Question 1

An auditor uses the knowledge provided by the understanding of internal control and the final assessed risk of material misstatement primarily to determine the nature, timing, and extent of the:

Accepted Answer

A)  Attribute tests. 
B)  Compliance tests. 
C)  Tests of controls. 
D)  Substantive tests.

Question 2

What is an auditor's responsibility for supplementary information required by the GASB that is placed outside the basic financial statements?

Accepted Answer

A)  Label the information as unaudited and expand the auditor's report to include a disclaimer on the information. 
B)  Add an explanatory paragraph to the auditor's report and refer to the information as "required supplementary information." 
C)  Apply limited procedures to the information and report deficiencies in, or the omission of, the information. 
D)  Audit the required supplementary information in accordance with generally accepted governmental auditing standards.

Question 3

If management (of a governmental body) declines to present supplementary information required by the Governmental Accounting Standards Board (GASB), the auditor should issue a(an):

Accepted Answer

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

Question 4

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. It is our opinion that the possible liability to the company in this proceeding is nominal in amount.

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

Question 5

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 issues financial statements that present financial position and results of operations but omits the related statement of cash flows. Management discloses in the notes to the financial statements that it does not believe the statement of cash flows to be a useful financial statement. 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 6

A limitation on the scope of an auditor's examination sufficient to preclude an unqualified opinion will always result when management:

Accepted Answer

A)  Engages the auditor after the year-end physical inventory count is completed. 
B)  Fails to correct a material internal control weakness that had been identified during the prior year's audit. 
C)  Refuses to furnish a management representation letter to the auditor. 
D)  Prevents the auditor from reviewing the audit documentation of the predecessor auditor.

Question 7

An auditor analyzes repairs and maintenance accounts primarily to obtain evidence in support of the audit assertion that all:

Accepted Answer

A)  Noncapitalizable expenditures for repairs and maintenance have been recorded in the proper period. 
B)  Expenditures for property and equipment have been recorded in the proper period. 
C)  Noncapitalizable expenditures for repairs and maintenance have been properly charged to expense. 
D)  Expenditures for property and equipment have not been charged to expense.

Question 8

Significant deficiencies are matters that come to an auditor's attention that should be communicated to an entity's management and those charged with governance because they represent:

Accepted Answer

A)  Disclosures of information that significantly contradict the auditor's going concern assumption. 
B)  Material fraud or illegal acts perpetrated by high-level management. 
C)  Deficiencies in the design or operation of internal control that could reasonably be expected to cause a non-inconsequential misstatement in the financial statements. 
D)  Manipulation or falsification of accounting records or documents from which financial statements are prepared.

Question 9

If an accounting change has no material effect on the financial statements in the current year, but the change is reasonably certain to have a material effect in later years, the change should be:

Accepted Answer

A)  Treated as a consistency modification in the auditor's report for the current year. 
B)  Disclosed in the notes to the financial statements of the current year. 
C)  Disclosed in the notes to the financial statements and referred to in the auditor's report for the current year. 
D)  Treated as a subsequent event.

Question 10

Which of the following relatively small misstatements most likely could have a material effect on an entity's financial statements?

Accepted Answer

A)  An illegal payment to a foreign official that was not recorded. 
B)  A piece of obsolete office equipment that was not retired. 
C)  A petty cash fund disbursement that was not properly authorized. 
D)  An uncollectible account receivable that was not written off.

Question 11

The objective of a review of interim financial information of a public entity is to provide an accountant with a basis for reporting whether:

Accepted Answer

A)  A reasonable basis exists for expressing an updated opinion regarding the financial statements that were previously audited. 
B)  Material modifications should be made to conform with generally accepted accounting principles. 
C)  The financial statements are presented fairly in accordance with standards of interim reporting. 
D)  The financial statements are presented fairly in accordance with generally accepted accounting principles.

Question 12

A client's lawyer is unable to form a conclusion about the likelihood of an unfavorable outcome of pending litigation because of inherent uncertainties. If the litigation's effect on the client's financial statements could be material but it is properly disclosed in the financial statements, the auditor most likely would:

Accepted Answer

A)  Issue a qualified opinion in the auditor's report because of the lawyer's scope limitation. 
B)  Withdraw from the engagement because of the lack of information furnished by the lawyer. 
C)  Disclaim an opinion on the financial statements because of the materiality of the litigation's effect. 
D)  Issue an unqualified opinion without modification.

Question 13

Which of the following is not true about accounting estimates?

Accepted Answer

A)  Accounting estimates measure the effects of past transactions or events that cannot be determined in a timely cost-effective manner. 
B)  Accounting estimates measure the effects of the present status of an asset or liability. 
C)  An accounting estimate is an approximation of an account pending the outcome of a future event. 
D)  An accounting estimate is an approximation of past events that can be determined on a timely cost effective basis.

Question 14

Which of the following is the most effective control activity to detect vouchers that were prepared for the payment of goods that were not received?

Accepted Answer

A)  Count goods upon receipt in storeroom. 
B)  Match purchase order, receiving report, and vendor's invoice for each voucher in accounts payable department. 
C)  Compare goods received with goods requisitioned in receiving department. 
D)  Verify vouchers for accuracy and approval in internal audit department.

Question 15

An auditor uses the assessed level of control risk to:

Accepted Answer

A)  Evaluate the effectiveness of the entity's internal control. 
B)  Identify transactions and account balances where inherent risk is at the maximum. 
C)  Indicate whether materiality thresholds for planning and evaluation purposes are sufficiently high. 
D)  Determine the acceptable level of detection risk for financial statement assertions.

Question 16

When conducting field work for a physical inventory, an auditor cannot perform which of the following steps using a generalized audit software package?

Accepted Answer

A)  Observing inventory. 
B)  Selecting sample items of inventory. 
C)  Analyzing data resulting from inventory. 
D)  Recalculating balances in inventory reports.

Question 17

Which of the following procedures would an auditor least likely perform in planning a financial statement audit?

Accepted Answer

A)  Coordinating the assistance of entity personnel in data preparation. 
B)  Discussing matters that may affect the audit with firm personnel responsible for non-audit services to the entity. 
C)  Selecting a sample of vendors' invoices for comparison to receiving reports. 
D)  Reading the current year's interim financial statements.

Question 18

While auditing the financial statements of a nonissuer, a CPA was requested to change the engagement to a review in accordance with Statements on Standards for Accounting and Review Services (SSARS) because of a scope limitation. If the CPA believes the client's request is reasonable, the CPA's review report should:

Accepted Answer

A)  Refer to the scope limitation that caused the change. II. Describe the auditing procedures that have already been applied. 
B)  I only. 
C)  II only. 
D)  Both I and II. 
E)  Neither I nor II.

Question 19

An accountant has compiled the financial statements of a nonissuer but declines to issue a compilation report. This is an example of:

Accepted Answer

A)  An inappropriate reporting decision, because SSARS require that a report be issued whenever an accountant is associated with financial statements. 
B)  An inappropriate reporting decision, if the accountant is not independent with respect to the nonpublic entity. 
C)  An appropriate reporting decision, if the compiled financial statements are not expected to be used by a third party. 
D)  An appropriate reporting decision, as long as the financial statements are prepared in conformity with GAAP.

Question 20

The negative request form of accounts receivable confirmation is useful particularly when the:

Accepted Answer

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

Exam 1: CPA Auditing and Attestation Exam