Question 1

When a qualified opinion results from a limitation on the scope of the audit, the situation should be described in an explanatory paragraph:

Accepted Answer

A)  Preceding the opinion paragraph and referred to only in the scope paragraph of the auditor's report. 
B)  Following the opinion paragraph and referred to in both the scope and opinion paragraphs of the auditor's report. 
C)  Following the opinion paragraph and referred to only in the scope paragraph of the auditor's report. 
D)  Preceding the opinion paragraph and referred to in both the scope and opinion paragraphs of the auditor's report.

Question 2

Which of the following is not true regarding audit documentation for a specific audit?

Accepted Answer

A)  Audit documentation should be sufficient to enable members of the audit team with supervisory responsibilities to understand the nature, timing, extent, and results of auditing procedures performed. 
B)  Audit documentation should indicate which member(s) of the audit team performed and reviewed the audit work. 
C)  Audit documentation should demonstrate compliance with quality control standards. 
D)  Audit documentation should demonstrate compliance with the standards of fieldwork.

Question 3

After fieldwork audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap-up review of the audit documentation. This second review usually focuses on:

Accepted Answer

A)  The fair presentation of the financial statements in conformity with GAAP. 
B)  Fraud involving the client's management and its employees. 
C)  The materiality of the adjusting entries proposed by the audit staff. 
D)  The communication of internal control weaknesses to those charged with governance.

Question 4

Negative confirmation of accounts receivable is less effective than positive confirmation of accounts receivable because:

Accepted Answer

A)  A majority of recipients usually lack the willingness to respond objectively. 
B)  Some recipients may report incorrect balances that require extensive follow-up. 
C)  The auditor cannot infer that all nonrespondents have verified their account information. 
D)  Negative confirmations do not produce audit evidence that is statistically quantifiable.

Question 5

An auditor may reasonably issue an "except for" qualified opinion for a(an):

Accepted Answer

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

Question 6

Analytical procedures used in planning an audit should focus on:

Accepted Answer

A)  Evaluating the adequacy of evidence gathered concerning unusual balances. 
B)  Testing individual account balances that depend on accounting estimates. 
C)  Enhancing the auditor's understanding of the client's business. 
D)  Identifying material weaknesses in internal control.

Question 7

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 There should be no reference to the prior year's audited financial statements in the first (introductory) paragraph.

Accepted Answer

A)  Correct 
B)  Incorrect

Question 8

When using classical variables sampling for estimation, an auditor normally evaluates the sampling results by calculating the possible error in either direction. This statistical concept is known as:

Accepted Answer

A)  Precision. 
B)  Reliability. 
C)  Projected error. 
D)  Standard deviation.

Question 9

When performing an engagement to review a nonissuer's financial statements, an accountant most likely would:

Accepted Answer

A)  Obtain an understanding of the entity's internal control. 
B)  Limit the distribution of the accountant's report. 
C)  Confirm a sample of significant accounts receivable balances. 
D)  Ask about actions taken at board of directors' meetings.

Question 10

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 There should be no reference to "updating the prior year's auditor's report for events and circumstances occurring after that date" in the fourth (separate) paragraph.

Accepted Answer

A)  Correct 
B)  Incorrect

Question 11

Statements on Standards for Accounting and Review Services establish standards and procedures for which of the following engagements?

Accepted Answer

A)  Proposing adjustments to the books of account for a partnership. 
B)  Reviewing interim financial data required to be filed with the SEC. 
C)  Preparing standard monthly journal entries. 
D)  Compiling an individual's personal financial statement to be used to obtain a mortgage.

Question 12

An auditor vouched data for a sample of employees in a payroll register to approved clock card data to provide assurance that:

Accepted Answer

A)  Payments to employees are computed at authorized rates. 
B)  Employees work the number of hours for which they are paid. 
C)  Segregation of duties exists between the preparation and distribution of the payroll. 
D)  Internal controls relating to unclaimed payroll checks are operating effectively.

Question 13

At December 31, 20X2, Curry Co. had the following balances in selected asset accounts:  Curry also had current liabilities of $1,000 at December 31, 20X2, and net credit sales of $7,200 for the year then ended. What was the average number of days to collect Curry's accounts receivable during 20X2?

Accepted Answer

A)  30.4 
B)  40.6 
C)  50.7 
D)  60.8

Question 14

For which of the following audit tests would a CPA most likely use attribute sampling?

Accepted Answer

A)  Identifying entries posted to incorrect accounts. 
B)  Estimating the amount in an expense account. 
C)  Evaluating the reasonableness of depreciation expense. 
D)  Selecting receivables for confirmation of account balances.

Question 15

Which of the following factors most likely would lead a CPA to conclude that a potential audit engagement should be rejected?

Accepted Answer

A)  The details of most recorded transactions are not available after a specified period of time. 
B)  Internal control activities requiring the segregation of duties are subject to management override. 
C)  It is unlikely that sufficient appropriate evidence is available to support an opinion on the financial statements. 
D)  Management has a reputation for consulting with several accounting firms about significant accounting issues.

Question 16

During a review of the financial statements of a nonissuer, an accountant becomes aware of a lack of adequate disclosure that is material to the financial statements. If management refuses to correct the financial statement presentations, the accountant should:

Accepted Answer

A)  Issue an adverse opinion. 
B)  Issue an "except for" qualified opinion. 
C)  Disclose this departure from generally accepted accounting principles in a separate paragraph of the report. 
D)  Express only limited assurance on the financial statement presentations.

Question 17

For an entity that does not receive governmental financial assistance, an auditor's standard report on financial statements generally would not refer to:

Accepted Answer

A)  Significant estimates made by management. 
B)  An assessment of the entity's accounting principles. 
C)  Management's responsibility for the financial statements. 
D)  The entity's internal control.

Question 18

Which of the following components (elements) of an entity's internal control includes the development of personnel manuals documenting employee promotion and training policies?

Accepted Answer

A)  Monitoring. 
B)  Control environment. 
C)  Information and communication system. 
D)  Quality control system.

Question 19

Which of the following is not a control environment factor?

Accepted Answer

A)  Participation of those charged with governance. 
B)  Hiring and advancement policies. 
C)  Management's approach toward business risks. 
D)  Proper segregation of duties.

Question 20

Which of the following questions would an auditor most likely include on an internal control questionnaire for notes payable?

Accepted Answer

A)  Are assets that collateralize notes payable critically needed for the entity's continued existence? 
B)  Are two or more authorized signatures required on checks that repay notes payable? 
C)  Are the proceeds from notes payable used for the purchase of noncurrent assets? 
D)  Are direct borrowings on notes payable authorized by the board of directors?

Exam 1: CPA Auditing and Attestation Exam