Question 1

When disclaiming an opinion due to a client-imposed scope limitation, an auditor should indicate in a separate paragraph why the audit did not comply with generally accepted auditing standards. The auditor should also omit the:

Accepted Answer

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

Question 2

Which of the following factors is (are) considered in determining the sample size for a test of controls?

Accepted Answer

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

Question 3

During the annual audit of Ajax Corp., a publicly held company, Jones, CPA, a continuing auditor, determined that illegal political contributions had been made during each of the past seven years, including the year under audit. Jones notified the board of directors about the illegal contributions, but they refused to take any action because the amounts involved were immaterial to the financial statements. Jones should reconsider the intended degree of reliance to be placed on the:

Accepted Answer

A)  Letter of audit inquiry to the client's attorney. 
B)  Prior years' audit plan. 
C)  Management representation letter. 
D)  Preliminary judgment about materiality levels.

Question 4

Cooper, CPA, believes there is substantial doubt about the ability of Zero Corp. to continue as a going concern for a reasonable period of time. In evaluating Zero's plans for dealing with the adverse effects of future conditions and events, Cooper most likely would consider, as a mitigating factor, Zero's plans to:

Accepted Answer

A)  Discuss with lenders the terms of all debt and loan agreements. 
B)  Strengthen internal controls over cash disbursements. 
C)  Purchase production facilities currently being leased from a related party. 
D)  Postpone expenditures for research and development projects.

Question 5

An entity engaged a CPA to determine whether the client's web sites meet defined criteria for standard business practices and controls over transaction integrity and information protection. In performing this engagement, the CPA should comply with the provisions of:

Accepted Answer

A)  Statements on Assurance Standards. 
B)  Statements on Standards for Attestation Engagements. 
C)  Statements on Standards for Management Consulting Services. 
D)  Statements on Auditing Standards.

Question 6

Symbol A most likely represents:

Accepted Answer

A)  Remittance advice file. 
B)  Receiving report file. 
C)  Accounts receivable master file. 
D)  Cash disbursements transaction file.

Question 7

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 restriction on the use of the accountant's review report in the third paragraph.

Accepted Answer

A)  Correct 
B)  Incorrect

Question 8

Which of the following internal control procedures most likely addresses the completeness assertion for inventory?

Accepted Answer

A)  Work in process account is periodically reconciled with subsidiary records. 
B)  Employees responsible for custody of finished goods do not perform the receiving function. 
C)  Receiving reports are prenumbered and periodically reconciled. 
D)  There is a separation of duties between payroll department and inventory accounting personnel.

Question 9

A letter issued on significant deficiencies relating to an entity's internal control observed during an audit of the financial statements of a nonissuer should include a:

Accepted Answer

A)  Restriction on the use of the report. 
B)  Description of tests performed to search for material weaknesses. 
C)  Statement of compliance with applicable laws and regulations. 
D)  Paragraph describing management's evaluation of the effectiveness of internal control.

Question 10

In determining the number of documents to select for a test to obtain assurance that all sales returns have been properly authorized, an auditor should consider the tolerable rate of deviation from the control activity. The auditor should also consider the:

Accepted Answer

A)  Likely rate of deviations. II. Allowable risk of assessing control risk too high. 
B)  I only. 
C)  II only. 
D)  Both I and II. 
E)  Either I or II.

Question 11

Holding other planning considerations equal, a decrease in the amount of misstatements in a class of transactions that an auditor could tolerate most likely would cause the auditor to:

Accepted Answer

A)  Apply the planned substantive tests prior to the balance sheet date. 
B)  Perform the planned auditing procedures closer to the balance sheet date. 
C)  Increase the assessed level of control risk for relevant financial statement assertions. 
D)  Decrease the extent of auditing procedures to be applied to the class of transactions.

Question 12

When audited financial statements are presented in a client's document containing other information, the auditor should:

Accepted Answer

A)  Perform inquiry and analytical procedures to ascertain whether the other information is reasonable. 
B)  Add an explanatory paragraph to the auditor's report without changing the opinion on the financial statements. 
C)  Perform the appropriate substantive auditing procedures to corroborate the other information. 
D)  Read the other information to determine that it is consistent with the audited financial statements.

Question 13

An entity's internal control requires for every check request that there be an approved voucher, supported by a prenumbered purchase order and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select items for testing from the population of all:

Accepted Answer

A)  Purchase orders. 
B)  Canceled checks. 
C)  Receiving reports. 
D)  Approved vouchers.

Question 14

Which of the following statements is correct about the auditor's use of the work of a specialist?

Accepted Answer

A)  The specialist should not have an understanding of the auditor's corroborative use of the specialist's findings. 
B)  The auditor is required to perform substantive procedures to verify the specialist's assumptions and findings. 
C)  The client should not have an understanding of the nature of the work to be performed by the specialist. 
D)  The auditor should obtain an understanding of the methods and assumptions used by the specialist.

Question 15

Field is an employee of Gold Enterprises. Hardy, CPA, is asked to express an opinion on Field's profit participation in Gold's net income. Hardy may accept this engagement only if:

Accepted Answer

A)  Hardy also audits Gold's complete financial statements. 
B)  Gold's financial statements are prepared in conformity with GAAP. 
C)  Hardy's report is available for distribution to Gold's other employees. 
D)  Field owns controlling interest in Gold.

Question 16

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)  Vendor's invoices. 
B)  Purchase orders. 
C)  Receiving reports. 
D)  Canceled checks.

Question 17

The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of the risk that:

Accepted Answer

A)  Specific internal control activities are not operating as designed. 
B)  The collective effect of the control environment may not achieve the control objectives. 
C)  Tests of controls may fail to identify activities relevant to assertions. 
D)  Material misstatements may exist in the financial statements.

Question 18

Which of the following statements concerning audit evidence is correct?

Accepted Answer

A)  Reliable evidence supporting management's assertions should be conclusive rather than merely persuasive. 
B)  An effective internal control structure contributes little to the reliability of the evidence created within the entity. 
C)  The cost of obtaining evidence is not an important consideration to an auditor in deciding what evidence should be obtained. 
D)  A client's accounting data cannot be considered sufficient audit evidence to support the financial statements.

Question 19

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 20

Kane, CPA, concludes that there is substantial doubt about Lima Co.'s ability to continue as a going concern for a reasonable period of time. If Lima's financial statements adequately disclose its financial difficulties, Kane's auditor's report is required to include an explanatory paragraph that specifically uses the phrase(s):

Accepted Answer

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

Exam 1: CPA Auditing and Attestation Exam

When disclaiming an opinion due to a client-imposed scope limitation, an auditor should indicate in a separate paragraph why the audit did not comply with generally accepted auditing standards. The auditor should also omit the:

Which of the following factors is (are) considered in determining the sample size for a test of controls?

An entity engaged a CPA to determine whether the client's web sites meet defined criteria for standard business practices and controls over transaction integrity and information protection. In performing this engagement, the CPA should comply with the provisions of:

Symbol A most likely represents:

Which of the following internal control procedures most likely addresses the completeness assertion for inventory?

A letter issued on significant deficiencies relating to an entity's internal control observed during an audit of the financial statements of a nonissuer should include a:

In determining the number of documents to select for a test to obtain assurance that all sales returns have been properly authorized, an auditor should consider the tolerable rate of deviation from the control activity. The auditor should also consider the:

Holding other planning considerations equal, a decrease in the amount of misstatements in a class of transactions that an auditor could tolerate most likely would cause the auditor to:

When audited financial statements are presented in a client's document containing other information, the auditor should:

Which of the following statements is correct about the auditor's use of the work of a specialist?

Field is an employee of Gold Enterprises. Hardy, CPA, is asked to express an opinion on Field's profit participation in Gold's net income. Hardy may accept this engagement only if:

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:

The ultimate purpose of assessing control risk is to contribute to the auditor's evaluation of the risk that:

Which of the following statements concerning audit evidence is correct?

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?