Exam 1: CPA Auditing and Attestation Exam

An accountant who had begun an audit of the financial statements of a nonissuer was asked to change the engagement to a review because of a restriction on the scope of the audit. If there is reasonable justification for the change, the accountant's review report should include reference to the:

A CPA is permitted to accept a separate engagement (not in conjunction with an audit of financial statements) to audit an entity's:

Selected data pertaining to Lore Co. for the calendar year 20X4 is as follows: Lore would use which of the following to determine the average days sales in inventory?

The annual financial statements of a publicly held company have been audited, and its interim financial statements have been reviewed. Which of the following is true about the application of professional standards to this review?

Which of the following conditions is necessary for a practitioner to accept an attest engagement to examine and report on a nonissuer's internal control over financial reporting?

A CPA's standard report on audited financial statements would be inappropriate if it referred to:

Before applying principal substantive tests to an entity's accounts receivable at an interim date, an auditor should:

What is the most likely course of action that an auditor would take after determining that performing substantive tests on inventory will take less time than performing tests of controls?

Which of the following statements describes an auditor's obligation to identify deficiencies in the design or operation of internal control?

The most reliable procedure for an auditor to use to test the existence of a client's inventory at an outside location would be to:

In an audit of contingent liabilities, which of the following procedures would be least effective?

Which of the following internal controls most likely would prevent direct labor hours from being charged to manufacturing overhead?

Regardless of the assessed level of control risk, an auditor would perform some:

An auditor usually determines whether dividend income from publicly-held investments is reasonable by computing the amounts that should have been received by referring to:

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 a reference to "conformity with generally accepted accounting principles" in the third paragraph.

An auditor's inquiries of management disclosed that the entity recently invested in a series of energy derivatives to hedge against the risks associated with fluctuating oil prices. Under these circumstances, the auditor should:

Compiled financial statements should be accompanied by an accountant's report stating that:

To which of the following matters would materiality limits not apply in obtaining written management representations?

The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the:

The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of the risk that: