Question 1

An audit performed in accordance with OMB Circular A-133 will expand the auditor's responsibilities beyond generally accepted auditing standards. The auditor's expanded responsibilities include:

Accepted Answer

A)  Performance of additional procedures to test and report on compliance with laws, rules, regulations and provisions of contracts or grant agreements that have any effect on federal award programs. 
B)  Performance of additional procedures to test for noncompliance with laws, rules and regulations targeted for review by the Office of the Inspector General. 
C)  Performance of additional procedures to test and report on compliance with laws, rules, regulations and provisions of contracts or grant agreements that have a direct and material effect on major federal award programs. 
D)  Performance of additional procedures to test and report on achievement of program objectives.

Question 2

Unaudited financial statements for the prior year presented in comparative form with audited financial statements for the current year should be clearly marked to indicate their status and

Accepted Answer

A)  The report on the prior period should be reissued to accompany the current period report. II. The report on the current period should include as a separate paragraph a description of the responsibility assumed for the prior period's financial statements. 
B)  I only. 
C)  II only. 
D)  Both I and II. 
E)  Either I or II.

Question 3

Statements on Standards for Accounting and Review Services (SSARS) require an accountant to report when the accountant has:

Accepted Answer

A)  Typed client-prepared financial statements, without modification, as an accommodation to the client. 
B)  Provided a client with a financial statement format that does not include dollar amounts, to be used by the client in preparing financial statements. 
C)  Proposed correcting journal entries to be recorded by the client that change client-prepared financial statements. 
D)  Prepared, through the use of computer software, financial statements that are in conformity with a comprehensive basis of accounting other than GAAP, and which are expected to be used by a third party.

Question 4

This question consists of an item pertaining to possible deficiencies in an accountant's review report. Jordan & Stone, CPAs, audited the financial statements of Tech Co., a nonissuer, for the year ended December 31, 20X1, and expressed an unqualified opinion. For the year ended December 31, 20X2, Tech issued comparative financial statements. Jordan & Stone reviewed Tech's 20X2 financial statements and Kent, an assistant on the engagement, drafted the accountants' review report below. Land, the engagement supervisor, decided not to reissue the prior year's auditors' report, but instructed Kent to include a separate paragraph in the current year's review report describing the responsibility assumed for the prior year's audited financial statements. This is an appropriate reporting procedure. Land reviewed Kent's draft and indicated in the Supervisor's Review Notes below that there were several deficiencies in Kent's draft. Accountant's Review Report We have reviewed and audited the accompanying balance sheets of Tech Co. as of December 31, 20X2 and 20X1, and the related statements of income, retained earnings, and cash flows for the years then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants and generally accepted auditing standards. All information included in these financial statements is the representation of the management of Tech Co. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements. Because of the inherent limitations of a review engagement, this report is intended for the information of management and should not be used for any other purpose. The financial statements for the year ended December 31, 20X1, were audited by us and our report was dated March 2, 20X2. We have no responsibility for updating that report for events and circumstances occurring after that date. Jordan and Stone, CPAs March 1, 20X3 Supervisor's Review Notes There should be no reference to "material modifications" in the third paragraph.

Accepted Answer

A)  Correct 
B)  Incorrect

Question 5

As the acceptable level of detection risk decreases, an auditor may:

Accepted Answer

A)  Reduce substantive testing by relying on the assessments of inherent risk and control risk. 
B)  Postpone the planned timing of substantive tests from interim dates to the year-end. 
C)  Eliminate the assessed level of inherent risk from consideration as a planning factor. 
D)  Lower the assessed level of control risk.

Question 6

When an auditor tests the internal controls of a computerized accounting system, which of the following is true of the test data approach?

Accepted Answer

A)  Test data are coded to a dummy subsidiary so they can be extracted from the system under actual operating conditions. 
B)  Test data programs need not be tailor-made by the auditor for each client's computer applications. 
C)  Test data programs usually consist of all possible valid and invalid conditions regarding compliance with internal controls. 
D)  Test data are processed with the client's computer and the results are compared with the auditor's predetermined results.

Question 7

Which of the following procedures should an auditor generally perform regarding subsequent events?

Accepted Answer

A)  Compare the latest available interim financial statements with the financial statements being audited. 
B)  Send second requests to the client's customers who failed to respond to initial accounts receivable confirmation requests. 
C)  Communicate material weaknesses in the internal control structure to those charged with governance. 
D)  Review the cut-off bank statements for several months after the year-end.

Question 8

Does an auditor make the following representations explicitly or implicitly when issuing the standard auditor's report on comparative financial statements?

Accepted Answer

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

Question 9

Which of the following statements is correct concerning an auditor's assessment of control risk?

Accepted Answer

A)  Assessing control risk may be performed concurrently during an audit with obtaining an understanding of the entity's internal control. 
B)  Evidence about the operation of controls in prior audits may not be considered during the current year's assessment of control risk. 
C)  The basis for an auditor's conclusions about the assessed level of control risk need not be documented unless the auditor's risk assessment is based on the effective operation of controls. 
D)  The lower the assessed level of control risk, the less assurance the evidence must provide that the controls are operating effectively.

Question 10

Under properly designed internal control, the same employee most likely would match vendors' invoices with receiving reports and also:

Accepted Answer

A)  Post the detailed accounts payable records. 
B)  Recompute the calculations on vendors' invoices. 
C)  Reconcile the accounts payable ledger. 
D)  Cancel vendors' invoices after payment.

Question 11

Which of the following internal controls most likely would reduce the risk of diversion of customer receipts by an entity's employees?

Accepted Answer

A)  A bank lockbox system. 
B)  Prenumbered remittance advices. 
C)  Monthly bank reconciliations. 
D)  Daily deposit of cash receipts.

Question 12

An accountant performing a compilation or review of the financial statements of a nonissuer should:

Accepted Answer

A)  Be able to justify departures from SSARS. 
B)  Never depart from SSARS guidelines. 
C)  Exercise professional judgment in applying SSARS, since they are considered recommendations as opposed to standards. 
D)  Not depart from Statements on Auditing Standards.

Question 13

Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-offs?

Accepted Answer

A)  Employees responsible for authorizing sales and bad debt write-offs are denied access to cash. 
B)  Shipping documents and sales invoices are matched by an employee who does not have authority to write off bad debts. 
C)  Employees involved in the credit-granting function are separated from the sales function. 
D)  Subsidiary accounts receivable records are reconciled to the control account by an employee independent of the authorization of credit.

Question 14

A weakness in internal control over recording retirements of equipment may cause an auditor to:

Accepted Answer

A)  Inspect certain items of equipment in the plant and trace those items to the accounting records. 
B)  Review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during the year. 
C)  Trace additions to the "other assets" account to search for equipment that is still on hand but no longer being used. 
D)  Select certain items of equipment from the accounting records and locate them in the plant.

Question 15

Which of the following circumstances would an auditor most likely consider a risk factor relating to misstatements arising from fraudulent financial reporting?

Accepted Answer

A)  Several members of management have recently purchased additional shares of the entity's stock. 
B)  Several members of the board of directors have recently sold shares of the entity's stock. 
C)  The entity distributes financial forecasts to financial analysts that predict conservative operating results. 
D)  Management is interested in maintaining the entity's earnings trend by using aggressive accounting practices.

Question 16

Sound internal control dictates that, immediately upon receiving checks from customers by mail, a responsible employee should:

Accepted Answer

A)  Add the checks to the daily cash summary. 
B)  Verify that each check is supported by a prenumbered sales invoice. 
C)  Prepare a duplicate listing of checks received. 
D)  Record the checks in the cash receipts journal.

Question 17

Which of the following matters would an auditor most likely communicate to those charged with governance?

Accepted Answer

A)  A list of negative trends that may lead to working capital deficiencies and adverse financial ratios. 
B)  The level of responsibility assumed by management for the preparation of the financial statements. 
C)  Difficulties encountered in achieving a satisfactory response rate from the entity's customers in confirming accounts receivables. 
D)  The effects of significant accounting policies adopted by management in emerging areas for which there is no authoritative guidance.

Question 18

The usefulness of the standard bank confirmation request may be limited because the bank employee who completes the form may:

Accepted Answer

A)  Not believe that the bank is obligated to verify confidential information to a third party. 
B)  Sign and return the form without inspecting the accuracy of the client's bank reconciliation. 
C)  Not have access to the client's cutoff bank statement. 
D)  Be unaware of all the financial relationships that the bank has with the client.

Question 19

The in-charge auditor most likely would have a supervisory responsibility to explain to the staff assistants:

Accepted Answer

A)  That fraud is not to be reported to those charged with governance. 
B)  How the results of various auditing procedures performed by the assistants should be evaluated. 
C)  What benefits may be attained by the assistants' adherence to established time budgets. 
D)  Why certain documents are being transferred from the current file to the permanent file.

Question 20

In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion or an adverse opinion?

Accepted Answer

A)  The auditor did not observe the entity's physical inventory and is unable to become satisfied about its balance by other auditing procedures. 
B)  Conditions that cause the auditor to have substantial doubt about the entity's ability to continue as a going concern are inadequately disclosed. 
C)  There has been a change in accounting principles that has a material effect on the comparability of the entity's financial statements. 
D)  The auditor is unable to apply necessary procedures concerning an investor's share of an investee's earnings recognized on the equity method.

Exam 1: CPA Auditing and Attestation Exam