Question 1

Which of the following auditing procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

Accepted Answer

A)  Inspecting title documents to verify whether any assets are pledged as collateral. 
B)  Confirming with third parties the details of arrangements to maintain financial support. 
C)  Reconciling the cash balance per books with the cut-off bank statement and the bank confirmation. 
D)  Comparing the entity's depreciation and asset capitalization policies to other entities in the industry.

Question 2

To which of the following matters would materiality limits not apply when obtaining written client representations?

Accepted Answer

A)  Violations of state labor regulations. 
B)  Disclosure of line-of-credit arrangements. 
C)  Information about related party transactions. 
D)  Instances of fraud involving management.

Question 3

The information below was taken from the bank transfer schedule prepared during the audit of Fox Co.'s financial statements for the year ended December 31, 20X1. Assume all checks are dated and issued on December 30, 20X1.  Which of the following checks might indicate kiting?

Accepted Answer

A)  #101 and #303. 
B)  #202 and #404. 
C)  #101 and #404. 
D)  #202 and #303.

Question 4

A CPA firm would be reasonably assured of meeting its responsibility to provide services that conform with professional standards by:

Accepted Answer

A)  Adhering to generally accepted auditing standards. 
B)  Having an appropriate system of quality control. 
C)  Joining professional societies that enforce ethical conduct. 
D)  Maintaining an attitude of independence in its engagements.

Question 5

The primary objective of procedures performed to obtain an understanding of the entity and its environment is to provide an auditor with:

Accepted Answer

A)  Knowledge necessary for risk assessment and audit planning. 
B)  Audit evidence to use in assessing inherent risk. 
C)  A basis for issuing an opinion on the financial statements. 
D)  An evaluation of the consistency of application of management's policies.

Question 6

Restrictions imposed by a retail entity that is a new client prevent an auditor from observing any physical inventories. These inventories account for 40% of the entity's assets. Alternative auditing procedures cannot be applied due to the nature of the entity's records. Under these circumstances, the auditor should express a(an):

Accepted Answer

A)  Disclaimer of opinion. 
B)  Qualified opinion. 
C)  Adverse opinion. 
D)  Unqualified opinion with an explanatory paragraph.

Question 7

In testing plant and equipment balances, an auditor examines new additions listed on an analysis of plant and equipment. This procedure most likely obtains evidence concerning management's assertion of:

Accepted Answer

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

Question 8

An accountant has compiled the financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services (SSARS). The financial statements are expected to be used by a third party. Does SSARS require that the compilation report be printed on the accountant's letterhead and that the report be manually signed by the accountant?

Accepted Answer

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

Question 9

When an independent accountant's report based on a review of interim financial information is presented in a registration statement, a prospectus should include a statement about the accountant's involvement. This statement should clarify that the:

Accepted Answer

A)  Accountant is not an "expert" within the meaning of the Securities Act of 1933. 
B)  Accountant's review report is not a "part" of the registration statement within the meaning of the Securities Act of 1933. 
C)  Accountant performed only limited auditing procedures on the interim financial statements. 
D)  Accountant's review was performed in accordance with standards established by the American Institute of CPAs.

Question 10

Which of the following is a management control method that most likely could improve management's ability to supervise company activities effectively?

Accepted Answer

A)  Monitoring compliance with internal control requirements imposed by regulatory bodies. 
B)  Limiting direct access to assets by physical segregation and protective devices. 
C)  Establishing budgets and forecasts to identify variances from expectations. 
D)  Supporting employees with the resources necessary to discharge their responsibilities.

Question 11

Which of the following categories is included in generally accepted auditing standards?

Accepted Answer

A)  Standards of review. 
B)  Standards of planning. 
C)  Standards of fieldwork. 
D)  Standards of evidence.

Question 12

An auditor has been asked to report on the balance sheet of Kane Company but not on the other basic financial statements. The auditor will have access to all information underlying the basic financial statements. Under these circumstances, the auditor:

Accepted Answer

A)  May accept the engagement because such engagements merely involve limited reporting objectives. 
B)  May accept the engagement but should disclaim an opinion because of an inability to apply the procedures considered necessary. 
C)  Should refuse the engagement because there is a client-imposed scope limitation. 
D)  Should refuse the engagement in accordance with generally accepted auditing standards.

Question 13

If a client will not permit inquiry of outside legal counsel, the auditor's report ordinarily will contain a(an):

Accepted Answer

A)  Adverse opinion. 
B)  Disclaimer of opinion. 
C)  Unqualified opinion with a separate explanatory paragraph. 
D)  Qualified opinion.

Question 14

An auditor selected items for test counts while observing a client's physical inventory. The auditor then traced the test counts to the client's inventory listing. This procedure most likely obtained evidence concerning management's assertion of:

Accepted Answer

A)  Rights and obligations. 
B)  Completeness. 
C)  Existence. 
D)  Valuation.

Question 15

Which of the following reporting options is least likely with regard to supplementary information that is required by GAAP?

Accepted Answer

A)  The auditor's report on the financial statements makes no reference to the supplementary information. 
B)  A disclaimer of opinion is issued on supplementary information that is not clearly distinguished from the financial statements and is not marked "unaudited." 
C)  The auditor's report on the financial statements includes both an opinion on the supplementary information and a statement restricting the use of the report. 
D)  The auditor's report on the financial statements includes an opinion regarding whether the supplementary information is fairly stated in all material respects in relation to the financial statements taken as a whole.

Question 16

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

Accepted Answer

A)  A review includes assessing the accounting principles used and significant estimates made by management. 
B)  A review includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 
C)  The accountant is not aware of any material modifications that should be made to the financial statements. 
D)  The accountant does not express an opinion or any other form of assurance on the financial statements.

Question 17

An examination of a financial forecast is a professional service that involves:

Accepted Answer

A)  Compiling or assembling a financial forecast that is based on management's assumptions. 
B)  Limiting the distribution of the accountant's report to management and the board of directors. 
C)  Assuming responsibility to update management on key events for one year after the report's date. 
D)  Evaluating the preparation of a financial forecast and the support underlying management's assumptions.

Question 18

Under which of the following circumstances would the use of the blank form of confirmations of accounts receivable most likely be preferable to positive confirmations?

Accepted Answer

A)  The recipients are likely to sign the confirmations without devoting proper attention to them. 
B)  Subsequent cash receipts are unusually difficult to verify. 
C)  Analytical procedures indicate that few exceptions are expected. 
D)  The combined assessed level of inherent risk and control risk is low.

Question 19

An auditor most likely would extend substantive tests of payroll when:

Accepted Answer

A)  Payroll is extensively audited by the state government. 
B)  Payroll expense is substantially higher than in the prior year. 
C)  Overpayments are discovered in performing tests of details. 
D)  Employees complain to management about too much overtime.

Question 20

In performing tests concerning the granting of stock options, an auditor should:

Accepted Answer

A)  Confirm the transaction with the Secretary of State in the state of incorporation 
B)  Verify the existence of option holders in the entity's payroll records or stock ledgers. 
C)  Determine that sufficient treasury stock is available to cover any new stock issued. 
D)  Trace the authorization for the transaction to a vote of the board of directors.

Exam 1: CPA Auditing and Attestation Exam