Question 1

When an auditor expresses an adverse opinion, the opinion paragraph should include:

Accepted Answer

A)  The principal effects of the departure from generally accepted accounting principles. 
B)  A direct reference to a separate paragraph disclosing the basis for the opinion. 
C)  The substantive reasons for the financial statements being misleading. 
D)  A description of the uncertainty or scope limitation that prevents an unqualified opinion.

Question 2

The responsibility to establish, maintain and monitor internal controls is that of the entity's:

Accepted Answer

A)  Accounting department. 
B)  Internal auditor. 
C)  Management. 
D)  External auditor.

Question 3

An auditor most likely would review an entity's periodic accounting for the numerical sequence of shipping documents and invoices to support management's financial statement assertion of:

Accepted Answer

A)  Occurrence. 
B)  Classification. 
C)  Cutoff. 
D)  Completeness.

Question 4

The monitoring component of internal control excludes:

Accepted Answer

A)  Assessing information derived from external parties. 
B)  Assessing the quality of internal control performance over time. 
C)  Improving controls that are not operating effectively. 
D)  Eliminating controls that are not operating effectively.

Question 5

If specific information comes to an auditor's attention that implies the existence of possible illegal acts that could have a material, but indirect effect on the financial statements, the auditor should next:

Accepted Answer

A)  Apply audit procedures specifically directed to ascertaining whether an illegal act has occurred. 
B)  Seek the advice of an informed expert qualified to practice law as to possible contingent liabilities. 
C)  Report the matter to an appropriate level of management at least one level above those involved. 
D)  Discuss the evidence with those charged with governance.

Question 6

Which of the following is the primary reason that many auditors hesitate to use embedded audit modules?

Accepted Answer

A)  Embedded audit modules cannot be protected from computer viruses. 
B)  Auditors are required to monitor embedded audit modules continuously to obtain valid results. 
C)  Embedded audit modules can easily be modified through management tampering. 
D)  Auditors are required to be involved in the system design of the application to be monitored.

Question 7

An auditor's report on financial statements prepared in accordance with another comprehensive basis of accounting should include all of the following, except:

Accepted Answer

A)  An opinion as to whether the basis of accounting used is appropriate under the circumstances. 
B)  An opinion as to whether the financial statements are presented fairly in conformity with the other comprehensive basis of accounting. 
C)  Reference to the note to the financial statements that describes the basis of presentation. 
D)  A statement that the basis of presentation is a comprehensive basis of accounting other than generally accepted accounting principles.

Question 8

When an auditor believes there is substantial doubt about the ability of an entity to continue as a going concern, all of the following should be included in the audit documentation, except:

Accepted Answer

A)  The conditions that gave rise to the substantial doubt. 
B)  The auditor's conclusion about whether substantial doubt remains or is alleviated. 
C)  Management's conclusion regarding whether substantial doubt remains or is alleviated. 
D)  The effect of the auditor's conclusion on the auditor's report.

Question 9

For audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent:

Accepted Answer

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

Question 10

An accountant's compilation report on a financial forecast should include a statement that:

Accepted Answer

A)  The forecast should be read only in conjunction with the audited historical financial statements. 
B)  The accountant expresses only limited assurance on the forecasted statements and their assumptions. 
C)  There will usually be differences between the forecasted and actual results. 
D)  The hypothetical assumptions used in the forecast are reasonable in the circumstances.

Question 11

Which of the following circumstances most likely would cause an auditor to suspect an employee payroll fraud scheme?

Accepted Answer

A)  There are significant unexplained variances between standard and actual labor cost. 
B)  Payroll checks are disbursed by the same employee each payday. 
C)  Employee time cards are approved by individual departmental supervisors. 
D)  A separate payroll bank account is maintained on an impress basis.

Question 12

In testing the existence assertion for an asset, an auditor ordinarily works from the:

Accepted Answer

A)  Financial statements to the potentially unrecorded items. 
B)  Potentially unrecorded items to the financial statements. 
C)  Accounting records to the supporting evidence. 
D)  Supporting evidence to the accounting records.

Question 13

Which of the following internal control procedures most likely would deter lapping of collections from customers?

Accepted Answer

A)  Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash summaries. 
B)  Authorization of write-offs of uncollectible accounts by a supervisor independent of credit approval. 
C)  Segregation of duties between receiving cash and posting the accounts receivable ledger. 
D)  Supervisory comparison of the daily cash summary with the sum of the cash receipts journal entries.

Question 14

A retailing entity uses the Internet to execute and record its purchase transactions. The entity's auditor recognizes that the documentation of details of transactions will be retained for only a short period of time. To compensate for this limitation, the auditor most likely would:

Accepted Answer

A)  Compare a sample of paid vendors' invoices to the receiving records at year-end. 
B)  Plan for a large measure of tolerable misstatement in substantive tests. 
C)  Perform tests several times during the year, rather than only at year-end. 
D)  Increase the sample of transactions to be selected for cutoff tests.

Question 15

Hill, CPA, has been retained to audit the financial statements of Monday Co. Monday's predecessor auditor was Post, CPA, who has been notified by Monday that Post's services have been terminated. Under these circumstances, which party should initiate the communications between Hill and Post?

Accepted Answer

A)  Hill, the successor auditor. 
B)  Post, the predecessor auditor. 
C)  Monday's controller or CFO. 
D)  The chairman of Monday's board of directors.

Question 16

Which of the following is not part of obtaining an understanding of internal control?

Accepted Answer

A)  Considering the types of misstatements that may occur in an entity's financial statements. 
B)  Determining whether internal controls are operating effectively. 
C)  Considering knowledge obtained from previous audits. 
D)  Determining the extent to which internal controls are computerized.

Question 17

The acceptable level of detection risk is inversely related to the:

Accepted Answer

A)  Assurance provided by substantive tests. 
B)  Risk of misapplying auditing procedures. 
C)  Preliminary judgment about materiality levels. 
D)  Risk of failing to discover material misstatements.

Question 18

When unaudited financial statements are presented in comparative form with audited financial statements in a document filed with the Securities and Exchange Commission, such statements should be:

Accepted Answer

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

Question 19

The sampling unit in a test of controls pertaining to the existence of payroll transactions ordinarily is a (an):

Accepted Answer

A)  Clock card or time ticket. 
B)  Employee Form W-2. 
C)  Employee personnel record. 
D)  Payroll register entry.

Question 20

Which of the following statements is not true of the test data approach to testing an accounting system?

Accepted Answer

A)  Test data are processed by the client's computer programs under the auditor's control. 
B)  The test data need consist of only those valid and invalid conditions that interest the auditor. 
C)  Only one transaction of each type need be tested. 
D)  The test data must consist of all possible valid and invalid conditions.

Exam 1: CPA Auditing and Attestation Exam

When an auditor expresses an adverse opinion, the opinion paragraph should include:

The responsibility to establish, maintain and monitor internal controls is that of the entity's:

An auditor most likely would review an entity's periodic accounting for the numerical sequence of shipping documents and invoices to support management's financial statement assertion of:

The monitoring component of internal control excludes:

If specific information comes to an auditor's attention that implies the existence of possible illegal acts that could have a material, but indirect effect on the financial statements, the auditor should next:

Which of the following is the primary reason that many auditors hesitate to use embedded audit modules?

An auditor's report on financial statements prepared in accordance with another comprehensive basis of accounting should include all of the following, except:

When an auditor believes there is substantial doubt about the ability of an entity to continue as a going concern, all of the following should be included in the audit documentation, except:

For audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent:

An accountant's compilation report on a financial forecast should include a statement that:

Which of the following circumstances most likely would cause an auditor to suspect an employee payroll fraud scheme?

In testing the existence assertion for an asset, an auditor ordinarily works from the:

Which of the following internal control procedures most likely would deter lapping of collections from customers?

A retailing entity uses the Internet to execute and record its purchase transactions. The entity's auditor recognizes that the documentation of details of transactions will be retained for only a short period of time. To compensate for this limitation, the auditor most likely would:

Hill, CPA, has been retained to audit the financial statements of Monday Co. Monday's predecessor auditor was Post, CPA, who has been notified by Monday that Post's services have been terminated. Under these circumstances, which party should initiate the communications between Hill and Post?

Which of the following is not part of obtaining an understanding of internal control?

The acceptable level of detection risk is inversely related to the:

When unaudited financial statements are presented in comparative form with audited financial statements in a document filed with the Securities and Exchange Commission, such statements should be:

The sampling unit in a test of controls pertaining to the existence of payroll transactions ordinarily is a (an) :

Which of the following statements is not true of the test data approach to testing an accounting system?