Question 1

When providing limited assurance that the financial statements of a nonissuer require no material modifications to be in accordance with generally accepted accounting principles, the accountant should:

Accepted Answer

A)  Assess the risk that a material misstatement could occur in a financial statement assertion. 
B)  Confirm with the entity's lawyer that material loss contingencies are disclosed. 
C)  Understand the accounting principles of the industry in which the entity operates. 
D)  Develop audit programs to determine whether the entity's financial statements are fairly presented.

Question 2

Management's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when:

Accepted Answer

A)  The audit committee is active in overseeing the entity's financial reporting policies. 
B)  External policies established by parties outside the entity affect its accounting practices. 
C)  Management is dominated by one individual who is also a shareholder. 
D)  Internal auditors have direct access to those charged with governance.

Question 3

Which of the following best describes the responsibility of the auditor with respect to significant deficiencies and material weaknesses in an audit of an issuer?

Accepted Answer

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

Question 4

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 changes its depreciation method for production equipment from the straight-line to a units-of production method based on hours of utilization. The auditor concurs with the change although it has a material effect on the comparability of the entity's financial statements. 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 5

In obtaining an understanding of an entity's internal control, an auditor is required to obtain knowledge about the:

Accepted Answer

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

Question 6

Which of the following is not a reason justifying the use of accounting estimates?

Accepted Answer

A)  The valuation or measurement of some accounts is uncertain pending the outcome of future events. 
B)  Data about past events cannot be accumulated in a cost-effective manner. 
C)  Data about future events cannot be accumulated in a cost-effective manner. 
D)  Data about past events cannot be accumulated in a timely manner.

Question 7

Which of the following statements should be included in an accountant's standard report based on the compilation of a nonissuer's financial statements?

Accepted Answer

A)  A compilation consists principally of inquiries of company personnel and analytical procedures applied to financial data. 
B)  A compilation is limited to presenting in the form of financial statements information that is the representation of management. 
C)  A compilation is not designed to detect material modifications that should be made to the financial statements. 
D)  A compilation is substantially less in scope than an audit in accordance with generally accepted auditing standards.

Question 8

The overall attitude and awareness of those charged with governance (i.e., an entity's board of directors) concerning the importance of internal control usually is reflected in its:

Accepted Answer

A)  Computer-based controls. 
B)  System of segregation of duties. 
C)  Control environment. 
D)  Safeguards over access to assets.

Question 9

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

Accepted Answer

A)  Disclosure of compensating balance arrangements involving restrictions on cash balances. 
B)  Information concerning related party transactions and related amounts receivable or payable. 
C)  The absence of errors and unrecorded transactions in the financial statements. 
D)  Fraud involving employees with significant roles in the internal control structure.

Question 10

Gearty & Duffy, certified public accountants, have been engaged to perform an audit of Sleepy Knoll Township in accordance with OMB Circular A-133. In connection with that engagement, Gearty & Duffy will determine major programs:

Accepted Answer

A)  Using a list of programs included in the work plan of the Office of the Inspector General. 
B)  By applying only a specific dollar threshold, where all programs exceeding the threshold would be considered major. 
C)  By applying a risk-based approach. 
D)  By testing enough grants to achieve a single specific coverage percentage.

Question 11

Which of the following statements is not correct about materiality?

Accepted Answer

A)  The concept of materiality recognizes that some matters are important for fair presentation of financial statements in conformity with GAAP, while other matters are not important. 
B)  An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements. 
C)  Materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative judgments. 
D)  An auditor's consideration of materiality is influenced by the auditor's perception of the needs of a reasonable person who will rely on the financial statements.

Question 12

Symbol B most likely represents:

Accepted Answer

A)  Customer orders. 
B)  Receiving reports. 
C)  Customer checks. 
D)  Sales invoices.

Question 13

When an auditor qualifies an opinion because of inadequate disclosure, the auditor should describe the nature of the omission in a separate explanatory paragraph and modify the:

Accepted Answer

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

Question 14

Which of the following circumstances most likely would cause an auditor to believe that material misstatements may exist in an entity's financial statements?

Accepted Answer

A)  Accounts receivable confirmation requests yield significantly fewer responses than expected. 
B)  Audit trails of computer-generated transactions exist only for a short time. 
C)  The chief financial officer does not sign the management representation letter until the date of the auditor's report. 
D)  Management consults with other accountants about significant accounting matters.

Question 15

An auditor believes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. In evaluating the entity's plans for dealing with the adverse effects of future conditions and events, the auditor most likely would consider, as a mitigating factor, the entity's plans to:

Accepted Answer

A)  Repurchase the entity's stock at a price below its book value. 
B)  Issue stock options to key executives. 
C)  Lease rather than purchase operating facilities. 
D)  Accelerate the due date of an existing mortgage.

Question 16

This question presents independent factual situations an auditor might encounter in conducting an audit. List B represents the report modifications (if any) that would be necessary. Select as the best answer for each item, the action the auditor normally would take. The report modifications in List B 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 B Report Modifications

Accepted Answer

A)  Describe the circumstances in an explanatory paragraph preceding the opinion paragraph without modifying the three standard paragraphs. 
B)  Describe the circumstances in an explanatory paragraph following the opinion paragraph without modifying the three standard paragraphs. 
C)  Describe the circumstances in an explanatory paragraph preceding the opinion paragraph and modify the opinion paragraph. 
D)  Describe the circumstances in an explanatory paragraph following the opinion paragraph and modify the opinion paragraph. 
E)  Describe the circumstances in an explanatory paragraph preceding the opinion paragraph and modify the scope and opinion paragraphs.
F) Describe the circumstances in an explanatory paragraph following the opinion paragraph and modify the scope and opinion paragraphs.
G) Describe the circumstances within the scope paragraph without adding an explanatory paragraph.
H) Describe the circumstances within the opinion paragraph without adding an explanatory paragraph.
I) Describe the circumstances within the scope and opinion paragraphs without adding an explanatory paragraph.
J) Issue the standard auditor's report without modification.

Question 17

Tracing bills of lading to sales invoices provides evidence that:

Accepted Answer

A)  Shipments to customers were recorded as sales. 
B)  Recorded sales were shipped. 
C)  Invoiced sales were shipped. 
D)  Shipments to customers were invoiced.

Question 18

Analytical procedures used in the overall review stage of an audit generally include:

Accepted Answer

A)  Gathering evidence concerning account balances that have not changed from the prior year. 
B)  Retesting control activities that appeared to be ineffective during the assessment of control risk. 
C)  Considering unusual or unexpected account balances that were not previously identified. 
D)  Performing tests of transactions to corroborate management's financial statement assertions.

Question 19

Which of the following audit techniques ordinarily would provide an auditor with the least assurance about the operating effectiveness of an internal control activity?

Accepted Answer

A)  Inquiry of client personnel. 
B)  Inspection of documents and reports. 
C)  Observation of client personnel. 
D)  Preparation of system flowcharts.

Question 20

Which of the following is not true about the report release date?

Accepted Answer

A)  It is defined as the date after which existing documentation must not be deleted, and additions to the documentation file must be documented as such. 
B)  It is often the date on which the report is delivered to the client. 
C)  It is the date on which the auditor grants the client permission to use the report. 
D)  It is used to define the beginning of the retention period.

Exam 1: CPA Auditing and Attestation Exam

When providing limited assurance that the financial statements of a nonissuer require no material modifications to be in accordance with generally accepted accounting principles, the accountant should:

Management's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment when:

Which of the following best describes the responsibility of the auditor with respect to significant deficiencies and material weaknesses in an audit of an issuer?

In obtaining an understanding of an entity's internal control, an auditor is required to obtain knowledge about the:

Which of the following is not a reason justifying the use of accounting estimates?

Which of the following statements should be included in an accountant's standard report based on the compilation of a nonissuer's financial statements?

The overall attitude and awareness of those charged with governance (i.e., an entity's board of directors) concerning the importance of internal control usually is reflected in its:

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

Gearty & Duffy, certified public accountants, have been engaged to perform an audit of Sleepy Knoll Township in accordance with OMB Circular A-133. In connection with that engagement, Gearty & Duffy will determine major programs:

Which of the following statements is not correct about materiality?

Symbol B most likely represents:

When an auditor qualifies an opinion because of inadequate disclosure, the auditor should describe the nature of the omission in a separate explanatory paragraph and modify the:

Which of the following circumstances most likely would cause an auditor to believe that material misstatements may exist in an entity's financial statements?

Tracing bills of lading to sales invoices provides evidence that:

Analytical procedures used in the overall review stage of an audit generally include:

Which of the following audit techniques ordinarily would provide an auditor with the least assurance about the operating effectiveness of an internal control activity?

Which of the following is not true about the report release date?