present financial position and results of operations, but omits the statement of cash flows. 
D)  The auditor has substantial doubt about the entity's ability to continue as a going concern, but the circumstances are fully disclosed in the financial statements. 
A)  The auditor wishes to emphasize that the entity had significant related party transactions. 
B)  The auditor decides to make reference to the report of another auditor as a basis, in part, for the auditor's opinion. 
C)  The entity issues financial statements that present financial position and results of operations, but omits the statement of cash flows. 
D)  The auditor has substantial doubt about the entity's ability to continue as a going concern, but the circumstances are fully disclosed in the financial statements.

Question 17

Which of the following accurately depicts the auditor's responsibility with respect to Statements on Auditing Standards?

Accepted Answer

A)  The auditor is required to follow the guidance provided by the Standards, without exception. 
B)  The auditor is generally required to follow the guidance provided by Standards with which he or she is familiar, but will not be held responsible for departing from provisions of which he or she was unaware. 
C)  The auditor is generally required to follow the guidance provided by the Standards, unless following such guidance would result in an audit that is not cost-effective. 
D)  The auditor is generally required to follow the guidance provided by the Standards, and should be able to justify any departures. 
A)  The auditor is required to follow the guidance provided by the Standards, without exception. 
B)  The auditor is generally required to follow the guidance provided by Standards with which he or she is familiar, but will not be held responsible for departing from provisions of which he or she was unaware. 
C)  The auditor is generally required to follow the guidance provided by the Standards, unless following such guidance would result in an audit that is not cost-effective. 
D)  The auditor is generally required to follow the guidance provided by the Standards, and should be able to justify any departures.

Question 18

The scope of audits of recipients of federal financial assistance in accordance with federal audit regulations varies. Which of the following elements do these audits have in common?

Accepted Answer

A)  The auditor is required to disclose all situations and transactions that could be indicative of fraud, abuse, and illegal acts to the federal inspector general. 
B)  The materiality levels are higher and are determined by the government entities that provide the federal financial assistance to the recipients. 
C)  The auditor is required to document an understanding of internal control established to ensure compliance with the applicable laws and regulations. 
D)  The accounts should be 100% verified by substantive tests because certain statistical sampling applications are not permitted. 
A)  The auditor is required to disclose all situations and transactions that could be indicative of fraud, abuse, and illegal acts to the federal inspector general. 
B)  The materiality levels are higher and are determined by the government entities that provide the federal financial assistance to the recipients. 
C)  The auditor is required to document an understanding of internal control established to ensure compliance with the applicable laws and regulations. 
D)  The accounts should be 100% verified by substantive tests because certain statistical sampling applications are not permitted.

Question 19

The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to:

Accepted Answer

A)  Enable the CPA firm to attest to the reliability of the client. 
B)  Satisfy the CPA firm's duty to the public concerning the acceptance of new clients. 
C)  Minimize the likelihood of association with clients whose management lacks integrity. 
D)  Anticipate before performing any fieldwork whether an unqualified opinion can be expressed. 
A)  Enable the CPA firm to attest to the reliability of the client. 
B)  Satisfy the CPA firm's duty to the public concerning the acceptance of new clients. 
C)  Minimize the likelihood of association with clients whose management lacks integrity. 
D)  Anticipate before performing any fieldwork whether an unqualified opinion can be expressed.

Question 20

In reviewing the financial statements of a nonissuer, an accountant is required to modify the standard review report for which of the following matters?

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

Exam 1: CPA Auditing and Attestation Exam

Which of the following statements is correct concerning statistical sampling in tests of controls?

Processing data through the use of simulated files provides an auditor with information about the operating effectiveness of controls. One of the techniques involved in this approach makes use of:

Which option best describes the level of assurance provided in the following special reports?

An auditor concludes that a client has committed an illegal act that has not been properly accounted for or disclosed. The auditor should withdraw from the engagement if the:

Before accepting an engagement to audit a new client, an auditor is required to:

The adverse effects of events causing an auditor to believe there is substantial doubt about an entity's ability to continue as a going concern would most likely be mitigated by evidence relating to the:

Which of the following statements would least likely appear in an auditor's engagement letter?

Which of the following should be the first step in reviewing the financial statements of a nonissuer?

An auditor may not issue a qualified opinion when:

Green, CPA, concludes that there is substantial doubt about JKL Co.'s ability to continue as a going concern. If JKL's financial statements adequately disclose its financial difficulties, Green's auditor's report should:

Which of the following procedures most likely would not be an internal control procedure designed to reduce the risk of errors in the billing process?

At December 31, 20X2, Curry Co. had the following balances in selected asset accounts: Curry also had current liabilities of $1,000 at December 31, 20X2, and net credit sales of $7,200 for the year then ended. What is Curry's acid-test ratio at December 31, 20X2?

During consideration of internal control in a financial statement audit, an auditor is not obligated to:

In auditing a client's retained earnings account, an auditor should determine whether there are any restrictions on retained earnings that result from loans, agreements, or state law. This procedure is designed to corroborate management's financial statement assertions with respect to:

In which of the following situations would an auditor ordinarily issue an unqualified audit opinion without an explanatory paragraph?

Which of the following accurately depicts the auditor's responsibility with respect to Statements on Auditing Standards?

The scope of audits of recipients of federal financial assistance in accordance with federal audit regulations varies. Which of the following elements do these audits have in common?

The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to:

In reviewing the financial statements of a nonissuer, an accountant is required to modify the standard review report for which of the following matters?

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