Question 1

Information accompanying the basic financial statements in an auditor-submitted document should not include:

Accepted Answer

A)  An analysis of inventory by location. 
B)  A statement that the allowance for doubtful accounts is adequate. 
C)  A statement that the depreciable life of a new asset is 20 years. 
D)  An analysis of revenue by product line.

Question 2

An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about:

Accepted Answer

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

Question 3

Management's emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when:

Accepted Answer

A)  Internal auditors have direct access to the entity's board of directors. 
B)  A significant portion of management compensation is represented by stock options. 
C)  External policies established by parties outside the entity affect accounting policies. 
D)  Those charged with governance are active in overseeing the entity's financial reporting policies.

Question 4

Stratified mean per unit (MPU) sampling is a statistical technique that may be more efficient than unstratified MPU because it usually:

Accepted Answer

A)  May be applied to populations where many monetary errors are expected to occur. 
B)  Produces an estimate having a desired level of precision with a smaller sample size. 
C)  Increases the variability among items in a stratum by grouping sampling units with similar characteristics. 
D)  Yields a weighted sum of the strata standard deviations that is greater than the standard deviation of the population.

Question 5

Analytical procedures used in planning an audit should focus on:

Accepted Answer

A)  Reducing the scope of tests of controls and substantive tests. 
B)  Providing assurance that potential material misstatements will be identified. 
C)  Enhancing the auditor's understanding of the client's business. 
D)  Assessing the adequacy of the available audit evidence.

Question 6

Blue, CPA, has been asked to render an opinion on the application of accounting principles to a specific transaction by an entity that is audited by another CPA. Blue may accept this engagement, but should:

Accepted Answer

A)  Consult with the continuing CPA to obtain information relevant to the transaction. 
B)  Report the engagement's findings to the entity's audit committee, the continuing CPA, and management. 
C)  Disclaim any opinion that the hypothetical application of accounting principles conforms with generally accepted accounting principles. 
D)  Notify the entity that the report is for the general use of all interested parties.

Question 7

Which of the following strategies most likely could improve the response rate of the confirmation of accounts receivable?

Accepted Answer

A)  Including a list of items or invoices that constitute the account balance. 
B)  Restricting the selection of accounts to be confirmed to those customers with relatively large balances. 
C)  Requesting customers to respond to the confirmation requests directly to the auditor by fax or e-mail. 
D)  Notifying the recipients that second requests will be mailed if they fail to respond in a timely manner.

Question 8

An accountant's standard report on a review of the financial statements of a nonissuer should state that the accountant:

Accepted Answer

A)  Does not express an opinion or any form of limited assurance on the financial statements. 
B)  Is not aware of any material modifications that should be made to the financial statements for them to conform with GAAP. 
C)  Obtained reasonable assurance about whether the financial statements are free of material misstatement. 
D)  Examined evidence, on a test basis, supporting the amounts and disclosures in the financial statements.

Question 9

Property acquisitions that are misclassified as maintenance expense would most likely be detected by an internal accounting control system that provides for:

Accepted Answer

A)  Investigation of variances within a formal budgeting system. 
B)  Review and approval of the monthly depreciation entry by the plant supervisor. 
C)  Segregation of duties of employees in the accounts payable department. 
D)  Examination by the internal auditor of vendor invoices and canceled checks for property acquisitions.

Question 10

Which of the following evidence provides the greatest assurance of reliability?

Accepted Answer

A)  Bank statement. 
B)  Bank reconciliation. 
C)  Cash receipts journal. 
D)  Cash disbursements journal.

Question 11

Due to a scope limitation, an auditor disclaimed an opinion on the financial statements taken as a whole, but the auditor's report included a statement that the current asset portion of the entity's balance sheet was fairly stated. The inclusion of this statement is:

Accepted Answer

A)  Not appropriate because it may tend to overshadow the auditor's disclaimer of opinion. 
B)  Not appropriate because the auditor is prohibited from reporting on only one basic financial statement. 
C)  Appropriate provided the auditor's scope paragraph adequately describes the scope limitation. 
D)  Appropriate provided the statement is in a separate paragraph preceding the disclaimer of opinion paragraph.

Question 12

A purpose of a management representation letter is to reduce:

Accepted Answer

A)  Audit risk to an aggregate level of misstatement that could be considered material. 
B)  An auditor's responsibility to detect material misstatements only to the extent that the letter is relied on. 
C)  The possibility of a misunderstanding concerning management's responsibility for the financial statements. 
D)  The scope of an auditor's procedures concerning related party transactions and subsequent events.

Question 13

Which of the following best describes what is meant by the term generally accepted auditing standards?

Accepted Answer

A)  Rules acknowledged by the accounting profession because of their universal application. 
B)  Pronouncements issued by the Auditing Standards Board. 
C)  Measures of the quality of the auditor's performance. 
D)  Procedures to be used to gather evidence to support financial statements.

Question 14

Tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year most likely would provide assurance about management's assertion regarding:

Accepted Answer

A)  Accuracy. 
B)  Obligations. 
C)  Cutoff. 
D)  Classification.

Question 15

Which of the following procedures would an auditor most likely perform to obtain assurance that slowmoving and obsolete items included in inventories are properly identified?

Accepted Answer

A)  Testing shipping and receiving cutoff procedures. 
B)  Confirming inventories at locations outside the entity's premises. 
C)  Examining an analysis of inventory turnover. 
D)  Tracing inventory observation test counts to perpetual listings.

Question 16

Which of the following audit procedures is best for identifying unrecorded trade accounts payable?

Accepted Answer

A)  Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period. 
B)  Investigating payables recorded just prior to and just subsequent to the balance sheet date to determine whether they are supported by receiving reports. 
C)  Examining unusual relationships between monthly accounts payable balances and recorded cash payments. 
D)  Reconciling vendors' statements to the file of receiving reports to identify items received just prior to the balance sheet date.

Question 17

Which of the following is a true statement regarding documentation requirements for analytical procedures?

Accepted Answer

A)  When an analytical procedure is used as the principal substantive test of a significant financial statement assertion, the auditor is required to document the reasons analytical procedures were performed instead of tests of details. 
B)  When an analytical procedure is used as the principal substantive test of a significant financial statement assertion, the auditor is required to document his or her expectation and management's concurrence with that expectation. 
C)  When an analytical procedure is used during the overall review stage of the audit, the auditor is required to document the auditor's expectation and any additional procedures performed to investigate significant unexplained differences. 
D)  When an analytical procedure is used as the principal substantive test of a significant financial statement assertion, the auditor is required to document both the auditor's expectation and the factors considered in developing that expectation.

Question 18

Determining that proper amounts of depreciation are expensed provides assurance about management's assertion of:

Accepted Answer

A)  Valuation, allocation, and accuracy. 
B)  Completeness, accuracy, and occurrence. 
C)  Rights and obligations, and valuation. 
D)  Existence, completeness, and accuracy.

Question 19

Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?

Accepted Answer

A)  Accounts payable. 
B)  Advertising expense. 
C)  Accounts receivable. 
D)  Payroll expense.

Question 20

This question will represent a statement, question, excerpt, or comment taken from various parts of an auditor's documentation file. Letter choices A-P represent a list of the likely sources of the statement, question, excerpt, or comment. Select, as the best answer for each item, the most likely source. Select only one source for each item. As discussed in Note 4 to the financial statements, the company experienced a net loss for the year ended July 31, 20XX, and is currently in default under substantially all of its debt agreements. In addition, on September 25, 20XX, the company filed a prenegotiated voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. These matters raise substantial doubt about the company's ability to continue as a going concern.

Accepted Answer

A)  Practitioner's report on management's assertion about an entity's compliance with specified requirements. 
B)  Auditor's communications on significant deficiencies in internal control. 
C)  Audit inquiry letter to legal counsel. 
D)  Lawyer's response to audit inquiry letter. 
E)  Communication from those charged with governance to the auditor.
F) Auditor's communication to those charged with governance (other than with respect to significant deficiencies in internal control
G) Report on the application of accounting principles.
H) Auditor's engagement letter.
I) Letter for underwriters.
J) Accounts receivable confirmation request.
K) Request for bank cutoff statement.
L) Explanatory paragraph of an auditor's report on financial statements.
M) Partner's engagement review notes.
N) Management representation letter.
O) Successor auditor's communication with predecessor auditor.
P) Predecessor auditor's communication with successor auditor.

Exam 1: CPA Auditing and Attestation Exam