Question 1

In auditing a manufacturing entity, which of the following procedures would an auditor least likely perform to determine whether slow-moving, defective, and obsolete items included in inventory are properly identified?

Accepted Answer

A)  Test the computation of standard overhead rates. 
B)  Tour the manufacturing plant or production facility. 
C)  Compare inventory balances to anticipated sales volume. 
D)  Review inventory experience and trends.

Question 2

After making inquiries about credit granting policies, an auditor selects a sample of sales transactions and examines evidence of credit approval. This test of controls most likely supports management's financial statement assertion(s) of:

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 3

How are management's responsibility and the auditor's responsibility represented in the standard auditor's report?

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 4

Payroll Data Co. (PDC) processes payroll transactions for a retailer. Cook, CPA, is engaged to express an opinion on a description of PDC's internal controls placed in operation as of a specific date. These controls are relevant to the retailer's internal control, so Cook's report may be useful in providing the retailer's independent auditor with information necessary to plan a financial statement audit. Cook's report should:

Accepted Answer

A)  Contain a disclaimer of opinion on the operating effectiveness of PDC's controls. 
B)  State whether PDC's controls were suitably designed to achieve the retailer's objectives. 
C)  Identify PDC's controls relevant to specific financial statement assertions. 
D)  Disclose Cook's assessed level of control risk for PDC.

Question 5

Which of the following standards requires a critical review of the work done and the judgment exercised by those assisting in an audit at every level of supervision?

Accepted Answer

A)  Proficiency. 
B)  Audit risk. 
C)  Inspection. 
D)  Due care.

Question 6

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 All the current-year basic financial statements are not properly identified in the first (introductory) paragraph.

Accepted Answer

A)  Correct 
B)  Incorrect

Question 7

As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk lower than appropriate. The most likely Explanation: for this situation is that:

Accepted Answer

A)  The deviation rates of both the auditor's sample and the population exceed the tolerable rate. 
B)  The deviation rates of both the auditor's sample and the population is less than the tolerable rate. 
C)  The deviation rate in the auditor's sample is less than the tolerable rate, but the deviation rate in the population exceeds the tolerable rate. 
D)  The deviation rate in the auditor's sample exceeds the tolerable rate, but the deviation rate in the population is less than the tolerable rate.

Question 8

Ordinarily, the predecessor auditor permits the successor auditor to review the predecessor's audit documentation relating to:

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 9

When there has been a change in accounting principles, but the effect of the change on the comparability of the financial statements is not material, the auditor should:

Accepted Answer

A)  Refer to the change in an explanatory paragraph. 
B)  Explicitly concur that the change is preferred. 
C)  Not refer to consistency in the auditor's report. 
D)  Refer to the change in the opinion paragraph.

Question 10

To reduce the risks associated with accepting e-mail responses to requests for confirmation of accounts receivable, an auditor most likely would:

Accepted Answer

A)  Request the senders to mail the original forms to the auditor. 
B)  Examine subsequent cash receipts for the accounts in question. 
C)  Consider the e-mail responses to the confirmations to be exceptions. 
D)  Mail second requests to the e-mail respondents.

Question 11

An auditor may report on condensed financial statements that are derived from complete audited financial statements if the:

Accepted Answer

A)  Auditor indicates whether the information in the condensed financial statements is fairly stated in all material respects. 
B)  Condensed financial statements are presented in comparative form with the prior year's condensed financial statements. 
C)  Auditor describes the additional review procedures performed on the condensed financial statements. 
D)  Condensed financial statements are distributed only to management and the board of directors.

Question 12

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 Due to recurring operating losses and working capital deficiencies, an auditor has substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. However, the financial statement disclosures concerning these matters are adequate. 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.

Question 13

Which of the following is an engagement attribute for an audit of an entity that processes most of its financial data in electronic form without any paper documentation?

Accepted Answer

A)  Discrete phases of planning, interim, and year-end fieldwork. 
B)  Increased effort to search for evidence of management fraud. 
C)  Performance of audit tests on a continuous basis. 
D)  Increased emphasis on the completeness assertion.

Question 14

An auditor testing long-term investments would ordinarily use analytical review as the primary audit procedure to ascertain the reasonableness of the:

Accepted Answer

A)  Valuation of marketable equity securities. 
B)  Classification of gains and losses on the disposal of securities. 
C)  Completeness of recorded investment income. 
D)  Existence and ownership of investments.

Question 15

If requested to perform a review engagement for a nonissuer in which an accountant has an immaterial direct financial interest, the accountant is:

Accepted Answer

A)  Not independent and, therefore, may not be associated with the financial statements. 
B)  Not independent and, therefore, may not issue a review report. 
C)  Not independent and, therefore, may issue a review report, but may not issue an auditor's opinion. 
D)  Independent because the financial interest is immaterial and, therefore, may issue a review report.

Question 16

In auditing the financial statements of Star Corp., Land discovered information leading Land to believe that Star's prior year's financial statements, which were audited by Tell, require substantial revisions. Under these circumstances, Land should:

Accepted Answer

A)  Notify Star's audit committee and stockholders that the prior year's financial statements cannot be relied on. 
B)  Request Star to reissue the prior year's financial statements with the appropriate revisions. 
C)  Notify Tell about the information and make inquiries about the integrity of Star's management. 
D)  Request Star to arrange a meeting among the three parties to resolve the matter.

Question 17

An auditor issued an audit report that was dual dated for a subsequent event occurring after the original date of the auditor's report. The auditor's responsibility for events occurring subsequent to the original date was:

Accepted Answer

A)  Extended to subsequent events occurring through the date of reissuance of the report. 
B)  Extended to include all events occurring since the original date of the auditor's report. 
C)  Limited to the specific event referenced. 
D)  Limited to include only events occurring up to the date of the last subsequent event referenced.

Question 18

In an environment that is highly automated, an auditor determines that it is not possible to reduce detection risk solely by substantive tests of transactions. Under these circumstances, the auditor most likely would:

Accepted Answer

A)  Perform tests of controls to support a lower level of assessed control risk. 
B)  Increase the sample size to reduce sampling risk and detection risk. 
C)  Adjust the materiality level and consider the effect on inherent risk. 
D)  Apply analytical procedures and consider the effect on control risk.

Question 19

Analytical procedures performed during an audit indicate that accounts receivable doubled since the end of the prior year. However, the allowance for doubtful accounts as a percentage of accounts receivable remained about the same. Which of the following client Explanation: s would satisfy the auditor?

Accepted Answer

A)  A greater percentage of accounts receivable are listed in the "more than 120 days overdue" category than in the prior year. 
B)  Internal control activities over the recording of cash receipts have been improved since the end of the prior year. 
C)  The client opened a second retail outlet during the current year and its credit sales approximately equaled the older outlet. 
D)  The client tightened its credit policy during the current year and sold considerably less merchandise to customers with poor credit ratings.

Question 20

Which of the following combinations of procedures would an auditor most likely perform to obtain evidence about fixed asset additions?

Accepted Answer

A)  Inspecting documents and physically examining assets. 
B)  Recomputing calculations and obtaining written management representations. 
C)  Observing operating activities and comparing balances to prior period balances. 
D)  Confirming ownership and corroborating transactions through inquiries of client personnel.

Exam 1: CPA Auditing and Attestation Exam

In auditing a manufacturing entity, which of the following procedures would an auditor least likely perform to determine whether slow-moving, defective, and obsolete items included in inventory are properly identified?

After making inquiries about credit granting policies, an auditor selects a sample of sales transactions and examines evidence of credit approval. This test of controls most likely supports management's financial statement assertion(s) of:

How are management's responsibility and the auditor's responsibility represented in the standard auditor's report?

Which of the following standards requires a critical review of the work done and the judgment exercised by those assisting in an audit at every level of supervision?

As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk lower than appropriate. The most likely Explanation: for this situation is that:

Ordinarily, the predecessor auditor permits the successor auditor to review the predecessor's audit documentation relating to:

When there has been a change in accounting principles, but the effect of the change on the comparability of the financial statements is not material, the auditor should:

To reduce the risks associated with accepting e-mail responses to requests for confirmation of accounts receivable, an auditor most likely would:

An auditor may report on condensed financial statements that are derived from complete audited financial statements if the:

Which of the following is an engagement attribute for an audit of an entity that processes most of its financial data in electronic form without any paper documentation?

An auditor testing long-term investments would ordinarily use analytical review as the primary audit procedure to ascertain the reasonableness of the:

If requested to perform a review engagement for a nonissuer in which an accountant has an immaterial direct financial interest, the accountant is:

In auditing the financial statements of Star Corp., Land discovered information leading Land to believe that Star's prior year's financial statements, which were audited by Tell, require substantial revisions. Under these circumstances, Land should:

An auditor issued an audit report that was dual dated for a subsequent event occurring after the original date of the auditor's report. The auditor's responsibility for events occurring subsequent to the original date was:

In an environment that is highly automated, an auditor determines that it is not possible to reduce detection risk solely by substantive tests of transactions. Under these circumstances, the auditor most likely would:

Which of the following combinations of procedures would an auditor most likely perform to obtain evidence about fixed asset additions?