Question 1

When there are numerous property and equipment transactions during the year, an auditor who plans to assess control risk at a low level usually performs:

Accepted Answer

A)  Tests of controls and extensive tests of property and equipment balances at the end of the year. 
B)  Analytical procedures for current year property and equipment transactions. 
C)  Tests of controls and limited tests of current year property and equipment transactions. 
D)  Analytical procedures for property and equipment balances at the end of the year. 
A)  Tests of controls and extensive tests of property and equipment balances at the end of the year. 
B)  Analytical procedures for current year property and equipment transactions. 
C)  Tests of controls and limited tests of current year property and equipment transactions. 
D)  Analytical procedures for property and equipment balances at the end of the year.

Question 2

A written client representation letter most likely would be an auditor's best source of corroborative information of a client's plans to:

Accepted Answer

A)  Terminate an employee pension plan. 
B)  Make a public offering of its common stock. 
C)  Settle an outstanding lawsuit for an amount less than the accrued loss contingency. 
D)  Discontinue a line of business. 
A)  Terminate an employee pension plan. 
B)  Make a public offering of its common stock. 
C)  Settle an outstanding lawsuit for an amount less than the accrued loss contingency. 
D)  Discontinue a line of business.

Question 3

The two requirements crucial to achieving audit efficiency and effectiveness with a microcomputer are selecting:

Accepted Answer

A)  The appropriate audit tasks for microcomputer applications and the appropriate software to perform the selected audit tasks. 
B)  The appropriate software to perform the selected audit tasks and client data that can be accessed by the auditor's microcomputer. 
C)  Client data that can be accessed by the auditor's microcomputer and audit procedures that are generally applicable to several clients in a specific industry. 
D)  Audit procedures that are generally applicable to several clients in a specific industry and the appropriate audit tasks for microcomputer applications. 
A)  The appropriate audit tasks for microcomputer applications and the appropriate software to perform the selected audit tasks. 
B)  The appropriate software to perform the selected audit tasks and client data that can be accessed by the auditor's microcomputer. 
C)  Client data that can be accessed by the auditor's microcomputer and audit procedures that are generally applicable to several clients in a specific industry. 
D)  Audit procedures that are generally applicable to several clients in a specific industry and the appropriate audit tasks for microcomputer applications.

Question 4

Pell, CPA, decides to serve as principal auditor in the audit of the financial statements of Tech Consolidated, Inc. Smith, CPA, audits one of Tech's subsidiaries. In which situation(s) should Pell make reference to Smith's audit?

Accepted Answer

A)  Pell reviews Smith's audit documentation and assumes responsibility for Smith's work, but expresses a qualified opinion on Tech's financial statements. II. Pell is unable to review Smith's audit documentation; however, Pell's inquiries indicate that Smith has an excellent reputation for professional competence and integrity. 
B)  I only. 
C)  II only. 
D)  Both I and II. 
E)  Neither I nor II. 
A)  Pell reviews Smith's audit documentation and assumes responsibility for Smith's work, but expresses a qualified opinion on Tech's financial statements. II. Pell is unable to review Smith's audit documentation; however, Pell's inquiries indicate that Smith has an excellent reputation for professional competence and integrity. 
B)  I only. 
C)  II only. 
D)  Both I and II. 
E)  Neither I nor II.

Question 5

Which of the following statements is true regarding the risk assessment component of internal control?

Accepted Answer

A)  An auditor evaluates an entity's risk assessment because it is a component of overall audit risk in a financial statement audit. 
B)  An auditor's evaluation of an entity's risk assessment may not be applicable to the audit of every entity. 
C)  An auditor evaluates an entity's risk assessment to understand how management addresses risks relevant to financial reporting. 
D)  An auditor need not consider an entity's risk assessment because he or she is primarily concerned with audit risk in a financial statement audit. 
A)  An auditor evaluates an entity's risk assessment because it is a component of overall audit risk in a financial statement audit. 
B)  An auditor's evaluation of an entity's risk assessment may not be applicable to the audit of every entity. 
C)  An auditor evaluates an entity's risk assessment to understand how management addresses risks relevant to financial reporting. 
D)  An auditor need not consider an entity's risk assessment because he or she is primarily concerned with audit risk in a financial statement audit.

Question 6

Which of the following courses of action would an auditor most likely follow in planning a sample of cash disbursements if the auditor is aware of several unusually large cash disbursements?

Accepted Answer

A)  Set the tolerable rate of deviation at a lower level than originally planned. 
B)  Stratify the cash disbursements population so that the unusually large disbursements are selected. 
C)  Increase the sample size to reduce the effect of the unusually large disbursements. 
D)  Continue to draw new samples until all the unusually large disbursements appear in the sample. 
A)  Set the tolerable rate of deviation at a lower level than originally planned. 
B)  Stratify the cash disbursements population so that the unusually large disbursements are selected. 
C)  Increase the sample size to reduce the effect of the unusually large disbursements. 
D)  Continue to draw new samples until all the unusually large disbursements appear in the sample.

Question 7

When an accountant compiles projected financial statements, the accountant's report should include a separate paragraph that:

Accepted Answer

A)  Explains the difference between a compilation and a review. 
B)  Documents the assessment of the risk of material misstatement due to fraud. 
C)  Expresses limited assurance that the actual results may be within the projected range. 
D)  Describes the limitations on the projection's usefulness. 
A)  Explains the difference between a compilation and a review. 
B)  Documents the assessment of the risk of material misstatement due to fraud. 
C)  Expresses limited assurance that the actual results may be within the projected range. 
D)  Describes the limitations on the projection's usefulness.

Question 8

Which of the following is an analytical procedure that an auditor most likely would perform when planning an audit?

Accepted Answer

A)  Confirming bank balances with the financial institutions. 
B)  Scanning accounts receivable for amounts over credit limits. 
C)  Recalculating inventory extensions of physical inventory counts. 
D)  Comparing the current-year account balances for conformity with predictable patterns. 
A)  Confirming bank balances with the financial institutions. 
B)  Scanning accounts receivable for amounts over credit limits. 
C)  Recalculating inventory extensions of physical inventory counts. 
D)  Comparing the current-year account balances for conformity with predictable patterns.

Question 9

An auditor is determining the sample size for an inventory observation using mean-per-unit estimation, which is a variables sampling plan. To calculate the required sample size, the auditor usually determines the:

Accepted Answer

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

Question 10

An auditor should consider the tolerable rate of deviation when determining the number of check requests to select for a test to obtain assurance that all check requests have been properly authorized. The auditor should also consider:

Accepted Answer

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

Question 11

A CPA wishes to determine how various publicly-held companies have complied with the disclosure requirements in a Statement of Financial Accounting Standards. Which of the following information sources would the CPA most likely consult for this information?

Accepted Answer

A)  AICPA Accounting Trends & Techniques. 
B)  FASB Technical Bulletins. 
C)  AICPA Audit and Accounting Manual. 
D)  FASB Statements of Financial Accounting Concepts. 
A)  AICPA Accounting Trends & Techniques. 
B)  FASB Technical Bulletins. 
C)  AICPA Audit and Accounting Manual. 
D)  FASB Statements of Financial Accounting Concepts.

Question 12

In an audit of an issuer:

Accepted Answer

A)  Management must assess and report on internal control. II. The auditor must assess and report on internal control. 
B)  I only. 
C)  II only. 
D)  Either I or II. 
E)  Both I and II. 
A)  Management must assess and report on internal control. II. The auditor must assess and report on internal control. 
B)  I only. 
C)  II only. 
D)  Either I or II. 
E)  Both I and II.

Question 13

The information below was taken from the bank transfer schedule prepared during the audit of Fox Co.'s financial statements for the year ended December 31, 20X1. Assume all checks are dated and issued on December 30, 20X1. Which of the following checks illustrate deposits/transfers in transit at December 31, 20X1?

Accepted Answer

A)  #101 and #202. 
B)  #101 and #303. 
C)  #202 and #404. 
D)  #303 and #404. 
A)  #101 and #202. 
B)  #101 and #303. 
C)  #202 and #404. 
D)  #303 and #404.

Question 14

In an audit of financial statements in accordance with generally accepted auditing standards, an auditor is required to:

Accepted Answer

A)  Document the auditor's understanding of the entity's internal control. 
B)  Search for significant deficiencies in the operation of internal control. 
C)  Perform tests of controls to evaluate the effectiveness of the entity's information system relevant to financial reporting. 
D)  Determine whether controls operated effectively to prevent or detect material misstatements. 
A)  Document the auditor's understanding of the entity's internal control. 
B)  Search for significant deficiencies in the operation of internal control. 
C)  Perform tests of controls to evaluate the effectiveness of the entity's information system relevant to financial reporting. 
D)  Determine whether controls operated effectively to prevent or detect material misstatements.

Question 15

After determining that a related party transaction has, in fact, occurred, an auditor should:

Accepted Answer

A)  Add a separate paragraph to the auditor's standard report to explain the transaction. 
B)  Perform analytical procedures to verify whether similar transactions occurred, but were not recorded. 
C)  Obtain an understanding of the business purpose of the transaction. 
D)  Substantiate that the transaction was consummated on terms equivalent to an arm's-length transaction. 
A)  Add a separate paragraph to the auditor's standard report to explain the transaction. 
B)  Perform analytical procedures to verify whether similar transactions occurred, but were not recorded. 
C)  Obtain an understanding of the business purpose of the transaction. 
D)  Substantiate that the transaction was consummated on terms equivalent to an arm's-length transaction.

Question 16

Internal control is relevant to:

Accepted Answer

A)  An entire entity. 
B)  An entity's operating units. 
C)  An entity's business functions. 
D)  All of the above. 
A)  An entire entity. 
B)  An entity's operating units. 
C)  An entity's business functions. 
D)  All of the above.

Question 17

Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?

Accepted Answer

A)  Recomputing a sample of large-dollar transactions occurring after year-end for arithmetic accuracy. 
B)  Investigating changes in stockholders' equity occurring after year-end. 
C)  Inquiring of the entity's legal counsel concerning litigation, claims, and assessments arising after yearend. 
D)  Confirming bank accounts established after year-end. 
A)  Recomputing a sample of large-dollar transactions occurring after year-end for arithmetic accuracy. 
B)  Investigating changes in stockholders' equity occurring after year-end. 
C)  Inquiring of the entity's legal counsel concerning litigation, claims, and assessments arising after yearend. 
D)  Confirming bank accounts established after year-end.

Question 18

Which of the following ratios would an engagement partner most likely calculate when reviewing the balance sheet in the overall review stage of an audit?

Accepted Answer

A)  Quick assets/current assets. 
B)  Accounts receivable/inventory. 
C)  Interest payable/interest receivable. 
D)  Total debt/total assets. 
A)  Quick assets/current assets. 
B)  Accounts receivable/inventory. 
C)  Interest payable/interest receivable. 
D)  Total debt/total assets.

Question 19

Which of the following statements ordinarily is not included among the written client representations made by the chief executive officer and the chief financial officer?

Accepted Answer

A)  "Sufficient audit evidence has been made available to the auditor to permit the issuance of an unqualified opinion." 
B)  "There are no unasserted claims or assessments that our lawyer has advised us are probable of assertion and must be disclosed." 
C)  "We have no plans or intentions that may materially affect the carrying value or classification of assets and liabilities." 
D)  "No events have occurred subsequent to the balance sheet date that would require adjustment to, or disclosure in, the financial statements." 
A)  "Sufficient audit evidence has been made available to the auditor to permit the issuance of an unqualified opinion." 
B)  "There are no unasserted claims or assessments that our lawyer has advised us are probable of assertion and must be disclosed." 
C)  "We have no plans or intentions that may materially affect the carrying value or classification of assets and liabilities." 
D)  "No events have occurred subsequent to the balance sheet date that would require adjustment to, or disclosure in, the financial statements."

Question 20

Which of the following matters is an auditor required to communicate to those charged with governance?

Accepted Answer

A)  The basis for his or her assessment of control risk. 
B)  The process used by management in formulating sensitive accounting estimates. 
C)  The auditor's preliminary judgments about materiality levels. 
D)  The justification for performing substantive procedures at interim dates. 
A)  The basis for his or her assessment of control risk. 
B)  The process used by management in formulating sensitive accounting estimates. 
C)  The auditor's preliminary judgments about materiality levels. 
D)  The justification for performing substantive procedures at interim dates.

Exam 1: CPA Auditing and Attestation Exam