Question 1

When obtaining an understanding of an entity's internal controls, an auditor should concentrate on the substance of the controls rather than their form because:

Accepted Answer

A)  The procedures may be operating effectively but may not be documented. 
B)  Management may establish appropriate procedures but not enforce compliance with them. 
C)  The procedures may be so inappropriate that no reliance is contemplated by the auditor. 
D)  Management may implement procedures whose costs exceed their benefits.

Question 2

Using microcomputers in auditing may affect the methods used to review the work of staff assistants because:

Accepted Answer

A)  The audit fieldwork standards for supervision may differ. 
B)  Documenting the supervisory review may require assistance of consulting services personnel. 
C)  Supervisory personnel may not have an understanding of the capabilities and limitations of microcomputers. 
D)  Audit documentation may not contain readily observable details of calculations.

Question 3

An accountant should perform analytical procedures during an engagement to:

Accepted Answer

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

Question 4

In testing controls over cash disbursements, an auditor most likely would determine that the person who signs checks also:

Accepted Answer

A)  Reviews the monthly bank reconciliation. 
B)  Returns the checks to accounts payable. 
C)  Is denied access to the supporting documents. 
D)  Is responsible for mailing the checks.

Question 5

If an auditor's risk assessment is based on the effective operation of controls, the auditor will likely:

Accepted Answer

A)  Apply analytical procedures to both financial data and nonfinancial information to detect conditions that may indicate weak controls. 
B)  Perform tests of details of transactions and account balances to identify potential errors and fraud. 
C)  Identify specific internal controls that are likely to detect or prevent material misstatements. 
D)  Document that the additional audit effort to perform tests of controls exceeds the potential reduction in substantive testing.

Question 6

When reporting on financial statements prepared on the same basis of accounting used for income tax purposes, the auditor should include in the report a paragraph that:

Accepted Answer

A)  States that the income tax basis of accounting is a comprehensive basis of accounting other than generally accepted accounting principles. 
B)  Justifies the use of the income tax basis of accounting. 
C)  Emphasizes that the financial statements are not intended to have been audited in accordance with generally accepted auditing standards. 
D)  Refers to the authoritative pronouncements that explain the income tax basis of accounting being used.

Question 7

Before issuing a report on the compilation of financial statements of a nonissuer, the accountant should:

Accepted Answer

A)  Apply analytical procedures to selected financial data to discover any material misstatements. 
B)  Corroborate at least a sample of the assertions management has embodied in the financial statements. 
C)  Inquire of the client's personnel whether the financial statements omit substantially all disclosures. 
D)  Read the financial statements to consider whether the financial statements are free from obvious material errors.

Question 8

An auditor most likely would issue a disclaimer of opinion because of:

Accepted Answer

A)  Inadequate disclosure of material information. 
B)  The omission of the statement of cash flows. 
C)  A material departure from generally accepted accounting principles. 
D)  Management's refusal to furnish written representations.

Question 9

An auditor should trace corporate stock issuances and treasury stock transactions to the:

Accepted Answer

A)  Numbered stock certificates. 
B)  Articles of incorporation. 
C)  Transfer agent's records. 
D)  Minutes of the board of directors.

Question 10

When auditing an entity's financial statements in accordance with Government Auditing Standards (the Yellow Book), an auditor is required to report on:

Accepted Answer

A)  Recommendations for actions to improve operations. II. The scope of the auditor's tests of compliance with laws and regulations. 
B)  I only. 
C)  II only. 
D)  Both I and II. 
E)  Neither I nor II.

Question 11

When an accountant issues to an underwriter a comfort letter containing comments on data that have not been audited, the underwriter most likely will receive:

Accepted Answer

A)  Negative assurance on capsule information. 
B)  Positive assurance on supplementary disclosures. 
C)  A limited opinion on "pro forma" financial statements. 
D)  A disclaimer on prospective financial statements.

Question 12

Which of the following expressions most likely would be included in a management representation letter?

Accepted Answer

A)  No events have occurred subsequent to the balance sheet date that require adjustment to, or disclosure in, the financial statements. 
B)  There are no significant deficiencies in internal control identified during the prior-year's audit of which those charged with governance are unaware. 
C)  We do not intend to provide any information that may be construed to constitute a waiver of the attorney-client privilege. 
D)  Certain computer files and other required audit evidence may exist only for a short period of time and only in computer-readable form.

Question 13

When an auditor does not receive replies to positive requests for year-end accounts receivable confirmations, the auditor most likely would:

Accepted Answer

A)  Inspect the allowance account to verify whether the accounts were subsequently written off. 
B)  Increase the assessed level of detection risk for the valuation and completeness assertions. 
C)  Ask the client to contact the customers to request that the confirmations be returned. 
D)  Increase the assessed level of inherent risk for the revenue cycle.

Question 14

An auditor's responsibility to express an opinion on the financial statements is:

Accepted Answer

A)  Implicitly represented in the auditor's standard report. 
B)  Explicitly represented in the opening paragraph of the auditor's standard report. 
C)  Explicitly represented in the scope paragraph of the auditor's standard report. 
D)  Explicitly represented in the opinion paragraph of the auditor's standard report.

Question 15

An auditor most likely would limit substantive audit tests of sales transactions when control risk is assessed as low for the occurrence assertion concerning sales transactions and the auditor has already gathered evidence supporting:

Accepted Answer

A)  Opening and closing inventory balances. 
B)  Cash receipts and accounts receivable. 
C)  Shipping and receiving activities. 
D)  Cutoffs of sales and purchases.

Question 16

The nature and extent of a CPA firm's quality control policies and procedures depend on:

Accepted Answer

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

Question 17

Two assertions for which confirmation of accounts receivable balances provides primary evidence are:

Accepted Answer

A)  Completeness and valuation. 
B)  Valuation and rights and obligations. 
C)  Rights and obligations and existence. 
D)  Existence and completeness.

Question 18

In performing a financial statement audit in accordance with Government Auditing Standards, an auditor is required to report on the entity's compliance with laws and regulations. This report should:

Accepted Answer

A)  State that tests of compliance with laws and regulations that have a direct and material effect on the financial statements is part of obtaining reasonable assurance that the financial statements are free of material misstatement. 
B)  Describe the laws and regulations that the entity must comply with. 
C)  Provide an opinion on overall compliance with laws and regulations. 
D)  Indicate that the auditor does not possess legal skills and cannot make legal judgments.

Question 19

An auditor reads the letter of transmittal accompanying a county's comprehensive annual financial report and identifies a material inconsistency with the financial statements. The auditor determines that the financial statements do not require revision. Which of the following actions should the auditor take?

Accepted Answer

A)  Request that the client revise the letter of transmittal. 
B)  Include an explanatory paragraph in the auditor's report. 
C)  Consider withdrawing from the engagement. 
D)  Request a client representation letter acknowledging the inconsistency.

Question 20

The existence of audit risk is recognized by the statement in the auditor's standard report that the auditor:

Accepted Answer

A)  Obtains reasonable assurance about whether the financial statements are free of material misstatement. 
B)  Assesses the accounting principles used and also evaluates the overall financial statement presentation. 
C)  Realizes some matters, either individually or in the aggregate, are important while other matters are not important. 
D)  Is responsible for expressing an opinion on the financial statements, which are the responsibility of management.

Exam 1: CPA Auditing and Attestation Exam