Question 1

Which of the following would not be considered a significant audit finding that should be included in audit documentation?

Accepted Answer

A)  Retirement of the accounts payable manager and subsequent hiring of a replacement. 
B)  Discovery of a material sale recorded in the current year that properly belonged in the subsequent year. 
C)  Determination that there is substantial doubt about the entity's ability to continue as a going concern. 
D)  Implementation of a new accounting standard to account for a complex and unusual transaction. 
A)  Retirement of the accounts payable manager and subsequent hiring of a replacement. 
B)  Discovery of a material sale recorded in the current year that properly belonged in the subsequent year. 
C)  Determination that there is substantial doubt about the entity's ability to continue as a going concern. 
D)  Implementation of a new accounting standard to account for a complex and unusual transaction.

Question 2

Which of the following parties should request inquiry of a client's lawyer?

Accepted Answer

A)  The auditor. 
B)  The stockholders. 
C)  Client management. 
D)  The auditor's attorney. 
A)  The auditor. 
B)  The stockholders. 
C)  Client management. 
D)  The auditor's attorney.

Question 3

Reporting on internal control under Government Auditing Standards differs from reporting under generally accepted auditing standards in that Government Auditing Standards requires a:

Accepted Answer

A)  Written report describing the entity's internal controls specifically designed to prevent fraud, abuse, and illegal acts. 
B)  Report describing the scope of the auditor's testing of compliance and of internal control. 
C)  Statement of negative assurance that internal controls not tested have an immaterial effect on the entity's financial statements. 
D)  Statement of positive assurance that internal controls designed to detect material errors and fraud were tested. 
A)  Written report describing the entity's internal controls specifically designed to prevent fraud, abuse, and illegal acts. 
B)  Report describing the scope of the auditor's testing of compliance and of internal control. 
C)  Statement of negative assurance that internal controls not tested have an immaterial effect on the entity's financial statements. 
D)  Statement of positive assurance that internal controls designed to detect material errors and fraud were tested.

Question 4

Which of the following is not a type of financial statement assertion?

Accepted Answer

A)  Rights and obligations. 
B)  Fairness and accuracy. 
C)  Valuation and allocation. 
D)  Understandability and classification. 
A)  Rights and obligations. 
B)  Fairness and accuracy. 
C)  Valuation and allocation. 
D)  Understandability and classification.

Question 5

During an audit an internal auditor may provide direct assistance to an independent CPA in:

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 6

An auditor should design the written audit plan so that:

Accepted Answer

A)  All material transactions will be selected for substantive testing. 
B)  Substantive tests prior to the balance sheet date will be minimized. 
C)  The audit procedures selected will achieve specific audit objectives. 
D)  Each account balance will be tested under either tests of controls or tests of transactions. 
A)  All material transactions will be selected for substantive testing. 
B)  Substantive tests prior to the balance sheet date will be minimized. 
C)  The audit procedures selected will achieve specific audit objectives. 
D)  Each account balance will be tested under either tests of controls or tests of transactions.

Question 7

Which of the following procedures most likely would provide an auditor with evidence about whether an entity's internal control activities are suitably designed to prevent or detect material misstatements?

Accepted Answer

A)  Reperforming the activities for a sample of transactions. 
B)  Performing analytical procedures using data aggregated at a high level. 
C)  Vouching a sample of transactions directly related to the activities. 
D)  Observing the entity's personnel applying the activities. 
A)  Reperforming the activities for a sample of transactions. 
B)  Performing analytical procedures using data aggregated at a high level. 
C)  Vouching a sample of transactions directly related to the activities. 
D)  Observing the entity's personnel applying the activities.

Question 8

An auditor is reporting on condensed financial statements for an annual period that are derived from the audited financial statements of a publicly-held entity. The auditor's opinion should indicate whether the information in the condensed financial statements is fairly stated in all material respects:

Accepted Answer

A)  In conformity with accounting principles generally accepted in the United States of America. 
B)  In relation to the complete financial statements. 
C)  In conformity with another comprehensive basis of accounting. 
D)  In relation to supplementary filings under federal security statutes 
A)  In conformity with accounting principles generally accepted in the United States of America. 
B)  In relation to the complete financial statements. 
C)  In conformity with another comprehensive basis of accounting. 
D)  In relation to supplementary filings under federal security statutes

Question 9

Which of the following strategies would a CPA most likely consider in auditing an entity that processes most of its financial data only in electronic form, such as a paperless system?

Accepted Answer

A)  Continuous monitoring and analysis of transaction processing with an embedded audit module. 
B)  Increased reliance on internal control activities that emphasize the segregation of duties. 
C)  Verification of encrypted digital certificates used to monitor the authorization of transactions. 
D)  Extensive testing of firewall boundaries that restrict the recording of outside network traffic. 
A)  Continuous monitoring and analysis of transaction processing with an embedded audit module. 
B)  Increased reliance on internal control activities that emphasize the segregation of duties. 
C)  Verification of encrypted digital certificates used to monitor the authorization of transactions. 
D)  Extensive testing of firewall boundaries that restrict the recording of outside network traffic.

Question 10

A client has a large and active investment portfolio that is kept in a bank safe deposit box. If the auditor is unable to count the securities at the balance sheet date, the auditor most likely will:

Accepted Answer

A)  Request the bank to confirm to the auditor the contents of the safe deposit box at the balance sheet date. 
B)  Examine supporting evidence for transactions occurring during the year. 
C)  Count the securities at a subsequent date and confirm with the bank whether securities were added or removed since the balance sheet date. 
D)  Request the client to have the bank seal the safe deposit box until the auditor can count the securities at a subsequent date. 
A)  Request the bank to confirm to the auditor the contents of the safe deposit box at the balance sheet date. 
B)  Examine supporting evidence for transactions occurring during the year. 
C)  Count the securities at a subsequent date and confirm with the bank whether securities were added or removed since the balance sheet date. 
D)  Request the client to have the bank seal the safe deposit box until the auditor can count the securities at a subsequent date.

Question 11

This question consists of an item pertaining to possible deficiencies in an accountant's review report. Jordan & Stone, CPAs, audited the financial statements of Tech Co., a nonissuer, for the year ended December 31, 20X1, and expressed an unqualified opinion. For the year ended December 31, 20X2, Tech issued comparative financial statements. Jordan & Stone reviewed Tech's 20X2 financial statements and Kent, an assistant on the engagement, drafted the accountants' review report below. Land, the engagement supervisor, decided not to reissue the prior year's auditors' report, but instructed Kent to include a separate paragraph in the current year's review report describing the responsibility assumed for the prior year's audited financial statements. This is an appropriate reporting procedure. Land reviewed Kent's draft and indicated in the Supervisor's Review Notes below that there were several deficiencies in Kent's draft. Accountant's Review Report We have reviewed and audited the accompanying balance sheets of Tech Co. as of December 31, 20X2 and 20X1, and the related statements of income, retained earnings, and cash flows for the years then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants and generally accepted auditing standards. All information included in these financial statements is the representation of the management of Tech Co. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements. Because of the inherent limitations of a review engagement, this report is intended for the information of management and should not be used for any other purpose. The financial statements for the year ended December 31, 20X1, were audited by us and our report was dated March 2, 20X2. We have no responsibility for updating that report for events and circumstances occurring after that date. Jordan and Stone, CPAs March 1, 20X3 Supervisor's Review Notes There should be an indication of the type of opinion expressed on the prior year's audited financial statements in the fourth (separate) paragraph.

Accepted Answer

A)  Correct 
B)  Incorrect 
A)  Correct 
B)  Incorrect

Question 12

Which of the following is true about an auditor's responsibility with respect to accounting estimates?

Accepted Answer

A)  The auditor is responsible for both preparing accounting estimates and evaluating their reasonableness. 
B)  The auditor is responsible for preparing accounting estimates in accordance with generally accepted auditing standards. 
C)  The auditor is responsible for evaluating the reasonableness of accounting estimates. 
D)  The auditor has no responsibility with respect to accounting estimates. 
A)  The auditor is responsible for both preparing accounting estimates and evaluating their reasonableness. 
B)  The auditor is responsible for preparing accounting estimates in accordance with generally accepted auditing standards. 
C)  The auditor is responsible for evaluating the reasonableness of accounting estimates. 
D)  The auditor has no responsibility with respect to accounting estimates.

Question 13

If a publicly held company issues financial statements that purport to present its financial position and results of operations but omits the statement of cash flows, the auditor ordinarily will express a(an):

Accepted Answer

A)  Disclaimer of opinion. 
B)  Qualified opinion. 
C)  Review report. 
D)  Unqualified opinion with a separate explanatory paragraph. 
A)  Disclaimer of opinion. 
B)  Qualified opinion. 
C)  Review report. 
D)  Unqualified opinion with a separate explanatory paragraph.

Question 14

Which of the following events most likely would indicate the existence of related parties?

Accepted Answer

A)  Granting stock options to key executives at favorable prices. 
B)  High turnover of senior management and members of the board of directors. 
C)  Failure to correct internal control weaknesses on a timely basis. 
D)  Selling real estate at a price significantly different from appraised value. 
A)  Granting stock options to key executives at favorable prices. 
B)  High turnover of senior management and members of the board of directors. 
C)  Failure to correct internal control weaknesses on a timely basis. 
D)  Selling real estate at a price significantly different from appraised value.

Question 15

When an independent CPA is associated with the financial statements of a publicly held entity but has not audited or reviewed such statements, the appropriate form of report to be issued must include a(an):

Accepted Answer

A)  Compilation report. 
B)  Disclaimer of opinion. 
C)  Unaudited association report. 
D)  Qualified opinion. 
A)  Compilation report. 
B)  Disclaimer of opinion. 
C)  Unaudited association report. 
D)  Qualified opinion.

Question 16

A report on a nonissuer's internal control should include a statement limiting the use of the report when:

Accepted Answer

A)  Management's assertion is presented in a separate report that will accompany the CPA's report. 
B)  Management's assertion is presented as a representation letter to the CPA. 
C)  Management's assertion is presented based upon criteria that are available to specific parties. 
D)  Management's assertion is not presented. 
A)  Management's assertion is presented in a separate report that will accompany the CPA's report. 
B)  Management's assertion is presented as a representation letter to the CPA. 
C)  Management's assertion is presented based upon criteria that are available to specific parties. 
D)  Management's assertion is not presented.

Question 17

Which of the following is not true with respect to the control activities of an entity?

Accepted Answer

A)  Control activities are the policies and procedures that help ensure that management directives are carried out. 
B)  Control activities are the policies and procedures that help ensure that the financial statements are fairly presented in conformity with generally accepted accounting principles. 
C)  An understanding of control activities may be obtained while the auditor is obtaining an understanding of the other components of internal control. 
D)  An understanding of control activities does not require an understanding of control activities related to each account balance included in the financial statements. 
A)  Control activities are the policies and procedures that help ensure that management directives are carried out. 
B)  Control activities are the policies and procedures that help ensure that the financial statements are fairly presented in conformity with generally accepted accounting principles. 
C)  An understanding of control activities may be obtained while the auditor is obtaining an understanding of the other components of internal control. 
D)  An understanding of control activities does not require an understanding of control activities related to each account balance included in the financial statements.

Question 18

Which of the following audit procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

Accepted Answer

A)  Reading the minutes of meetings of the stockholders and the board of directors. 
B)  Comparing the market value of property to amounts owed on the property. 
C)  Reviewing lease agreements to determine whether leased assets should be capitalized. 
D)  Inspecting title documents to verify whether any assets are pledged as collateral. 
A)  Reading the minutes of meetings of the stockholders and the board of directors. 
B)  Comparing the market value of property to amounts owed on the property. 
C)  Reviewing lease agreements to determine whether leased assets should be capitalized. 
D)  Inspecting title documents to verify whether any assets are pledged as collateral.

Question 19

If the business environment is experiencing a recession, the auditor most likely would focus increased attention on which of the following accounts?

Accepted Answer

A)  Purchase returns and allowances. 
B)  Allowance for doubtful accounts. 
C)  Common stock. 
D)  Noncontrolling interest of a subsidiary purchased during the year. 
A)  Purchase returns and allowances. 
B)  Allowance for doubtful accounts. 
C)  Common stock. 
D)  Noncontrolling interest of a subsidiary purchased during the year.

Question 20

Before performing a review of a nonissuer's financial statements, an accountant should:

Accepted Answer

A)  Complete a series of inquiries concerning the entity's procedures for recording, classifying, and summarizing transactions. 
B)  Apply analytical procedures to provide limited assurance that no material modifications should be made to the financial statements. 
C)  Obtain a sufficient level of knowledge of the accounting principles and practices of the industry in which the entity operates. 
D)  Inquire whether management has omitted substantially all of the disclosures required by generally accepted accounting principles. 
A)  Complete a series of inquiries concerning the entity's procedures for recording, classifying, and summarizing transactions. 
B)  Apply analytical procedures to provide limited assurance that no material modifications should be made to the financial statements. 
C)  Obtain a sufficient level of knowledge of the accounting principles and practices of the industry in which the entity operates. 
D)  Inquire whether management has omitted substantially all of the disclosures required by generally accepted accounting principles.

Exam 1: CPA Auditing and Attestation Exam