Question 1

During an engagement to review the financial statements of a nonissuer an accountant becomes aware of a material departure from GAAP. If the accountant decides to modify the standard review report because management will not revise the financial statements, the accountant should:

Accepted Answer

A)  Express negative assurance on the accounting principles that do not conform with GAAP. 
B)  Disclose the departure from GAAP in a separate paragraph of the report. 
C)  Issue an adverse or an "except for" qualified opinion, depending on materiality. 
D)  Express positive assurance on the accounting principles that conform with GAAP.

Question 2

An auditor's engagement letter most likely would include a statement that:

Accepted Answer

A)  Lists potential significant deficiencies discovered during the prior year's audit. 
B)  Explains the analytical procedures that the auditor expects to apply. 
C)  Describes the auditor's responsibility to evaluate going concern issues. 
D)  Limits the auditor's responsibility to detect errors and fraud.

Question 3

Should an auditor communicate the following matters to those charged with governance of a public entity?

Accepted Answer

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

Question 4

Which of the following procedures would an auditor most likely perform to verify management's assertion of completeness?

Accepted Answer

A)  Compare a sample of shipping documents to related sales invoices. 
B)  Observe the client's distribution of payroll checks. 
C)  Confirm a sample of recorded receivables by direct communication with the debtors. 
D)  Review standard bank confirmations for indications of kiting.

Question 5

In identifying matters for communication with those charged with governance, an auditor most likely would ask management whether:

Accepted Answer

A)  The turnover in the accounting department was unusually high. 
B)  It consulted with another CPA firm about accounting matters. 
C)  There were any subsequent events of which the auditor was unaware. 
D)  It agreed with the auditor's assessed level of control risk.

Question 6

This question presents independent factual situations an auditor might encounter in conducting an audit. List A represents the types of opinions the auditor ordinarily would issue. Select as the best answer for this item, the action the auditor normally would take. The types of opinions in List A may be selected once, more than once, or not at all. Assume: - The auditor is independent. - The auditor previously expressed an unqualified opinion on the prior year's financial statements. - Only single-year (not comparative) statements are presented for the current year. -  The conditions for an unqualified opinion exist unless contradicted in the factual situations.  The conditions stated in the factual situations are material. - No report modifications are to be made except in response to the factual situation. Item to Be Answered In auditing the long-term investments account, an auditor is unable to obtain audited financial statements for an investee located in a foreign country. The auditor concludes that sufficient appropriate audit evidence regarding this investment cannot be obtained. List A Types of Options

Accepted Answer

A)  An "except for" qualified opinion. 
B)  An unqualified opinion. 
C)  An adverse opinion. 
D)  A disclaimer of opinion. 
E)  Either an "except for" qualified opinion or an adverse opinion.
F) Either a disclaimer of opinion or an "except for" qualified opinion.
G) Either an adverse opinion or a disclaimer of opinion.

Question 7

Which of the following circumstances most likely would cause an auditor to suspect that material misstatements exist in a client's financial statements?

Accepted Answer

A)  The assumptions used in developing the prior year's accounting estimates have changed. 
B)  Differences between reconciliations of control accounts and subsidiary records are not investigated. 
C)  Negative confirmation requests yield fewer responses than in the prior year's audit. 
D)  Management consults with another CPA firm about complex accounting matters.

Question 8

An auditor should disclose the substantive reasons for expressing an adverse opinion in an explanatory paragraph:

Accepted Answer

A)  Preceding the scope paragraph. 
B)  Preceding the opinion paragraph. 
C)  Following the opinion paragraph. 
D)  Within the notes to the financial statements.

Question 9

When assessing the internal auditors' competence, the independent CPA should obtain information about the:

Accepted Answer

A)  Organizational level to which the internal auditors report. 
B)  Educational background and professional certification of the internal auditors. 
C)  Policies prohibiting the internal auditors from auditing areas where relatives are employed. 
D)  Internal auditors' access to records and information that is considered sensitive.

Question 10

The primary responsibility of a bank acting as registrar of capital stock is to:

Accepted Answer

A)  Ascertain that dividends declared do not exceed the statutory amount allowable in the state of incorporation. 
B)  Account for stock certificates by comparing the total shares outstanding to the total in the shareholders subsidiary ledger. 
C)  Act as an independent third party between the board of directors and outside investors concerning mergers, acquisitions, and the sale of treasury stock. 
D)  Verify that stock is issued in accordance with the authorization of the board of directors and the articles of incorporation.

Question 11

Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?

Accepted Answer

A)  Vouch a sample of accounts payable entries recorded just before year-end to the unmatched receiving report file. 
B)  Compare a sample of purchase orders issued just after year-end with the year-end accounts payable trial balance. 
C)  Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices. 
D)  Scan the cash disbursements entries recorded just before year-end for indications of unusual transactions.

Question 12

The following explanatory paragraph was included in an auditor's report to indicate a lack of consistency: "As discussed in note T to the financial statements, the company changed its method of computing depreciation in X0." How should the auditor report on this matter if the auditor concurred with the change? Type of Location of opinion explanatory paragraph.

Accepted Answer

A)  Unqualified Before opinion paragraph 
B)  Unqualified After opinion paragraph 
C)  Qualified Before opinion paragraph 
D)  Qualified After opinion paragraph

Question 13

An auditor is selecting vouchers for testing an entity's internal control activities related to the proper approval of vouchers before checks are prepared. The auditor is matching random numbers with voucher numbers to determine which vouchers to inspect. If a random number matches a voided voucher, that voucher ordinarily would be replaced by another voucher in the random sample if the voided voucher:

Accepted Answer

A)  Cannot be located in the voucher file. 
B)  Represents a dollar amount that is material. 
C)  Indicates a deviation from the prescribed activity. 
D)  Has been properly voided.

Question 14

An advantage of using systems flowcharts to document information about internal control instead of using internal control questionnaires is that systems flowcharts:

Accepted Answer

A)  Identify internal control weaknesses more prominently. 
B)  Provide a visual depiction of client's activities. 
C)  Indicate whether control activities are operating effectively. 
D)  Reduce the need to observe client's employees performing routine tasks.

Question 15

Which of the following most likely would be detected by an auditor's review of a client's sales cut-off?

Accepted Answer

A)  Shipments lacking sales invoices and shipping documents. 
B)  Excessive write-offs of accounts receivable. 
C)  Unrecorded sales at year-end. 
D)  Lapping of year-end accounts receivable.

Question 16

An auditor is engaged to report on selected financial data that are included in a client-prepared document containing audited financial statements. Under these circumstances, the report on the selected data should:

Accepted Answer

A)  Be limited to data derived from the audited financial statements. 
B)  Be distributed only to senior management and the board of directors. 
C)  State that the presentation is a comprehensive basis of accounting other than GAAP. 
D)  Indicate that the data are not fairly stated in all material respects.

Question 17

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

Accepted Answer

A)  The specific matters to be included in the communication with those charged with governance. 
B)  The minimum amount of misstatements that may be considered to be significant deficiencies in internal control. 
C)  The schedules and analyses that the client's staff should prepare. 
D)  The effects that inadequate controls may have over the safeguarding of assets.

Question 18

With respect to the audit of a nonissuer, significant deficiencies are matters that come to an auditor's attention that should be communicated to an entity's management and those charged with governance because they represent:

Accepted Answer

A)  Manipulation or falsification of accounting records or documents from which financial statements are prepared. 
B)  Disclosures of information that significantly contradict the auditor's going concern assumption. 
C)  Material irregularities or illegal acts perpetrated by high-level management. 
D)  Deficiencies in the design or operation of internal control that could reasonably be expected to cause a non-inconsequential misstatement in the financial statements.

Question 19

Which of the following is a professional engagement that a CPA may perform to provide assurance on a system's reliability?

Accepted Answer

A)  MAS AssurAbility. 
B)  CPA WebMaster. 
C)  MAS AttestSure. 
D)  CPA SysTrust.

Question 20

Prospective financial information presented in the format of historical financial statements that omit either gross profit or net income is deemed to be a:

Accepted Answer

A)  Partial presentation. 
B)  Projected balance sheet. 
C)  Financial forecast. 
D)  Financial projection.

Exam 1: CPA Auditing and Attestation Exam