Question 1

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

Accepted Answer

A)  Analyze the liquidity and turnover ratios of the inventory. 
B)  Perform analytical procedures designed to identify cost variances. 
C)  Review the entity's descriptions of controls over inventory. 
D)  Perform test counts of inventory during the entity's physical count.

Question 2

Disclosure of fraud to parties other than a client's senior management, those charged with governance, or its board of directors ordinarily is not part of an auditor's responsibility. However, to which of the following outside parties may a duty to disclose irregularities exist?

Accepted Answer

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

Question 3

In developing an overall audit strategy, an auditor should consider:

Accepted Answer

A)  Whether the allowance for sampling risk exceeds the achieved upper precision limit. 
B)  Findings from substantive tests performed at interim dates. 
C)  Whether the inquiry of the client's attorney identifies any litigation, claims, or assessments not disclosed in the financial statements. 
D)  Preliminary evaluations of materiality, audit risk, and internal control.

Question 4

Which of the following presumptions is correct about the reliability of audit evidence?

Accepted Answer

A)  Information obtained indirectly from outside sources is the most reliable evidential matter. 
B)  To be reliable, audit evidence should be conclusive rather than persuasive. 
C)  Reliability of audit evidence refers to the amount corroborative evidence obtained. 
D)  An effective internal control structure provides more assurance about the reliability of audit evidence.

Question 5

The management of Cain Company, a nonissuer, engaged Bell, CPA, to express an opinion on Cain's internal control. Bell's report described several material weaknesses and potential errors and irregularities that could occur. Subsequently, management included Bell's report in its annual report to the Board of Directors with a statement that the cost of correcting the weaknesses would exceed the benefits. Bell should:

Accepted Answer

A)  Disclaim an opinion as to management's cost-benefit statement. 
B)  Advise the Board that Bell either agrees or disagrees with management's statement. 
C)  Advise management that Bell's report was restricted for use only by management. 
D)  Advise both management and the Board that Bell was withdrawing the opinion.

Question 6

When assessing an internal auditor's objectivity, an independent auditor should:

Accepted Answer

A)  Evaluate the adequacy of the internal auditor's audit plans. 
B)  Inquire about the internal auditor's educational background and professional certification. 
C)  Consider the organizational level to which the internal auditor reports. 
D)  Review the internal auditor's audit documentation.

Question 7

For an entity's financial statements to be presented fairly in conformity with generally accepted accounting principles, the principles selected should:

Accepted Answer

A)  Be applied on a basis consistent with those followed in the prior year. 
B)  Be approved by the Auditing Standards Board or the appropriate industry subcommittee. 
C)  Reflect transactions in a manner that presents the financial statements within a range of acceptable limits. 
D)  Match the principles used by most other entities within the entity's particular industry.

Question 8

Prior to commencing fieldwork, an auditor usually discusses the general audit strategy with the client's management. Which of the following matters do the auditor and management agree upon at this time?

Accepted Answer

A)  The appropriateness of the entity's plans for dealing with adverse economic conditions. 
B)  The determination of the fraud risk factors that exist within the client's operations. 
C)  The control weaknesses to be included in the communication with those charged with governance. 
D)  The coordination of the assistance of the client's personnel in data preparation.

Question 9

In the auditor's report, the principal auditor decides not to make reference to another CPA who audited a client's subsidiary. The principal auditor could justify this decision if, among other requirements, the principal auditor:

Accepted Answer

A)  Issues an unqualified opinion on the consolidated financial statements. 
B)  Learns that the other CPA issued an unqualified opinion on the subsidiary's financial statements. 
C)  Is unable to review the audit programs and audit documentation of the other CPA. 
D)  Is satisfied as to the independence and professional reputation of the other CPA.

Question 10

The nature and extent of a CPA firm's quality control policies and procedures depend on:

Accepted Answer

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

Question 11

An auditor obtains knowledge about a new client's business and its industry to:

Accepted Answer

A)  Make constructive suggestions concerning improvements to the client's internal control. 
B)  Develop an attitude of professional skepticism concerning management's financial statement assertions. 
C)  Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated. 
D)  Understand the events and transactions that may have an effect on the client's financial statements.

Question 12

The objective of auditing procedures applied to segment information is to provide the auditor with a reasonable basis for concluding whether:

Accepted Answer

A)  The information is useful for comparing a segment of one enterprise with a similar segment of another enterprise. 
B)  Sufficient audit evidence has been obtained to allow the auditor to be associated with the segment information. 
C)  A separate opinion on the segment information is necessary due to inconsistent application of accounting principles. 
D)  The information is presented in conformity with the FASB Statement on segment information.

Question 13

In reviewing the financial statements of a nonissuer, an accountant is required to modify the standard review report for which of the following matters?

Accepted Answer

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

Question 14

An auditor is required to establish an understanding with a client regarding the services to be performed for each engagement. This understanding generally includes:

Accepted Answer

A)  The auditor's responsibility for determining the preliminary judgments about materiality and audit risk factors. 
B)  Management's responsibility for identifying mitigating factors when the auditor has doubt about the entity's ability to continue as a going concern. 
C)  The auditor's responsibility for ensuring that those charged with governance are aware of any significant deficiencies in internal control that come to the auditor's attention. 
D)  Management's responsibility for providing the auditor with an assessment of the risk of material misstatement due to fraud.

Question 15

Which of the following statements is correct concerning significant deficiencies noted in an audit of a nonissuer?

Accepted Answer

A)  Significant deficiencies are material weaknesses in the design or operation of specific internal control components. 
B)  The auditor is obligated to search for significant deficiencies that could adversely affect the entity's ability to record and report financial data. 
C)  Significant deficiencies should not be re-communicated each year if management has acknowledged its understanding of such deficiencies. 
D)  The auditor should separately identify those significant deficiencies that are considered to be material weaknesses.

Question 16

An auditor who uses a transaction cycle approach to assessing control risk most likely would test control activities related to transactions involving the sale of goods to customers with the:

Accepted Answer

A)  Collection of receivables. 
B)  Purchase of merchandise inventory. 
C)  Payment of accounts payable. 
D)  Sale of long-term debt.

Question 17

Which of the following evidence provides the least assurance of reliability?

Accepted Answer

A)  Accounts receivable confirmation. 
B)  Sales invoice. 
C)  Vendor invoice. 
D)  Bank statement.

Question 18

An auditor assesses control risk because it:

Accepted Answer

A)  Is relevant to the auditor's understanding of the control environment. 
B)  Provides assurance that the auditor's materiality levels are appropriate. 
C)  Indicates to the auditor where inherent risk may be the greatest. 
D)  Affects the level of detection risk that the auditor may accept.

Question 19

In considering materiality for planning purposes, an auditor believes that misstatements aggregating $10,000 would have a material effect on an entity's income statement, but that misstatements would have to aggregate $20,000 to materially affect the balance sheet. Ordinarily, it would be appropriate to design auditing procedures that would be expected to detect misstatements that aggregate:

Accepted Answer

A)  $10,000 
B)  $15,000 
C)  $20,000 
D)  $30,000

Question 20

An internal auditor's work would most likely affect the nature, timing, and extent of an independent CPA's auditing procedures when the internal auditor's work relates to assertions about the:

Accepted Answer

A)  Existence of contingencies. 
B)  Valuation of intangible assets. 
C)  Existence of fixed asset additions. 
D)  Valuation of related party transactions.

Exam 1: CPA Auditing and Attestation Exam

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

Disclosure of fraud to parties other than a client's senior management, those charged with governance, or its board of directors ordinarily is not part of an auditor's responsibility. However, to which of the following outside parties may a duty to disclose irregularities exist?

In developing an overall audit strategy, an auditor should consider:

Which of the following presumptions is correct about the reliability of audit evidence?

When assessing an internal auditor's objectivity, an independent auditor should:

For an entity's financial statements to be presented fairly in conformity with generally accepted accounting principles, the principles selected should:

Prior to commencing fieldwork, an auditor usually discusses the general audit strategy with the client's management. Which of the following matters do the auditor and management agree upon at this time?

In the auditor's report, the principal auditor decides not to make reference to another CPA who audited a client's subsidiary. The principal auditor could justify this decision if, among other requirements, the principal auditor:

The nature and extent of a CPA firm's quality control policies and procedures depend on:

An auditor obtains knowledge about a new client's business and its industry to:

The objective of auditing procedures applied to segment information is to provide the auditor with a reasonable basis for concluding whether:

In reviewing the financial statements of a nonissuer, an accountant is required to modify the standard review report for which of the following matters?

An auditor is required to establish an understanding with a client regarding the services to be performed for each engagement. This understanding generally includes:

Which of the following statements is correct concerning significant deficiencies noted in an audit of a nonissuer?

An auditor who uses a transaction cycle approach to assessing control risk most likely would test control activities related to transactions involving the sale of goods to customers with the:

Which of the following evidence provides the least assurance of reliability?

An auditor assesses control risk because it:

An internal auditor's work would most likely affect the nature, timing, and extent of an independent CPA's auditing procedures when the internal auditor's work relates to assertions about the: