Question 1

Which of the following situations would not result in restricted use language being included in an auditor's special report?

Accepted Answer

A)  A report on a specified element in a financial statement, where that element is prepared in accordance with the terms specified in a related contract. 
B)  A report on a client's compliance with a regulatory requirement, assuming the report is prepared based on a financial statement audit of the complete financial statements. 
C)  An "OCBOA" report on financial statements prepared in conformity with requirements established by a regulatory agency, assuming that the auditor's report is a matter of public record. 
D)  A report on an incomplete financial presentation that is prepared in conformity with GAAP, assuming that the presentation and report will be filed with a regulatory agency and included in a document distributed to the general public.

Question 2

Which of the following professional services would be considered an attestation engagement?

Accepted Answer

A)  Advocating on behalf of a client about trust tax matters under review by the Internal Revenue Service. 
B)  Providing financial analysis, planning, and capital acquisition services as a part-time, in-house controller. 
C)  Advising management in the selection of a computer system to meet business needs. 
D)  Preparing the income statement and balance sheet for one year in the future based on client expectations and predictions.

Question 3

Mailing disbursement checks and remittance advices should be controlled by the employee who:

Accepted Answer

A)  Approves the vouchers for payment. 
B)  Matches the receiving reports, purchase orders, and vendor's invoices. 
C)  Maintains possession of the mechanical check-signing device. 
D)  Signs the checks last.

Question 4

Tracing shipping documents to prenumbered sales invoices provides evidence that:

Accepted Answer

A)  No duplicate shipments or billings occurred. 
B)  Shipments to customers were properly invoiced. 
C)  All goods ordered by customers were shipped. 
D)  All prenumbered sales invoices were accounted for.

Question 5

An auditor's program to examine long-term debt should include steps that require:

Accepted Answer

A)  Examining bond trust indentures. 
B)  Inspecting the accounts payable subsidiary ledger. 
C)  Investigating credits to the bond interest income account. 
D)  Verifying the existence of the bondholders.

Question 6

The auditor's inventory observation test counts are traced to the client's inventory listing to test for which of the following financial statement assertions?

Accepted Answer

A)  Completeness. 
B)  Rights and obligations. 
C)  Allocation and valuation. 
D)  Understandability and classification.

Question 7

Which of the following factors most likely would heighten an auditor's concern about the risk of fraudulent financial reporting?

Accepted Answer

A)  Inability to generate cash flows from operations while reporting substantial earnings growth. 
B)  Management's lack of interest in increasing the entity's stock trend. 
C)  Large amounts of liquid assets that are easily convertible into cash. 
D)  Inability to borrow necessary capital without granting debt covenants.

Question 8

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

Accepted Answer

A)  Auditor is responsible for expressing an opinion on the financial statements, which are the responsibility of management. 
B)  Financial statements are presented fairly, in all material respects, in conformity with GAAP. 
C)  Audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 
D)  Auditor obtains reasonable assurance about whether the financial statements are free of material misstatement.

Question 9

The most likely result of ineffective internal control policies and procedures in the revenue cycle is that:

Accepted Answer

A)  Irregularities in recording transactions in the subsidiary accounts could result in a delay in goods shipped. 
B)  Omission of shipping documents could go undetected, causing an understatement of inventory. 
C)  Final authorization of credit memos by personnel in the sales department could permit an employee defalcation scheme. 
D)  Fictitious transactions could be recorded, causing an understatement of revenues and overstatement of receivables.

Question 10

Which of the following events occurring in the year under audit would most likely indicate that internal controls utilized in previous years may be inadequate in the year under audit?

Accepted Answer

A)  The entity announced that the internal audit function would be eliminated after the balance sheet date. 
B)  The audit committee chairperson unexpectedly resigned during the year under audit. 
C)  The chief financial officer waived approvals on all checks to one vendor to expedite payment. 
D)  The frequency of accounts payable check runs was changed from biweekly to weekly.

Question 11

To establish the existence and ownership of a long-term investment in the common stock of a publiclytraded company, an auditor ordinarily performs a security count or:

Accepted Answer

A)  Relies on the client's internal accounting controls if the auditor has reasonable assurance that the control activities are being applied as prescribed. 
B)  Confirms the number of shares owned that are held by an independent custodian. 
C)  Determines the market price per share at the balance sheet date from published quotations. 
D)  Confirms the number of shares owned with the issuing company.

Question 12

When there has been a change in accounting principle that materially affects the comparability of the comparative financial statements presented and the auditor concurs with the change, the auditor should:

Accepted Answer

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

Question 13

Because of the pervasive effects of laws and regulations on the financial statements of governmental units, an auditor should obtain written management representations acknowledging that management has:

Accepted Answer

A)  Identified and disclosed all laws and regulations that have a direct and material effect on its financial statements. 
B)  Implemented internal controls designed to detect all illegal acts. 
C)  Expressed both positive and negative assurance to the auditor that the entity complied with all laws and regulations. 
D)  Employed internal auditors who can report their findings, opinions, and conclusions objectively without fear of political repercussion.

Question 14

When an accountant examines a financial forecast that fails to disclose several significant assumptions used to prepare the forecast, the accountant should describe the assumptions in the accountant's report and issue a (an):

Accepted Answer

A)  "Except for" qualified opinion. 
B)  "Subject to" qualified opinion. 
C)  Unqualified opinion with a separate explanatory paragraph. 
D)  Adverse opinion.

Question 15

Which of the following is not an example of the application of professional skepticism?

Accepted Answer

A)  Designing additional auditing procedures to obtain more reliable evidence in support of a particular financial statement assertion. 
B)  Obtaining corroboration of management's Explanation: s through consultation with a specialist. Obtaining corroboration of management's Explanation: s through consultation with a specialist. 
C)  Inquiring of prior year engagement personnel regarding their assessment of management's honesty and integrity. 
D)  Using third party confirmations to provide support for management's representations.

Question 16

An auditor would be most likely to identify a contingent liability by obtaining a (an):

Accepted Answer

A)  Accounts payable confirmation. 
B)  Transfer agent confirmation. 
C)  Standard bank confirmation. 
D)  Related party transaction confirmation.

Question 17

In planning an audit of a new client, an auditor most likely would consider the methods used to process accounting information because such methods:

Accepted Answer

A)  Influence the design of internal control. 
B)  Affect the auditor's preliminary judgment about materiality levels. 
C)  Assist in evaluating the planned audit objectives. 
D)  Determine the auditor's acceptable level of audit risk.

Question 18

When a client company does not maintain its own stock records, the auditor should obtain written confirmation from the transfer agent and registrar concerning:

Accepted Answer

A)  Restrictions on the payment of dividends. 
B)  The number of shares issued and outstanding. 
C)  Guarantees of preferred stock liquidation value. 
D)  The number of shares subject to agreements to repurchase.

Question 19

Analytical procedures performed in the final review stage of an audit generally would include:

Accepted Answer

A)  Reassessing the factors that assisted the auditor in deciding on preliminary materiality levels and audit risk. 
B)  Considering the adequacy of the evidence gathered in response to unexpected balances identified in planning. 
C)  Summarizing uncorrected misstatements specifically identified through tests of details of transactions and balances. 
D)  Calculating projected uncorrected misstatements estimated through audit sampling techniques.

Question 20

The information below was taken from the bank transfer schedule prepared during the audit of Fox Co.'s financial statements for the year ended December 31, 20X1. Assume all checks are dated and issued on December 30, 20X1. Which of the following checks illustrate deposits/transfers in transit at December 31, 20X1?

Accepted Answer

A)  #101 and #202. 
B)  #101 and #303. 
C)  #202 and #404. 
D)  #303 and #404.

Exam 1: CPA Auditing and Attestation Exam