Question 1

In evaluating the adequacy of the allowance for doubtful accounts, an auditor most likely reviews the entity's aging of receivables to support management's financial statement assertion of:

Accepted Answer

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

Question 2

In assessing the objectivity of internal auditors, the independent CPA who is auditing the entity's financial statements most likely would consider the:

Accepted Answer

A)  Internal auditing standards developed by The Institute of Internal Auditors. 
B)  Tests of internal control activities that could detect errors and fraud. 
C)  Materiality of the accounts recently inspected by the internal auditors. 
D)  Results of the tests of transactions recently performed by the internal auditors.

Question 3

As part of understanding internal control, an auditor is not required to:

Accepted Answer

A)  Consider factors that affect the risk of material misstatement. 
B)  Ascertain whether internal controls have been implemented. 
C)  Identify the types of potential misstatements that can occur. 
D)  Obtain knowledge about the operating effectiveness of internal control.

Question 4

Which of the following statements is correct regarding the auditor's consideration of the possibility of illegal acts by clients?

Accepted Answer

A)  The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance that no illegal acts have been committed by clients. 
B)  The auditor's training, experience, and understanding of the client should be used to provide a basis for the determination as to whether illegal acts have occurred. 
C)  If specific information concerning an illegal act comes to the auditor's attention, the auditor should apply audit procedures specifically directed to ascertaining whether an illegal act has occurred. 
D)  If an illegal act has occurred, the auditor should express a qualified opinion or an adverse opinion on the financial statements taken as a whole.

Question 5

Wilson, CPA, obtained sufficient appropriate audit evidence to render an opinion on Abco's December 31, X1, financial statements on March 6, X2. A subsequent event requiring adjustment to the X1 financial statements occurred on April 10, X2, and came to Wilson's attention on April 24, X2. If the adjustment is made without disclosure of the event, Wilson's report ordinarily should be dated:

Accepted Answer

A)  March 6, X2. 
B)  April 10, X2. 
C)  April 24, X2. 
D)  Using dual dating.

Question 6

In the standard report on condensed financial statements that are derived from a public entity's audited financial statements, a CPA should indicate that the:

Accepted Answer

A)  Condensed financial statements are prepared in conformity with another comprehensive basis of accounting. 
B)  CPA has audited and expressed an opinion on the complete financial statements. 
C)  Condensed financial statements are not fairly presented in all material respects. 
D)  CPA expresses limited assurance that the financial statements conform with GAAP.

Question 7

A former client requests a predecessor auditor to reissue an audit report on a prior period's financial statements. The financial statements are not restated and the report is not revised. What date(s) should the predecessor auditor use in the reissued report?

Accepted Answer

A)  The date of the prior-period report. 
B)  The date of the client's request. 
C)  The date of reissue. 
D)  The dual-dates.

Question 8

How does an auditor make the following representations when issuing the standard auditor's report on comparative financial statements?

Accepted Answer

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

Question 9

Restrictions imposed by a client prohibit the observation of physical inventories, which account for 35% of all assets. Alternative audit procedures cannot be applied, although the auditor was able to examine satisfactory evidence for all other items in the financial statements. The auditor should issue a(an):

Accepted Answer

A)  "Except for" qualified opinion. 
B)  Disclaimer of opinion. 
C)  Unqualified opinion with a separate explanatory paragraph. 
D)  Unqualified opinion with an Explanation: in the scope paragraph. Unqualified opinion with an Explanation: in the scope paragraph.

Question 10

When an auditor has substantial doubt about an entity's ability to continue as a going concern because of the probable discontinuance of operations, the auditor most likely would express a qualified opinion if:

Accepted Answer

A)  The effects of the adverse financial conditions likely will cause a bankruptcy filing. 
B)  Information about the entity's ability to continue as a going concern is not disclosed. 
C)  Management has no plans to reduce or delay future expenditures. 
D)  Negative trends and recurring operating losses appear to be irreversible.

Question 11

A successor auditor ordinarily should request to review the predecessor's audit documentation relating to:

Accepted Answer

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

Question 12

Tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about management's assertion regarding:

Accepted Answer

A)  Classification. 
B)  Cutoff. 
C)  Accuracy. 
D)  Existence.

Question 13

Computer Services Company (CSC) processes payroll transactions for schools. Drake, CPA, is engaged to report on CSC's internal controls placed in operation as of a specific date. These internal controls are relevant to the schools' internal control, so Drake's report will be useful in providing the schools' independent auditors with information necessary to plan their audits. Drake's report expressing an opinion on CSC's internal controls placed in operation as of a specific date should contain a(an):

Accepted Answer

A)  Description of the scope and nature of Drake's procedures. 
B)  Statement that CSC's management has disclosed to Drake all design deficiencies of which it is aware. 
C)  Opinion on the operating effectiveness of CSC's internal controls. 
D)  Paragraph indicating the basis for Drake's assessment of control risk.

Question 14

Which of the following audit techniques most likely would provide an auditor with the most assurance about the effectiveness of the operation of internal control?

Accepted Answer

A)  Inquiry of client personnel. 
B)  Recomputation of account balance amounts. 
C)  Observation of client personnel. 
D)  Confirmation with outside parties.

Question 15

On March 15, X4, Kent, CPA, issued an unqualified opinion on a client's audited financial statements for the year ended December 31, X3. On May 4, X4, Kent's internal inspection program disclosed that engagement personnel failed to observe the client's physical inventory. Omission of this procedure impairs Kent's present ability to support the unqualified opinion. If the stockholders are currently relying on the opinion, Kent should first:

Accepted Answer

A)  Advise management to disclose to the stockholders that Kent's unqualified opinion should not be relied on. 
B)  Undertake to apply alternative procedures that would provide a satisfactory basis for the unqualified opinion. 
C)  Reissue the auditor's report and add an explanatory paragraph describing the departure from generally accepted auditing standards. 
D)  Compensate for the omitted procedure by performing tests of controls to reduce audit risk to a sufficiently low level.

Question 16

The objective of performing analytical procedures in planning an audit is to identify the existence of:

Accepted Answer

A)  Unusual transactions and events. 
B)  Illegal acts that went undetected because of internal control weaknesses. 
C)  Related party transactions. 
D)  Recorded transactions that were not properly authorized.

Question 17

Which of the following statements best describes how a detailed audit plan of a CPA who is engaged to audit the financial statements of a large publicly held company compares with the audit client's comprehensive internal audit program?

Accepted Answer

A)  The comprehensive internal audit plan is substantially identical to the audit plan used by the CPA because both cover substantially identical areas. 
B)  The comprehensive internal audit plan is less detailed and covers fewer areas than would normally be covered by the CPA. 
C)  The comprehensive internal audit plan is more detailed and covers areas that would normally not be covered by the CPA. 
D)  The comprehensive internal audit plan is more detailed although it covers fewer areas than would normally be covered by the CPA.

Question 18

A principal advantage of statistical methods of attribute sampling over nonstatistical methods is that they provide a scientific basis for planning the:

Accepted Answer

A)  Risk of overreliance. 
B)  Tolerable rate. 
C)  Expected population deviation rate. 
D)  Sample size.

Question 19

An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but containing columns for:

Accepted Answer

A)  Reclassifications and adjustments. 
B)  Reconciliations and tickmarks. 
C)  Accruals and deferrals. 
D)  Expense and revenue summaries.

Question 20

An auditor most likely would perform substantive tests of details on payroll transactions and balances when:

Accepted Answer

A)  Cutoff tests indicate a substantial amount of accrued payroll expense. 
B)  The assessed level of control risk relative to payroll transactions is low. 
C)  Analytical procedures indicate unusual fluctuations in recurring payroll entries. 
D)  Accrued payroll expense consists primarily of unpaid commissions.

Exam 1: CPA Auditing and Attestation Exam