Question 1

To satisfy the valuation assertion when auditing an investment accounted for by the equity method, an auditor most likely would:

Accepted Answer

A)  Inspect the stock certificates evidencing the investment. 
B)  Examine the audited financial statements of the investee company. 
C)  Review the broker's advice or canceled check for the investment's acquisition. 
D)  Obtain market quotations from financial newspapers or periodicals. 
A)  Inspect the stock certificates evidencing the investment. 
B)  Examine the audited financial statements of the investee company. 
C)  Review the broker's advice or canceled check for the investment's acquisition. 
D)  Obtain market quotations from financial newspapers or periodicals.

Question 2

An auditor examining inventory most likely would use variables sampling rather than attributes sampling to:

Accepted Answer

A)  Identify whether inventory items are properly priced. 
B)  Estimate whether the dollar amount of inventory is reasonable 
C)  Discover whether misstatements exist in inventory records. 
D)  Determine whether discounts for inventory are properly recorded. 
A)  Identify whether inventory items are properly priced. 
B)  Estimate whether the dollar amount of inventory is reasonable 
C)  Discover whether misstatements exist in inventory records. 
D)  Determine whether discounts for inventory are properly recorded.

Question 3

In performing a count of negotiable securities, an auditor records the details of the count on a security count worksheet. What other information is usually included on this worksheet?

Accepted Answer

A)  An acknowledgment by a client representative that the securities were returned intact. 
B)  An analysis of realized gains and losses from the sale of securities during the year. 
C)  An evaluation of the client's internal control concerning physical access to the securities. 
D)  A description of the client's procedures that prevent the negotiation of securities by just one person. 
A)  An acknowledgment by a client representative that the securities were returned intact. 
B)  An analysis of realized gains and losses from the sale of securities during the year. 
C)  An evaluation of the client's internal control concerning physical access to the securities. 
D)  A description of the client's procedures that prevent the negotiation of securities by just one person.

Question 4

The accounts receivable turnover ratio increased significantly over a two-year period. This trend could indicate that:

Accepted Answer

A)  The accounts receivable aging has deteriorated. 
B)  The company has eliminated its discount policy. 
C)  The company is more aggressively collecting customer accounts. 
D)  Customer sales have substantially decreased. 
A)  The accounts receivable aging has deteriorated. 
B)  The company has eliminated its discount policy. 
C)  The company is more aggressively collecting customer accounts. 
D)  Customer sales have substantially decreased.

Question 5

Which of the following would be used on a review engagement?

Accepted Answer

A)  Examination of board minutes. 
B)  Confirmation of cash and accounts receivable. 
C)  Comparison of current-year to prior-year account balances. 
D)  Recalculation of depreciation expense. 
A)  Examination of board minutes. 
B)  Confirmation of cash and accounts receivable. 
C)  Comparison of current-year to prior-year account balances. 
D)  Recalculation of depreciation expense.

Question 6

The permanent file of the audit documentation for an engagement generally would not include:

Accepted Answer

A)  Bond indenture agreements. 
B)  Lease agreements. 
C)  Working trial balance. 
D)  Flowchart of internal control. 
A)  Bond indenture agreements. 
B)  Lease agreements. 
C)  Working trial balance. 
D)  Flowchart of internal control.

Question 7

Which of the following controls most likely would help ensure that all credit sales transactions of an entity are recorded?

Accepted Answer

A)  The billing department supervisor sends copies of approved sales orders to the credit department for comparison to authorized credit limits and current customer account balances. 
B)  The accounting department supervisor independently reconciles the accounts receivable subsidiary ledger to the accounts receivable control account monthly. 
C)  The accounting department supervisor controls the mailing of monthly statements to customers and investigates any differences reported by customers. 
D)  The billing department supervisor matches prenumbered shipping documents with entries in the sales journal. 
A)  The billing department supervisor sends copies of approved sales orders to the credit department for comparison to authorized credit limits and current customer account balances. 
B)  The accounting department supervisor independently reconciles the accounts receivable subsidiary ledger to the accounts receivable control account monthly. 
C)  The accounting department supervisor controls the mailing of monthly statements to customers and investigates any differences reported by customers. 
D)  The billing department supervisor matches prenumbered shipping documents with entries in the sales journal.

Question 8

Which of the following statements concerning control risk is correct?

Accepted Answer

A)  Assessing control risk and obtaining an understanding of an entity's internal control may be performed concurrently. 
B)  Control risk may be assessed sufficiently high to eliminate substantive testing for significant transaction classes. 
C)  Control risk may be assessed sufficiently low to eliminate substantive testing for significant transaction classes. 
D)  When assessing control risk an auditor should not consider evidence obtained in prior audits about the operation of control activities. 
A)  Assessing control risk and obtaining an understanding of an entity's internal control may be performed concurrently. 
B)  Control risk may be assessed sufficiently high to eliminate substantive testing for significant transaction classes. 
C)  Control risk may be assessed sufficiently low to eliminate substantive testing for significant transaction classes. 
D)  When assessing control risk an auditor should not consider evidence obtained in prior audits about the operation of control activities.

Question 9

An auditor expressed a qualified opinion on the prior year's financial statements because of a lack of adequate disclosure. These financial statements are properly restated in the current year and presented in comparative form with the current year's financial statements. The auditor's updated report on the prior year's financial statements should:

Accepted Answer

A)  Be accompanied by the auditor's original report on the prior year's financial statements. 
B)  Continue to express a qualified opinion on the prior year's financial statements. 
C)  Make no reference to the type of opinion expressed on the prior year's financial statements. 
D)  Express an unqualified opinion on the restated financial statements of the prior year. 
A)  Be accompanied by the auditor's original report on the prior year's financial statements. 
B)  Continue to express a qualified opinion on the prior year's financial statements. 
C)  Make no reference to the type of opinion expressed on the prior year's financial statements. 
D)  Express an unqualified opinion on the restated financial statements of the prior year.

Question 10

Which of the following documentation is required for an audit in accordance with generally accepted auditing standards?

Accepted Answer

A)  A flowchart or an internal control questionnaire that evaluates the effectiveness of the entity's internal control. 
B)  A management representation letter that summarizes the timing and details of the auditor's planned fieldwork. 
C)  An indication in the audit documentation that the accounting records agree or reconcile with the financial statements. 
D)  A list of the procedures performed and the findings obtained. 
A)  A flowchart or an internal control questionnaire that evaluates the effectiveness of the entity's internal control. 
B)  A management representation letter that summarizes the timing and details of the auditor's planned fieldwork. 
C)  An indication in the audit documentation that the accounting records agree or reconcile with the financial statements. 
D)  A list of the procedures performed and the findings obtained.

Question 11

Which of the following are considered control environment factors?

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

In which of the following situations would an auditor ordinarily choose between expressing an "except for" qualified opinion or an adverse opinion?

Accepted Answer

A)  The auditor did not observe the entity's physical inventory and is unable to become satisfied as to its balance by other auditing procedures. 
B)  The financial statements fail to disclose information that is required by generally accepted accounting principles. 
C)  The auditor is asked to report only on the entity's balance sheet and not on the other basic financial statements. 
D)  Events disclosed in the financial statements cause the auditor to have substantial doubt about the entity's ability to continue as a going concern. 
A)  The auditor did not observe the entity's physical inventory and is unable to become satisfied as to its balance by other auditing procedures. 
B)  The financial statements fail to disclose information that is required by generally accepted accounting principles. 
C)  The auditor is asked to report only on the entity's balance sheet and not on the other basic financial statements. 
D)  Events disclosed in the financial statements cause the auditor to have substantial doubt about the entity's ability to continue as a going concern.

Question 13

Which of the following questions would an auditor least likely include on an internal control questionnaire concerning the initiation and execution of equipment transactions?

Accepted Answer

A)  Are requests for major repairs approved at a higher level than the department initiating the request? 
B)  Are prenumbered purchase orders used for equipment and periodically accounted for? 
C)  Are requests for purchases of equipment reviewed for consideration of soliciting competitive bids? 
D)  Are procedures in place to monitor and properly restrict access to equipment? 
A)  Are requests for major repairs approved at a higher level than the department initiating the request? 
B)  Are prenumbered purchase orders used for equipment and periodically accounted for? 
C)  Are requests for purchases of equipment reviewed for consideration of soliciting competitive bids? 
D)  Are procedures in place to monitor and properly restrict access to equipment?

Question 14

When compiling the financial statements of a nonissuer, an accountant should:

Accepted Answer

A)  Review agreements with financial institutions for restrictions on cash balances. 
B)  Understand the accounting principles and practices of the entity's industry. 
C)  Inquire of key personnel concerning related parties and subsequent events. 
D)  Perform ratio analyses of the financial data of comparable prior periods. 
A)  Review agreements with financial institutions for restrictions on cash balances. 
B)  Understand the accounting principles and practices of the entity's industry. 
C)  Inquire of key personnel concerning related parties and subsequent events. 
D)  Perform ratio analyses of the financial data of comparable prior periods.

Question 15

The primary evidence regarding year-end cash balances in the financial statements is documented in the:

Accepted Answer

A)  Standard bank confirmations. 
B)  Bank reconciliations. 
C)  Interbank transfer schedule. 
D)  Bank deposit lead schedule. 
A)  Standard bank confirmations. 
B)  Bank reconciliations. 
C)  Interbank transfer schedule. 
D)  Bank deposit lead schedule.

Question 16

Which of the following procedures would least likely result in the discovery of possible illegal acts?

Accepted Answer

A)  Reading the minutes of the board of directors' meetings. 
B)  Making inquiries of the client's management. 
C)  Performing tests of details of transactions. 
D)  Reviewing an internal control questionnaire. 
A)  Reading the minutes of the board of directors' meetings. 
B)  Making inquiries of the client's management. 
C)  Performing tests of details of transactions. 
D)  Reviewing an internal control questionnaire.

Question 17

An auditor may decide to decrease the acceptable level of risk when:

Accepted Answer

A)  Increased reliability from the sample is desired. 
B)  Many differences (audit value minus recorded value) are expected. 
C)  Initial sample results do not support the planned level of control risk. 
D)  The cost and effort of selecting additional sample items is low. 
A)  Increased reliability from the sample is desired. 
B)  Many differences (audit value minus recorded value) are expected. 
C)  Initial sample results do not support the planned level of control risk. 
D)  The cost and effort of selecting additional sample items is low.

Question 18

This question presents independent factual situations an auditor might encounter in conducting an audit. List A represents the types of opinions the auditor ordinarily would issue. Select as the best answer for this item, the action the auditor normally would take. The types of opinions in List A 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 An entity is a defendant in a lawsuit alleging infringement of certain patent rights. However, the ultimate outcome of the litigation cannot be reasonably estimated by management. The auditor believes there is a reasonable possibility of a significantly material loss, but the lawsuit is adequately disclosed in the notes to the financial statements. List A Types of Options

Accepted Answer

A)  An "except for" qualified opinion. 
B)  An unqualified opinion. 
C)  An adverse opinion. 
D)  A disclaimer of opinion. 
E)  Either an "except for" qualified opinion or an adverse opinion.
F) Either a disclaimer of opinion or an "except for" qualified opinion.
G) Either an adverse opinion or a disclaimer of opinion. 
A)  An "except for" qualified opinion. 
B)  An unqualified opinion. 
C)  An adverse opinion. 
D)  A disclaimer of opinion. 
E)  Either an "except for" qualified opinion or an adverse opinion.
F) Either a disclaimer of opinion or an "except for" qualified opinion.
G) Either an adverse opinion or a disclaimer of opinion.

Question 19

Audit documentation serves mainly to:

Accepted Answer

A)  Provide the principal support for the auditor's report. 
B)  Satisfy the auditor's responsibilities concerning the Code of Professional Conduct. 
C)  Monitor the effectiveness of the CPA firm's quality control activities. 
D)  Document the level of independence maintained by the auditor. 
A)  Provide the principal support for the auditor's report. 
B)  Satisfy the auditor's responsibilities concerning the Code of Professional Conduct. 
C)  Monitor the effectiveness of the CPA firm's quality control activities. 
D)  Document the level of independence maintained by the auditor.

Question 20

Which of the following accounting bases may be used to prepare financial statements in conformity with a comprehensive basis of accounting other than generally accepted accounting principles?

Accepted Answer

A)  Basis of accounting used by an entity to file its income tax return. II. Cash receipts and disbursements basis of accounting. 
B)  I only. 
C)  II only. 
D)  Both I and II. 
E)  Neither I nor II. 
A)  Basis of accounting used by an entity to file its income tax return. II. Cash receipts and disbursements basis of accounting. 
B)  I only. 
C)  II only. 
D)  Both I and II. 
E)  Neither I nor II.

Exam 1: CPA Auditing and Attestation Exam