Question 1

A successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor's:

Accepted Answer

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

Question 2

An accountant may compile a nonissuer's financial statements that omit all of the disclosures required by GAAP only if the omission is:

Accepted Answer

A)  Clearly indicated in the accountant's report. II. Not undertaken with the intention of misleading the financial statement users. 
B)  I only. 
C)  II only. 
D)  Both I and II. 
E)  Either I or II.

Question 3

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 the American Institute of Certified Public Accountants in the first (introductory) paragraph.

Accepted Answer

A)  Correct 
B)  Incorrect

Question 4

Under which of the following circumstances would a disclaimer of opinion not be appropriate?

Accepted Answer

A)  The financial statements fail to contain adequate disclosure of related party transactions. 
B)  The client refuses to permit its attorney to furnish information requested in a letter of audit inquiry. 
C)  The auditor is engaged after fiscal year-end and is unable to observe physical inventories or apply alternative procedures to verify their balances. 
D)  The auditor is unable to determine the amounts associated with illegal acts committed by the client's management.

Question 5

The auditor's report on internal controls and compliance with laws and regulations in accordance with Government Auditing Standards (the Yellow Book), is required to include:

Accepted Answer

A)  The scope of the auditor's testing of internal controls. II. Uncorrected misstatements that were determined by management to be immaterial. 
B)  I only. 
C)  II only. 
D)  Both I and II. 
E)  Neither I nor II.

Question 6

Which of the following are elements of a CPA firm's quality control that should be considered in establishing its quality control policies and procedures?

Accepted Answer

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

Question 7

When an accountant compiles a financial forecast, the accountant's report should include a(an):

Accepted Answer

A)  Explanation: of the differences between a financial forecast and a financial projection. Explanation: of the differences between a financial forecast and a financial projection. 
B)  Caveat that the prospective results of the financial forecast may not be achieved. 
C)  Statement that the accountant's responsibility to update the report is limited to one year. 
D)  Disclaimer of opinion on the reliability of the entity's internal controls.

Question 8

An auditor was engaged to conduct a performance audit of a governmental entity in accordance with Government Auditing Standards. These standards do not require, as part of this auditor's report:

Accepted Answer

A)  A statement of the audit objectives and a description of the audit scope. 
B)  Indications or instances of illegal acts that could result in criminal prosecution discovered during the audit. 
C)  The pertinent views of the entity's responsible officials concerning the auditor's findings. 
D)  A concurrent opinion on the financial statements taken as a whole.

Question 9

An auditor concluded that no excessive costs for idle plant were charged to inventory. This conclusion most likely related to the auditor's objective to obtain evidence about the financial statement assertions regarding inventory, including understandability and classification, and:

Accepted Answer

A)  Valuation and allocation. 
B)  Completeness. 
C)  Existence. 
D)  Rights and obligations.

Question 10

To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all:

Accepted Answer

A)  Payment vouchers. 
B)  Receiving reports. 
C)  Purchase requisitions. 
D)  Vendor's invoices.

Question 11

Which of the following statements might be included among additional written client representations obtained by the auditor?

Accepted Answer

A)  Compensating balances and other arrangements involving restrictions on cash balances have been disclosed. 
B)  Management acknowledges responsibility for illegal actions committed by employees. 
C)  Sufficient audit evidence has been made available to permit the issuance of an unqualified opinion. 
D)  Management acknowledges that there are no material weaknesses in internal control.

Question 12

This question will represent a statement, question, excerpt, or comment taken from various parts of an auditor's documentation file. Letter choices A-P represent a list of the likely sources of the statement, question, excerpt, or comment. Select, as the best answer for each item, the most likely source. Select only one source for each item. The company considers the decline in value of equity securities classified as available-for-sale to be temporary.

Accepted Answer

A)  Practitioner's report on management's assertion about an entity's compliance with specified requirements. 
B)  Auditor's communications on significant deficiencies in internal control. 
C)  Audit inquiry letter to legal counsel. 
D)  Lawyer's response to audit inquiry letter. 
E)  Communication from those charged with governance to the auditor.
F) Auditor's communication to those charged with governance (other than with respect to significant deficiencies in internal control)
G) Report on the application of accounting principles.
H) Auditor's engagement letter.
I) Letter for underwriters.
J) Accounts receivable confirmation request.
K) Request for bank cutoff statement.
L) Explanatory paragraph of an auditor's report on financial statements.
M) Partner's engagement review notes.
N) Management representation letter.
O) Successor auditor's communication with predecessor auditor.
P) Predecessor auditor's communication with successor auditor.

Question 13

In performing tests of controls over authorization of cash disbursements, which of the following statistical sampling methods would be most appropriate?

Accepted Answer

A)  Variables. 
B)  Stratified. 
C)  Ratio. 
D)  Attributes.

Question 14

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

Accepted Answer

A)  Matching the vendor's invoice with the related receiving report. 
B)  Approving vouchers for payment by having an authorized employee sign the vouchers. 
C)  Indicating the asset and expense accounts to be debited. 
D)  Accounting for unused prenumbered purchase orders and receiving reports.

Question 15

While observing a client's annual physical inventory, an auditor recorded test counts for several items and noticed that certain test counts were higher than the recorded quantities in the client's perpetual records. This situation could be the result of the client's failure to record:

Accepted Answer

A)  Purchase discounts. 
B)  Purchase returns. 
C)  Sales. 
D)  Sales returns.

Question 16

Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed?

Accepted Answer

A)  Scan the sales journal for sequential and unusual entries. 
B)  Examine shipping documents for matching sales invoices. 
C)  Compare the accounts receivable ledger to daily sales summaries. 
D)  Inspect unused sales invoices for consecutive prenumbering.

Question 17

In confirming a client's accounts receivable in prior years, an auditor found that there were many differences between the recorded account balances and the confirmation replies. These differences, which were not misstatements, required substantial time to resolve. In defining the sampling unit for the current year's audit, the auditor most likely would choose:

Accepted Answer

A)  Individual overdue balances. 
B)  Individual invoices. 
C)  Small account balances. 
D)  Large account balances.

Question 18

In assessing the competence and objectivity of an entity's internal auditor, an independent auditor least likely would consider information obtained from:

Accepted Answer

A)  Discussions with management personnel. 
B)  External quality reviews of the internal auditor's activities. 
C)  Previous experience with the internal auditor. 
D)  The results of analytical procedures.

Question 19

When an auditor increases the assessed level of control risk because certain control activities were determined to be ineffective, the auditor would most likely increase the:

Accepted Answer

A)  Extent of tests of controls. 
B)  Level of detection risk. 
C)  Extent of tests of details. 
D)  Level of inherent risk.

Question 20

Which of the following procedures would an auditor ordinarily perform first in evaluating management's accounting estimates for reasonableness?

Accepted Answer

A)  Develop independent expectations of management's estimates. 
B)  Consider the appropriateness of the key factors or assumptions used in preparing the estimates. 
C)  Test the calculations used by management in developing the estimates. 
D)  Obtain an understanding of how management developed its estimates.

Exam 1: CPA Auditing and Attestation Exam