Question 1

In the first audit of a new client, an auditor was able to extend auditing procedures to gather sufficient evidence about consistency. Under these circumstances, the auditor should:

Accepted Answer

A)  Not report on the client's income statement. 
B)  Not refer to consistency in the auditor's report. 
C)  State that the consistency standard does not apply. 
D)  State that the accounting principles have been applied consistently.

Question 2

How does an accountant make the following representations when issuing the standard report for the compilation of a nonissuer's financial statements?

Accepted Answer

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

Question 3

When planning a sample for a substantive test of details, an auditor should consider tolerable misstatement for the sample. This consideration should:

Accepted Answer

A)  Be related to the auditor's business risk. 
B)  Not be adjusted for qualitative factors. 
C)  Be related to preliminary judgments about materiality levels. 
D)  Not be changed during the audit process.

Question 4

In testing for unrecorded retirements of equipment, an auditor most likely would:

Accepted Answer

A)  Select items of equipment from the accounting records and then locate them during the plant tour. 
B)  Compare depreciation journal entries with similar prior-year entries in search of fully depreciated equipment. 
C)  Inspect items of equipment observed during the plant tour and then trace them to the equipment subsidiary ledger. 
D)  Scan the general journal for unusual equipment additions and excessive debits to repairs and maintenance expense.

Question 5

When qualifying an opinion because of an insufficiency of audit evidence, an auditor should refer to the situation in the:

Accepted Answer

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

Question 6

Which of the following procedures should an auditor perform concerning litigation, claims, and assessments?

Accepted Answer

A)  Inspect legal documents in the possession of the client's lawyer that are relevant to pending litigation and unasserted claims and assessments. 
B)  Discuss with the client's lawyer its philosophy of defending litigation, claims, and assessments that have a high probability of being resolved unfavorably. 
C)  Confirm directly with the client's lawyer that all litigation, claims, and assessments have been properly recorded in the financial statements. 
D)  Obtain assurance from management that it has disclosed all unasserted claims that its lawyer has advised are probable of assertion.

Question 7

An auditor's analytical procedures most likely would be facilitated if the entity:

Accepted Answer

A)  Segregates obsolete inventory before the physical inventory count. 
B)  Uses a standard cost system that produces variance reports. 
C)  Corrects material weaknesses in internal control before the beginning of the audit. 
D)  Develops its data from sources solely within the entity.

Question 8

Which of the following statements is correct about the sample size in statistical sampling when testing internal controls?

Accepted Answer

A)  The auditor should consider the tolerable rate of deviation from the controls being tested in determining sample size. 
B)  As the likely rate of deviation decreases, the auditor should increase the planned sample size. 
C)  The allowable risk of assessing control risk too low has no effect on the planned sample size. 
D)  Of all the factors to be considered, the population size has the greatest effect on the sample size.

Question 9

Selected data pertaining to Lore Co. for the calendar year 20X4 is as follows:  The accounts receivable turnover for 20X4 was 5.0 times. What were Lore's 20X4 net credit sales?

Accepted Answer

A)  $105,000 
B)  $107,000 
C)  $110,000 
D)  $210,000

Question 10

When an accountant compiles projected financial statements, the accountant's report should include a separate paragraph that:

Accepted Answer

A)  Describes the differences between a projection and a forecast. 
B)  Identifies the accounting principles used by management. 
C)  Expresses limited assurance that the actual results may be within the projection's range. 
D)  Describes the limitations on the projection's usefulness.

Question 11

Which of the following accounting services may an accountant perform without being required to issue a compilation or review report under the Statements on Standards for Accounting and Review Services?

Accepted Answer

A)  Preparing a working trial balance. II. Preparing standard monthly journal entries. 
B)  I only. 
C)  II only. 
D)  Both I and II. 
E)  Neither I nor II.

Question 12

Which of the following statements represents a quality control requirement under Government Auditing Standards?

Accepted Answer

A)  A CPA who conducts government audits is required to undergo an annual external quality control review when an appropriate internal quality control system is not in place. 
B)  A CPA seeking to enter into a contract to perform an audit should provide the CPA's most recent external quality control review report to the party contracting for the audit. 
C)  An external quality control review of a CPA's practice should include a review of the audit documentation for each government audit performed since the prior external quality control review. 
D)  A CPA who conducts government audits may not make the CPA's external quality control review report available to the public.

Question 13

After performing risk assessment procedures, an auditor decided not to perform tests of controls. The auditor most likely decided that:

Accepted Answer

A)  The available evidence obtained through tests of controls would not support an increased level of control risk. 
B)  A reduction in the assessed level of control risk is justified for certain financial statement assertions. 
C)  It would be inefficient to perform tests of controls that would result in a reduction in planned substantive tests. 
D)  The assessed level of inherent risk exceeded the assessed level of control risk.

Question 14

Which of the following control activities is not usually performed in the vouchers payable department?

Accepted Answer

A)  Determining the mathematical accuracy of the vendor's invoice. 
B)  Having an authorized person approve the voucher. 
C)  Controlling the mailing of the check and remittance advice. 
D)  Matching the receiving report with the purchase order.

Question 15

In obtaining an understanding of a manufacturing entity's internal control concerning inventory balances, an auditor most likely would:

Accepted Answer

A)  Review the entity's descriptions of inventory controls. 
B)  Perform test counts of inventory during the entity's physical count. 
C)  Analyze inventory turnover statistics to identify slow-moving and obsolete items. 
D)  Analyze monthly production reports to identify variances and unusual transactions.

Question 16

What is an auditor's evaluation of a statistical sample for attributes when a test of 50 documents results in 3 deviations if tolerable rate is 7%, the expected population deviation rate is 5%, and the allowance for sampling risk is 2%.

Accepted Answer

A)  Modify the planned assessed level of control risk because the tolerable rate plus the allowance for sampling risk exceeds the expected population deviation rate. 
B)  Accept the sample results as support for the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate. 
C)  Accept the sample results as support for the planned assessed level of control risk because the tolerable rate less the allowance for sampling risk equals the expected population deviation rate. 
D)  Modify the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.

Question 17

Moore, CPA, has been asked to issue a review report on the balance sheet of Dover Co., a nonissuer. Moore will not be reporting on Dover's statements of income, retained earnings, and cash flows. Moore may issue the review report provided the:

Accepted Answer

A)  Balance sheet is presented in a prescribed form of an industry trade association. 
B)  Scope of the inquiry and analytical procedures has not been restricted. 
C)  Balance sheet is not to be used to obtain credit or distributed to creditors. 
D)  Specialized accounting principles and practices of Dover's industry are disclosed.

Question 18

Which of the following matters would an auditor most likely consider to be a significant deficiency in internal control to be communicated to management and those charged with governance?

Accepted Answer

A)  Management's failure to renegotiate unfavorable long-term purchase commitments. 
B)  Recurring operating losses that may indicate going concern problems. 
C)  Evidence of a lack of objectivity by those responsible for accounting decisions. 
D)  Management's current plans to reduce its ownership equity in the entity.

Question 19

Would the following factors ordinarily be considered in planning an audit engagement's personnel requirements?

Accepted Answer

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

Question 20

An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to:

Accepted Answer

A)  Eliminate the risk of nonsampling errors. 
B)  Reduce the level of audit risk and materiality to a relatively low amount. 
C)  Measure the sufficiency of the audit evidence obtained. 
D)  Minimize the failure to detect errors and fraud.

Exam 1: CPA Auditing and Attestation Exam

In the first audit of a new client, an auditor was able to extend auditing procedures to gather sufficient evidence about consistency. Under these circumstances, the auditor should:

How does an accountant make the following representations when issuing the standard report for the compilation of a nonissuer's financial statements?

When planning a sample for a substantive test of details, an auditor should consider tolerable misstatement for the sample. This consideration should:

In testing for unrecorded retirements of equipment, an auditor most likely would:

When qualifying an opinion because of an insufficiency of audit evidence, an auditor should refer to the situation in the:

Which of the following procedures should an auditor perform concerning litigation, claims, and assessments?

An auditor's analytical procedures most likely would be facilitated if the entity:

Which of the following statements is correct about the sample size in statistical sampling when testing internal controls?

Selected data pertaining to Lore Co. for the calendar year 20X4 is as follows: The accounts receivable turnover for 20X4 was 5.0 times. What were Lore's 20X4 net credit sales?

When an accountant compiles projected financial statements, the accountant's report should include a separate paragraph that:

Which of the following accounting services may an accountant perform without being required to issue a compilation or review report under the Statements on Standards for Accounting and Review Services?

Which of the following statements represents a quality control requirement under Government Auditing Standards?

After performing risk assessment procedures, an auditor decided not to perform tests of controls. The auditor most likely decided that:

Which of the following control activities is not usually performed in the vouchers payable department?

In obtaining an understanding of a manufacturing entity's internal control concerning inventory balances, an auditor most likely would:

What is an auditor's evaluation of a statistical sample for attributes when a test of 50 documents results in 3 deviations if tolerable rate is 7%, the expected population deviation rate is 5%, and the allowance for sampling risk is 2%.

Moore, CPA, has been asked to issue a review report on the balance sheet of Dover Co., a nonissuer. Moore will not be reporting on Dover's statements of income, retained earnings, and cash flows. Moore may issue the review report provided the:

Which of the following matters would an auditor most likely consider to be a significant deficiency in internal control to be communicated to management and those charged with governance?

Would the following factors ordinarily be considered in planning an audit engagement's personnel requirements?

An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor to: