Question 1

Which of the following journal entries would the auditor least likely examine in an effort to address the risk of management override of controls?

Accepted Answer

A)  A journal entry made to record recurring periodic accounting estimates. 
B)  A journal entry made by an individual who does not typically make journal entries. 
C)  A journal entry recorded as a post-closing entry that has no explanation or description. 
D)  A journal entry made to a seldom-used account. 
A)  A journal entry made to record recurring periodic accounting estimates. 
B)  A journal entry made by an individual who does not typically make journal entries. 
C)  A journal entry recorded as a post-closing entry that has no explanation or description. 
D)  A journal entry made to a seldom-used account.

Question 2

In assessing control risk, an auditor ordinarily selects from a variety of techniques, including:

Accepted Answer

A)  Inquiry and analytical procedures. 
B)  Reperformance and observation. 
C)  Comparison and confirmation. 
D)  Inspection and verification. 
A)  Inquiry and analytical procedures. 
B)  Reperformance and observation. 
C)  Comparison and confirmation. 
D)  Inspection and verification.

Question 3

Control risk should be assessed in terms of:

Accepted Answer

A)  Specific controls. 
B)  Types of potential irregularities. 
C)  Financial statement assertions. 
D)  Control environment factors. 
A)  Specific controls. 
B)  Types of potential irregularities. 
C)  Financial statement assertions. 
D)  Control environment factors.

Question 4

An auditor compared the current-year gross margin with the prior-year gross margin to determine if cost of sales is reasonable. What type of audit procedure was performed?

Accepted Answer

A)  Test of transactions. 
B)  Analytical procedures. 
C)  Test of controls. 
D)  Test of details. 
A)  Test of transactions. 
B)  Analytical procedures. 
C)  Test of controls. 
D)  Test of details.

Question 5

When qualifying an opinion because of an insufficiency of audit evidence, an auditor should refer to the situation in the:

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

A successor auditor ordinarily should request 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

Question 7

The standard report issued by an accountant after reviewing the financial statements of a nonissuer should state that:

Accepted Answer

A)  A review is limited to presenting in the form of financial statements information that is the representation of management. 
B)  A review consists of inquiries of company personnel and analytical procedures applied to financial data. 
C)  The accountant does not express an opinion or any other form of assurance on the financial statements. 
D)  The accountant did not obtain an understanding of the entity's internal control or assess control risk. 
A)  A review is limited to presenting in the form of financial statements information that is the representation of management. 
B)  A review consists of inquiries of company personnel and analytical procedures applied to financial data. 
C)  The accountant does not express an opinion or any other form of assurance on the financial statements. 
D)  The accountant did not obtain an understanding of the entity's internal control or assess control risk.

Question 8

When auditing an entity's financial statements in accordance with Government Auditing Standards, an auditor should prepare a written report on the auditor's:

Accepted Answer

A)  Identification of the causes of performance problems and recommendations for actions to improve operations. 
B)  Understanding of internal control and assessment of control risk. 
C)  Field work and procedures that substantiated the auditor's specific findings and conclusions. 
D)  Opinion on the entity's attainment of the goals and objectives specified by applicable laws and regulations. 
A)  Identification of the causes of performance problems and recommendations for actions to improve operations. 
B)  Understanding of internal control and assessment of control risk. 
C)  Field work and procedures that substantiated the auditor's specific findings and conclusions. 
D)  Opinion on the entity's attainment of the goals and objectives specified by applicable laws and regulations.

Question 9

When management does not provide reasonable justification that a change in accounting principle is preferable and it presents comparative financial statements, the auditor should express a qualified opinion:

Accepted Answer

A)  Only in the year of the accounting principle change. 
B)  Each year that the financial statements initially reflecting the change are presented. 
C)  Each year until management changes back to the accounting principle formerly used. 
D)  Only if the change is to an accounting principle that is not generally accepted. 
A)  Only in the year of the accounting principle change. 
B)  Each year that the financial statements initially reflecting the change are presented. 
C)  Each year until management changes back to the accounting principle formerly used. 
D)  Only if the change is to an accounting principle that is not generally accepted.

Question 10

Before applying substantive tests to the details of asset accounts at an interim date, an auditor should assess:

Accepted Answer

A)  Control risk at a low level. 
B)  Inherent risk at a high level. 
C)  The difficulty in controlling the incremental audit risk. 
D)  Materiality for the accounts tested as insignificant. 
A)  Control risk at a low level. 
B)  Inherent risk at a high level. 
C)  The difficulty in controlling the incremental audit risk. 
D)  Materiality for the accounts tested as insignificant.

Question 11

When an auditor submits a document containing audited financial statements to a client, and those financial statements include supplementary information required by GAAP, the auditor may choose any of the following options, except:

Accepted Answer

A)  Express an opinion on the information, if he or she has been engaged to examine such information. 
B)  Express negative assurance on the information, if review procedures have been appropriately performed. 
C)  Report on whether the information is fairly stated in relation to the financial statements taken as a whole, if appropriate auditing procedures have been applied. 
D)  Disclaim an opinion on the information. 
A)  Express an opinion on the information, if he or she has been engaged to examine such information. 
B)  Express negative assurance on the information, if review procedures have been appropriately performed. 
C)  Report on whether the information is fairly stated in relation to the financial statements taken as a whole, if appropriate auditing procedures have been applied. 
D)  Disclaim an opinion on the information.

Question 12

An auditor should request that an audit client send a letter of inquiry to those attorneys who have been consulted concerning litigation, claims, or assessments. The primary reason for this request is to provide:

Accepted Answer

A)  The opinion of a specialist as to whether loss contingencies are possible, probable, or remote. 
B)  A description of litigation, claims, and assessments that have a reasonable possibility of unfavorable outcomes. 
C)  An objective appraisal of management's controls adopted for identifying and evaluating legal matters. 
D)  The corroboration of the information furnished by management concerning litigation, claims, and assessments. 
A)  The opinion of a specialist as to whether loss contingencies are possible, probable, or remote. 
B)  A description of litigation, claims, and assessments that have a reasonable possibility of unfavorable outcomes. 
C)  An objective appraisal of management's controls adopted for identifying and evaluating legal matters. 
D)  The corroboration of the information furnished by management concerning litigation, claims, and assessments.

Question 13

When performing an engagement to review a nonissuer's financial statements, an accountant most likely would:

Accepted Answer

A)  Confirm a sample of significant accounts receivable balances. 
B)  Ask about actions taken at board of directors' meetings. 
C)  Obtain an understanding of internal control. 
D)  Restrict the use of the accountant's report. 
A)  Confirm a sample of significant accounts receivable balances. 
B)  Ask about actions taken at board of directors' meetings. 
C)  Obtain an understanding of internal control. 
D)  Restrict the use of the accountant's report.

Question 14

An auditor's principal objective in analyzing repairs and maintenance expense accounts is to:

Accepted Answer

A)  Determine that all obsolete plant and equipment assets were written off before the year-end. 
B)  Verify that all recorded plant and equipment assets actually exist. 
C)  Discover expenditures that were expensed but should have been capitalized. 
D)  Identify plant and equipment assets that cannot be repaired and should be written off. 
A)  Determine that all obsolete plant and equipment assets were written off before the year-end. 
B)  Verify that all recorded plant and equipment assets actually exist. 
C)  Discover expenditures that were expensed but should have been capitalized. 
D)  Identify plant and equipment assets that cannot be repaired and should be written off.

Question 15

If information accompanying the basic financial statements in an auditor-submitted document has been subjected to auditing procedures, the auditor may include in the auditor's report on the financial statements an opinion that the accompanying information is fairly stated in:

Accepted Answer

A)  Accordance with generally accepted auditing standards. 
B)  Conformity with generally accepted accounting principles. 
C)  All material respects in relation to the basic financial statements taken as a whole. 
D)  Accordance with attestation standards expressing a conclusion about management's assertions. 
A)  Accordance with generally accepted auditing standards. 
B)  Conformity with generally accepted accounting principles. 
C)  All material respects in relation to the basic financial statements taken as a whole. 
D)  Accordance with attestation standards expressing a conclusion about management's assertions.

Question 16

Which of the following procedures most likely would not be included in a review engagement of a nonissuer?

Accepted Answer

A)  Obtaining a management representation letter. 
B)  Considering whether the financial statements conform with GAAP. 
C)  Assessing control risk. 
D)  Inquiring about subsequent events. 
A)  Obtaining a management representation letter. 
B)  Considering whether the financial statements conform with GAAP. 
C)  Assessing control risk. 
D)  Inquiring about subsequent events.

Question 17

In evaluating an entity's accounting estimates, one of an auditor's objectives is to determine whether the estimates are:

Accepted Answer

A)  Not subject to bias. 
B)  Consistent with industry guidelines. 
C)  Based on objective assumptions. 
D)  Reasonable in the circumstances. 
A)  Not subject to bias. 
B)  Consistent with industry guidelines. 
C)  Based on objective assumptions. 
D)  Reasonable in the circumstances.

Question 18

930 Hannah, CPA, has been engaged to perform financial statement audits for three different clients. The first two clients, McCormick Surf Shop and Kleinpeter Technologies, are both nonissuers, while the third client, Bender Industries, is an issuer. Hannah is required to follow PCAOB standards in her audit of Bender Industries. She has also been asked to conduct the Kleinpeter audit in accordance with both generally accepted auditing standards and the auditing standards of the PCAOB. Regarding the McCormick engagement, Hannah has decided to follow only generally accepted auditing standards, and not the standards of the PCAOB. Which of the following best describes the scope of Hannah's work related to internal control in these three engagements?

Accepted Answer

A)  Hannah must express an opinion on the effectiveness of internal control in all three engagements. 
B)  Hannah must express an opinion on the effectiveness of internal control in both the Bender and Kleinpeter engagements, but is not required to express such an opinion in the McCormick engagement. 
C)  Hannah must express an opinion on the effectiveness of internal control in the Bender engagement, but is not required to express such an opinion in the Kleinpeter and McCormick engagements. 
D)  Hannah is not required to express an opinion on the effectiveness of internal control in any of the three engagements, since she was hired to perform a financial statement audit and not to report on internal 
A)  Hannah must express an opinion on the effectiveness of internal control in all three engagements. 
B)  Hannah must express an opinion on the effectiveness of internal control in both the Bender and Kleinpeter engagements, but is not required to express such an opinion in the McCormick engagement. 
C)  Hannah must express an opinion on the effectiveness of internal control in the Bender engagement, but is not required to express such an opinion in the Kleinpeter and McCormick engagements. 
D)  Hannah is not required to express an opinion on the effectiveness of internal control in any of the three engagements, since she was hired to perform a financial statement audit and not to report on internal

Question 19

Which of the following is least likely to aid the auditor in evaluating the risk of improper revenue recognition due to fraud?

Accepted Answer

A)  Analysis of sales commissions over the most recent five-year period. 
B)  Comparison of sales volume, as determined from recorded revenue amounts, with production capacity. 
C)  Trend analysis of revenues and sales returns by month. 
D)  Comparison of revenue reported by month and by product line for the current and prior years. 
A)  Analysis of sales commissions over the most recent five-year period. 
B)  Comparison of sales volume, as determined from recorded revenue amounts, with production capacity. 
C)  Trend analysis of revenues and sales returns by month. 
D)  Comparison of revenue reported by month and by product line for the current and prior years.

Question 20

An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide 1% risk of assessing control risk too low (99% confidence) that not more than 7% of the sales invoices lacked approval. The auditor estimated from previous experience that about 2 1/2% of the sales invoices lacked approval. A sample of 200 invoices was examined and 7 of them were lacking approval. The auditor then determined the upper deviation rate to be 8%. In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of control risk because the:

Accepted Answer

A)  Tolerable rate (7%) was less than the upper deviation rate (8%). 
B)  Expected deviation rate (7%) was more than the percentage of errors in the sample (3.5%). 
C)  Upper deviation rate (8%) was more than the percentage of errors in the sample (3.5%). 
D)  Expected deviation rate (2.5%) was less than the tolerable rate (7%). 
A)  Tolerable rate (7%) was less than the upper deviation rate (8%). 
B)  Expected deviation rate (7%) was more than the percentage of errors in the sample (3.5%). 
C)  Upper deviation rate (8%) was more than the percentage of errors in the sample (3.5%). 
D)  Expected deviation rate (2.5%) was less than the tolerable rate (7%).

Exam 1: CPA Auditing and Attestation Exam