Question 1

Which of the following procedures would an auditor most likely perform in obtaining evidence about subsequent events?

Accepted Answer

A)  Examine a sample of transactions that occurred since the year-end to verify the effectiveness of computer controls. 
B)  Inquire of management whether there have been significant changes in working capital since the year-end. 
C)  Recompute depreciation charges for plant assets sold for substantial gains since the year-end. 
D)  Reperform the tests of controls that indicated significant deficiencies in the operation of internal control. 
A)  Examine a sample of transactions that occurred since the year-end to verify the effectiveness of computer controls. 
B)  Inquire of management whether there have been significant changes in working capital since the year-end. 
C)  Recompute depreciation charges for plant assets sold for substantial gains since the year-end. 
D)  Reperform the tests of controls that indicated significant deficiencies in the operation of internal control.

Question 2

In performing an audit in accordance with Generally Accepted Government Auditing Standards (the "Yellow Book"), the auditor:

Accepted Answer

A)  Accepts less responsibility in conducting fieldwork than is accepted in a GAAS audit, since the specific requirements of the Generally Accepted Government Auditing Standards reduce required professional judgment. 
B)  Accepts shared responsibility with Federal Inspectors General, who are equally responsible for compliance evaluation, control, and reporting. 
C)  Accepts greater reporting responsibilities than accepted under a GAAS audit, since the auditor must report on compliance with laws, rules, and regulations, violations of which may affect financial statement amounts, and on the organization's internal control over financial reporting. 
D)  Accepts equal reporting responsibilities with that accepted under GAAS audits, since compliance evaluation and reporting have implied financial statement implications and require expanded treatment as a material contingency. 
A)  Accepts less responsibility in conducting fieldwork than is accepted in a GAAS audit, since the specific requirements of the Generally Accepted Government Auditing Standards reduce required professional judgment. 
B)  Accepts shared responsibility with Federal Inspectors General, who are equally responsible for compliance evaluation, control, and reporting. 
C)  Accepts greater reporting responsibilities than accepted under a GAAS audit, since the auditor must report on compliance with laws, rules, and regulations, violations of which may affect financial statement amounts, and on the organization's internal control over financial reporting. 
D)  Accepts equal reporting responsibilities with that accepted under GAAS audits, since compliance evaluation and reporting have implied financial statement implications and require expanded treatment as a material contingency.

Question 3

Which of the following sampling methods would be used to estimate a numerical measurement of a population, such as a dollar value?

Accepted Answer

A)  Discovery sampling. 
B)  Numerical sampling. 
C)  Sampling for attributes. 
D)  Sampling for variables. 
A)  Discovery sampling. 
B)  Numerical sampling. 
C)  Sampling for attributes. 
D)  Sampling for variables.

Question 4

One of a CPA firm's basic objectives is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through:

Accepted Answer

A)  A system of quality control. 
B)  A system of peer review. 
C)  Continuing professional education. 
D)  Compliance with generally accepted reporting standards. 
A)  A system of quality control. 
B)  A system of peer review. 
C)  Continuing professional education. 
D)  Compliance with generally accepted reporting standards.

Question 5

How are management's responsibility and the auditor's responsibility represented in the standard auditor's report?

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 6

An auditor who discovers that a client's employees have paid small bribes to public officials most likely would withdraw from the engagement if the:

Accepted Answer

A)  Client receives financial assistance from a federal government agency. 
B)  Audit evidence that is necessary to prove that the illegal acts were committed does not exist. 
C)  Employees' actions affect the auditor's ability to rely on management's representations. 
D)  Notes to the financial statements fail to disclose the employees' actions. 
A)  Client receives financial assistance from a federal government agency. 
B)  Audit evidence that is necessary to prove that the illegal acts were committed does not exist. 
C)  Employees' actions affect the auditor's ability to rely on management's representations. 
D)  Notes to the financial statements fail to disclose the employees' actions.

Question 7

An auditor desired to test credit approval on 10,000 sales invoices processed during the year. The auditor designed a statistical sample that would provide 1% risk of assessing control risk too low (99% confidence) that not more than 7% of the sales invoices lacked approval. The auditor estimated from previous experience that about 2.5% of the sales invoices lacked approval. A sample of 200 invoices was examined and 7 of them were lacking approval. The auditor then determined the upper deviation rate to be 8%. The allowance for sampling risk was:

Accepted Answer

A)  5.5% 
B)  4.5% 
C)  3.5% 
D)  1% 
A)  5.5% 
B)  4.5% 
C)  3.5% 
D)  1%

Question 8

Which of the following procedures would most likely be included in a review engagement of a nonissuer?

Accepted Answer

A)  Preparing a bank transfer schedule. 
B)  Inquiring about related party transactions. 
C)  Assessing the internal control structure. 
D)  Performing cutoff tests on sales and purchases transactions. 
A)  Preparing a bank transfer schedule. 
B)  Inquiring about related party transactions. 
C)  Assessing the internal control structure. 
D)  Performing cutoff tests on sales and purchases transactions.

Question 9

When an auditor qualifies an opinion because of the inability to confirm accounts receivable by direct communication with debtors, the wording of the opinion paragraph of the auditor's report should indicate that the qualification pertains to the:

Accepted Answer

A)  Limitation on the auditor's scope. 
B)  Possible effects on the financial statements. 
C)  Lack of sufficient appropriate audit evidence. 
D)  Departure from generally accepted auditing standards. 
A)  Limitation on the auditor's scope. 
B)  Possible effects on the financial statements. 
C)  Lack of sufficient appropriate audit evidence. 
D)  Departure from generally accepted auditing standards.

Question 10

An auditor generally tests the segregation of duties related to inventory by:

Accepted Answer

A)  Personal inquiry and observation. 
B)  Test counts and cutoff procedures. 
C)  Analytical procedures and invoice recomputation. 
D)  Document inspection and reconciliation. 
A)  Personal inquiry and observation. 
B)  Test counts and cutoff procedures. 
C)  Analytical procedures and invoice recomputation. 
D)  Document inspection and reconciliation.

Question 11

In evaluating an entity's accounting estimates, one of the auditor's objectives is to determine whether the estimates are:

Accepted Answer

A)  Prepared in a satisfactory control environment. 
B)  Consistent with industry guidelines. 
C)  Based on verifiable objective assumptions. 
D)  Reasonable in the circumstances. 
A)  Prepared in a satisfactory control environment. 
B)  Consistent with industry guidelines. 
C)  Based on verifiable objective assumptions. 
D)  Reasonable in the circumstances.

Question 12

Which of the following best describes the responsibility of the auditor with respect to significant deficiencies and material weaknesses in an audit of an issuer?

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 13

A client that recently installed a new accounts payable system assigned employees a user identification code (UIC) and a separate password. Each UIC is a person's name, and the individual's password is the same as the UIC. Users are not required to change their passwords at initial log-in nor do passwords ever expire. Which of the following statements does not reflect a limitation of the client's computer access control?

Accepted Answer

A)  Employees can easily guess fellow employees' passwords. 
B)  Employees are not required to change passwords. 
C)  Employees can circumvent procedures to segregate duties. 
D)  Employees are not required to take regular vacations. 
A)  Employees can easily guess fellow employees' passwords. 
B)  Employees are not required to change passwords. 
C)  Employees can circumvent procedures to segregate duties. 
D)  Employees are not required to take regular vacations.

Question 14

Which of the following statements is correct concerning an auditor's responsibilities regarding financial statements?

Accepted Answer

A)  An auditor may not draft an entity's financial statements based on information from management's accounting system. 
B)  The adoption of sound accounting policies is an implicit part of an auditor's responsibilities. 
C)  An auditor's responsibilities for audited financial statements are confined to the expression of the auditor's opinion. 
D)  Making suggestions that are adopted about an entity's internal control environment impairs an auditor's independence. 
A)  An auditor may not draft an entity's financial statements based on information from management's accounting system. 
B)  The adoption of sound accounting policies is an implicit part of an auditor's responsibilities. 
C)  An auditor's responsibilities for audited financial statements are confined to the expression of the auditor's opinion. 
D)  Making suggestions that are adopted about an entity's internal control environment impairs an auditor's independence.

Question 15

When an independent CPA assists in preparing the financial statements of a publicly held entity, but has not audited or reviewed them, the CPA should issue a disclaimer of opinion. In such situations, the CPA has no responsibility to apply any procedures beyond:

Accepted Answer

A)  Ascertaining whether the financial statements are in conformity with generally accepted accounting principles. 
B)  Determining whether management has elected to omit substantially all required disclosures. 
C)  Documenting that the internal control structure is not being relied on. 
D)  Reading the financial statements for obvious material misstatements. 
A)  Ascertaining whether the financial statements are in conformity with generally accepted accounting principles. 
B)  Determining whether management has elected to omit substantially all required disclosures. 
C)  Documenting that the internal control structure is not being relied on. 
D)  Reading the financial statements for obvious material misstatements.

Question 16

Which of the following statements is correct concerning an auditor's responsibility to report fraud?

Accepted Answer

A)  The auditor is required to communicate to those charged with governance all minor fraudulent acts perpetrated by low-level employees, even if the amounts involved are inconsequential. 
B)  The disclosure of material management fraud to principal stockholders is required when both senior management and the board of directors fail to acknowledge the fraudulent activities. 
C)  Fraudulent activities involving senior management of which the auditor becomes aware should be reported directly to the SEC. 
D)  The disclosure of fraudulent activities to parties other than the client's senior management and those charged with governance is not ordinarily part of the auditor's responsibility. 
A)  The auditor is required to communicate to those charged with governance all minor fraudulent acts perpetrated by low-level employees, even if the amounts involved are inconsequential. 
B)  The disclosure of material management fraud to principal stockholders is required when both senior management and the board of directors fail to acknowledge the fraudulent activities. 
C)  Fraudulent activities involving senior management of which the auditor becomes aware should be reported directly to the SEC. 
D)  The disclosure of fraudulent activities to parties other than the client's senior management and those charged with governance is not ordinarily part of the auditor's responsibility.

Question 17

Management philosophy and operating style most likely would have a significant influence on an entity's control environment when:

Accepted Answer

A)  The internal auditor reports directly to management. 
B)  Management is dominated by one individual. 
C)  Accurate management job descriptions delineate specific duties. 
D)  Those charged with governance actively oversee the financial reporting process. 
A)  The internal auditor reports directly to management. 
B)  Management is dominated by one individual. 
C)  Accurate management job descriptions delineate specific duties. 
D)  Those charged with governance actively oversee the financial reporting process.

Question 18

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)  Supporting records that should be readily available are frequently not produced when requested. 
B)  Significant deficiencies in internal control previously communicated have not been corrected. 
C)  Clerical errors are listed on a monthly computer-generated exception report. 
D)  Differences are discovered during the client's annual physical inventory count. 
A)  Supporting records that should be readily available are frequently not produced when requested. 
B)  Significant deficiencies in internal control previously communicated have not been corrected. 
C)  Clerical errors are listed on a monthly computer-generated exception report. 
D)  Differences are discovered during the client's annual physical inventory count.

Question 19

An auditor most likely would apply analytical procedures in the overall review stage of an audit to:

Accepted Answer

A)  Enhance the auditor's understanding of subsequent events. 
B)  Identify auditing procedures omitted by the staff accountants. 
C)  Determine whether additional audit evidence may be needed. 
D)  Evaluate the effectiveness of the internal control activities. 
A)  Enhance the auditor's understanding of subsequent events. 
B)  Identify auditing procedures omitted by the staff accountants. 
C)  Determine whether additional audit evidence may be needed. 
D)  Evaluate the effectiveness of the internal control activities.

Question 20

Morris, CPA, suspects that a pervasive scheme of illegal bribes exists throughout the operations of Worldwide Import-Export, Inc., a new audit client. Morris notified the audit committee and Worldwide's legal counsel, but neither could assist Morris in determining whether the amounts involved were material to the financial statements or whether senior management was involved in the scheme. Under these circumstances, Morris should:

Accepted Answer

A)  Express an unqualified opinion with a separate explanatory paragraph. 
B)  Disclaim an opinion on the financial statements. 
C)  Express an adverse opinion on the financial statements. 
D)  Issue a special report regarding the illegal bribes. 
A)  Express an unqualified opinion with a separate explanatory paragraph. 
B)  Disclaim an opinion on the financial statements. 
C)  Express an adverse opinion on the financial statements. 
D)  Issue a special report regarding the illegal bribes.

Exam 1: CPA Auditing and Attestation Exam