Question 1

Tech Company has disclosed an uncertainty due to pending litigation. The auditor's decision to issue a qualified opinion rather than an unqualified opinion most likely would be determined by the:

Accepted Answer

A)  Lack of sufficient evidence. 
B)  Inability to estimate the amount of loss. 
C)  Entity's lack of experience with such litigation. 
D)  Lack of insurance coverage for possible losses from such litigation.

Question 2

Which of the following would an auditor most likely use in determining the auditor's preliminary judgment about materiality?

Accepted Answer

A)  The results of the initial assessment of control risk. 
B)  The anticipated sample size for planned substantive tests. 
C)  The entity's financial statements of the prior year. 
D)  The assertions that are embodied in the financial statements.

Question 3

An audit supervisor reviewed the work performed by the staff to determine if the audit was adequately performed. The supervisor accomplished this by primarily reviewing which of the following?

Accepted Answer

A)  Checklists. 
B)  Working papers. 
C)  Analytical procedures. 
D)  Financial statements.

Question 4

Which of the following presumptions does not relate to the reliability of audit evidence?

Accepted Answer

A)  The more effective the internal control structure, the more assurance it provides about the accounting data and financial statements. 
B)  An auditor's opinion, to be economically useful, is formed within reasonable time and based on evidence obtained at a reasonable cost. 
C)  Evidence obtained from independent sources outside the entity is more persuasive than evidence secured solely within the entity. 
D)  The independent auditor's direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly.

Question 5

Which of the following auditing procedures most likely would assist an auditor in identifying related party transactions?

Accepted Answer

A)  Retesting ineffective internal controls previously reported to those charged with governance. 
B)  Sending second requests for unanswered positive confirmations of accounts receivable. 
C)  Reviewing accounting records for nonrecurring transactions recognized near the balance sheet date. 
D)  Inspecting communications with law firms for evidence of unreported contingent liabilities.

Question 6

Which of the following procedures would an auditor most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet?

Accepted Answer

A)  Observe the consistency of the employees' use of cash registers and tapes. 
B)  Inquire about employees' access to recorded but undeposited cash. 
C)  Trace the deposits in the cash receipts journal to the cash balance in the general ledger. 
D)  Compare the cash balance in the general ledger with the bank confirmation request.

Question 7

Management of Hill Company has decided not to account for a material transaction in accordance with the provisions of an FASB Standard. In setting forth its reasons in a note to the financial statements, management has clearly demonstrated that due to unusual circumstances the financial statements presented in accordance with the FASB Standard would be misleading. The auditor's report should include a separate explanatory paragraph and contain a(an):

Accepted Answer

A)  "Except for" qualified opinion. 
B)  "Subject to" qualified opinion. 
C)  Adverse opinion. 
D)  Unqualified opinion.

Question 8

Which of the following internal controls most likely would assure that all billed sales are correctly posted to the accounts receivable ledger?

Accepted Answer

A)  Daily sales summaries are compared to daily postings to the accounts receivable ledger. 
B)  Each sales invoice is supported by a prenumbered shipping document. 
C)  The accounts receivable ledger is reconciled daily to the control account in the general ledger. 
D)  Each shipment on credit is supported by a prenumbered sales invoice.

Question 9

Which of the following describes how the objective of a review of financial statements differs from the objective of a compilation engagement?

Accepted Answer

A)  The primary objective of a review engagement is to test the completeness of the financial statements prepared, but a compilation tests for reasonableness. 
B)  The primary objective of a review engagement is to provide positive assurance that the financial statements are fairly presented, but a compilation provides no such assurance. 
C)  In a review engagement, accountants provide limited assurance, but a compilation expresses no assurance. 
D)  In a review engagement, accountants provide reasonable or positive assurance that the financial statements are fairly presented, but a compilation provides limited assurance.

Question 10

For which of the following judgments may an independent auditor share responsibility with an entity's internal auditor who is assessed to be both competent and objective?

Accepted Answer

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

Question 11

Which of the following circumstances most likely would cause an auditor to consider whether material misstatements exist in an entity's financial statements?

Accepted Answer

A)  Management places little emphasis on meeting earnings projections. net 
B)  The board of directors makes all major financing decisions. 
C)  Significant deficiencies in internal control previously communicated to management are not corrected. 
D)  Transactions selected for testing are not supported by proper documentation.

Question 12

When single-year financial statements are presented, an auditor ordinarily would express an unqualified opinion in an unmodified report if the:

Accepted Answer

A)  Auditor is unable to obtain audited financial statements supporting the entity's investment in a foreign affiliate. 
B)  Entity declines to present a statement of cash flows with its balance sheet and related statements of income and retained earnings. 
C)  Auditor wishes to emphasize an accounting matter affecting the comparability of the financial statements with those of the prior year. 
D)  Prior year's financial statements were audited by another CPA whose report, which expressed an unqualified opinion, is not presented.

Question 13

Which of the following audit procedures probably would provide the most reliable evidence concerning the entity's assertion of rights and obligations related to inventories?

Accepted Answer

A)  Trace test counts noted during the entity's physical count to the entity's summarization of quantities. 
B)  Inspect agreements to determine whether any inventory is pledged as collateral or subject to any liens. 
C)  Select the last few shipping advices used before the physical count and determine whether the shipments were recorded as sales. 
D)  Inspect the open purchase order file for significant commitments that should be considered for disclosure.

Question 14

Which of the following statements is not true regarding the auditor's responsibility for subsequent events?

Accepted Answer

A)  The auditor has an active responsibility to make continuing inquiries between the date of the auditor's report and the date on which the report is submitted. 
B)  The auditor has an active responsibility to make continuing inquiries between the date of the financial statements and the date of the auditor's report. 
C)  The auditor has an active responsibility to make continuing inquiries between the date of the financial statements and the date on which sufficient appropriate audit evidence has been obtained. 
D)  The auditor has no active responsibility to make continuing inquiries after the date of the auditor's report.

Question 15

Which of the following procedures would an auditor least likely perform before the balance sheet date?

Accepted Answer

A)  Confirmation of accounts payable. 
B)  Observation of merchandise inventory. 
C)  Assessment of the risk of material misstatement. 
D)  Identification of related parties.

Question 16

In which of the following circumstances is substantive testing of accounts receivable before the balance sheet date most appropriate?

Accepted Answer

A)  The client has a new sales incentive program in place. 
B)  Internal controls during the remaining period are effective. 
C)  There is a high turnover of senior management. 
D)  It is a first engagement of a new client.

Question 17

An entity with a large volume of customer remittances by mail could most likely reduce the risk of employee misappropriation of cash by using:

Accepted Answer

A)  Employee fidelity bonds. 
B)  Independently prepared mailroom prelists. 
C)  Daily check summaries. 
D)  A bank lockbox system.

Question 18

Which of the following factors most likely would lead a CPA to conclude that a potential audit engagement should not be accepted?

Accepted Answer

A)  There are significant related party transactions that management claims occurred in the ordinary course of business. 
B)  Internal control activities requiring the segregation of duties are subject to management override. 
C)  Management continues to employ an inefficient system of information technology to record financial transactions. 
D)  It is unlikely that sufficient appropriate audit evidence is available to support an opinion on the financial statements.

Question 19

At the conclusion of an audit, an auditor is reviewing the evidence gathered in support of the financial statements. With regard to the valuation of inventory, the auditor concludes that the evidence obtained is not sufficient to support management's representations. Which of the following actions is the auditor most likely to take?

Accepted Answer

A)  Consult with the audit committee and issue a disclaimer of opinion. 
B)  Consult with the audit committee and issue a qualified opinion. 
C)  Obtain additional evidence regarding the valuation of inventory. 
D)  Obtain a statement from management supporting their inventory valuation.

Question 20

Which of the following representations should not be included in a report on internal control related matters noted in an audit of a nonissuer?

Accepted Answer

A)  Significant deficiencies related to internal control design exist, but none is deemed to be a material weakness. 
B)  There are no significant deficiencies in the design or operation of internal control. 
C)  Corrective follow-up action is recommended due to the relative significance of material weaknesses discovered during the audit. 
D)  The auditor's consideration of internal control would not necessarily disclose all significant deficiencies that exist.

Exam 1: CPA Auditing and Attestation Exam