Question 1

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. The timetable set by management to complete our audit was unreasonable considering the failure of the company's personnel to complete schedules on a timely basis and delays in providing necessary information.

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.

Question 2

An auditor's primary consideration in evaluating controls is whether specific controls:

Accepted Answer

A)  Affect financial statement assertions. 
B)  Can be classified into one of the five internal control components. 
C)  Improve the efficiency of the client's operations. 
D)  Reduce detection risk to a sufficiently low level.

Question 3

Quick Service Center processes the payroll for a variety of clients, including James Industries. Adams, CPA, is Quick's auditor, while Robinson, CPA, is the auditor for James Industries. Which of the following is not required of Adams?

Accepted Answer

A)  Issuing a report that describes the scope and nature of the procedures performed. 
B)  Making inquiries regarding the professional reputation of Robinson, CPA. 
C)  Inquiring of management regarding subsequent events that might significantly affect user organizations such as James Industries. 
D)  Obtaining a letter of representation from the management of Quick Service Center.

Question 4

Which of the following phrases should be included in the opinion paragraph when an auditor expresses a qualified opinion?

Accepted Answer

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

Question 5

How does an accountant make the following representations when issuing the standard report for the compilation of a nonissuer's financial statements?

Accepted Answer

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

Question 6

The quarterly data required by SEC Regulation S-K have been omitted. Which of the following statements must be included in the auditor's report?

Accepted Answer

A)  The auditor was unable to review the data. 
B)  The company's internal control provides an adequate basis to complete the review. 
C)  The company has not presented the selected quarterly financial data. 
D)  The auditor will review the selected data during the review of the subsequent quarterly financial data.

Question 7

An auditor is determining the sample size for an inventory observation using mean-per-unit estimation, which is a variables sampling plan. To calculate the required sample size, the auditor usually determines the:

Accepted Answer

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

Question 8

When companies use information technology (IT) extensively, evidence may be available only in electronic form. What is an auditor's best course of action in such situations?

Accepted Answer

A)  Assess the control risk as high. 
B)  Use audit software to perform analytical procedures. 
C)  Use generalized audit software to extract evidence from client databases. 
D)  Perform limited tests of controls over electronic data.

Question 9

An auditor's plan to examine long-term debt most likely would include steps that require:

Accepted Answer

A)  Comparing the carrying amount of the debt to its year-end market value. 
B)  Correlating interest expense recorded for the period with outstanding debt. 
C)  Verifying the existence of the holders of the debt by direct confirmation. 
D)  Inspecting the accounts payable subsidiary ledger for unrecorded long-term debt.

Question 10

In which of the following situations would a principal auditor least likely make reference to another auditor who audited a subsidiary of the entity?

Accepted Answer

A)  The other auditor was retained by the principal auditor and the work was performed under the principal auditor's guidance and control. 
B)  The principal auditor finds it impracticable to review the other auditor's work or otherwise be satisfied as to the other auditor's work. 
C)  The financial statements audited by the other auditor are material to the consolidated financial statements covered by the principal auditor's opinion. 
D)  The principal auditor is unable to be satisfied as to the independence and professional reputation of the other auditor.

Question 11

An auditor most likely would express an unqualified opinion and would not add explanatory language to the report if the auditor:

Accepted Answer

A)  Wishes to emphasize that the entity had significant transactions with related parties. 
B)  Concurs with the entity's change in its method of computing depreciation. 
C)  Discovers that supplementary information required by FASB has been omitted. 
D)  Believes that there is a probable likelihood of a material loss resulting from an uncertainty that is sufficiently supported and disclosed.

Question 12

The authority to accept incoming goods in receiving should be based on a (an):

Accepted Answer

A)  Vendor's invoice. 
B)  Materials requisition. 
C)  Bill of lading. 
D)  Approved purchase order.

Question 13

When assessing an internal auditor's competence, a CPA ordinarily obtains information about all of the following, except:

Accepted Answer

A)  Quality of audit documentation. 
B)  Educational level and professional experience. 
C)  The audit plan and audit procedures. 
D)  Access to information about related parties.

Question 14

Comfort letters ordinarily are signed by the client's:

Accepted Answer

A)  Independent auditor. 
B)  Underwriter of securities. 
C)  Audit committee. 
D)  Senior management.

Question 15

Which of the following activities would most likely be considered an attestation engagement?

Accepted Answer

A)  Consulting with management representatives of a firm to provide advice. 
B)  Issuing a report about a firm's compliance with laws and regulations. 
C)  Advocating a client's position on tax matters that are being reviewed by the IRS. 
D)  Preparing a client's tax returns.

Question 16

After issuing a report, an auditor has no obligation to make continuing inquiries or perform other procedures concerning the audited financial statements, unless:

Accepted Answer

A)  Information, which existed at the report date and may affect the report, comes to the auditor's attention. 
B)  Management of the entity requests the auditor to reissue the auditor's report. 
C)  Information about an event that occurred after the date of the auditor's report comes to the auditor's attention. 
D)  Final determinations or resolutions are made of contingencies that had been disclosed in the financial statements.

Question 17

Which of the following is not true about documentation requirements related to a review of a nonissuer's financial statements?

Accepted Answer

A)  Written documentation from a compilation engagement may be used to provide support for the review report. 
B)  A management representation letter should be included in the documentation files. 
C)  The auditor must document evidence obtained about the operating effectiveness of controls. 
D)  Documentation should include the results of analytical procedures.

Question 18

An accountant is asked to issue a review report on the balance sheet, but not on other related statements. The scope of the inquiry and analytical procedures has not been restricted, but the client failed to provide a representation letter. Which of the following should the accountant issue under these circumstances?

Accepted Answer

A)  Review report with a qualification. 
B)  Review report with a disclaimer. 
C)  Review report and footnote exceptions. 
D)  Compilation report with the client's consent.

Question 19

An engagement to express an opinion on the internal control of a nonissuer will generally:

Accepted Answer

A)  Require procedures that duplicate those already applied in assessing control risk during a financial statement audit. 
B)  Increase the reliability of the financial statements that have already been audited. 
C)  Be more extensive in scope than the assessment of control risk made during a financial statement audit. 
D)  Be more limited in scope than the assessment of control risk made during a financial statement audit.

Question 20

Which of the following internal controls most likely would justify a reduced assessed level of control risk concerning plant and equipment acquisitions?

Accepted Answer

A)  Periodic physical inspection of plant and equipment by the internal audit staff. 
B)  Comparison of current-year plant and equipment account balances with prior-year actual balances. 
C)  The review of prenumbered purchase orders to detect unrecorded trade-ins. 
D)  Approval of periodic depreciation entries by a supervisor independent of the accounting department.

Exam 1: CPA Auditing and Attestation Exam

An auditor's primary consideration in evaluating controls is whether specific controls:

Quick Service Center processes the payroll for a variety of clients, including James Industries. Adams, CPA, is Quick's auditor, while Robinson, CPA, is the auditor for James Industries. Which of the following is not required of Adams?

Which of the following phrases should be included in the opinion paragraph when an auditor expresses a qualified opinion?

How does an accountant make the following representations when issuing the standard report for the compilation of a nonissuer's financial statements?

The quarterly data required by SEC Regulation S-K have been omitted. Which of the following statements must be included in the auditor's report?

An auditor is determining the sample size for an inventory observation using mean-per-unit estimation, which is a variables sampling plan. To calculate the required sample size, the auditor usually determines the:

When companies use information technology (IT) extensively, evidence may be available only in electronic form. What is an auditor's best course of action in such situations?

An auditor's plan to examine long-term debt most likely would include steps that require:

In which of the following situations would a principal auditor least likely make reference to another auditor who audited a subsidiary of the entity?

An auditor most likely would express an unqualified opinion and would not add explanatory language to the report if the auditor:

The authority to accept incoming goods in receiving should be based on a (an) :

When assessing an internal auditor's competence, a CPA ordinarily obtains information about all of the following, except:

Comfort letters ordinarily are signed by the client's:

Which of the following activities would most likely be considered an attestation engagement?

After issuing a report, an auditor has no obligation to make continuing inquiries or perform other procedures concerning the audited financial statements, unless:

Which of the following is not true about documentation requirements related to a review of a nonissuer's financial statements?

An engagement to express an opinion on the internal control of a nonissuer will generally:

Which of the following internal controls most likely would justify a reduced assessed level of control risk concerning plant and equipment acquisitions?