Question 1

This question will represent a statement, question, excerpt, or comment taken from various parts of an auditor's documentation file. Letter choices A-P represent a list of the likely sources of the statement, question, excerpt, or comment. Select, as the best answer for each item, the most likely source. Select only one source for each item. Indicate in the space provided below whether this information agrees with your records. If there are exceptions, please provide any information that will assist the auditor in reconciling the difference.

Accepted Answer

A)  Practitioner's report on management's assertion about an entity's compliance with specified requirements. 
B)  Auditor's communications on significant deficiencies in internal control. 
C)  Audit inquiry letter to legal counsel. 
D)  Lawyer's response to audit inquiry letter. 
E)  Communication from those charged with governance to the auditor.
F) Auditor's communication to those charged with governance (other than with respect to significant deficiencies in internal control
G) Report on the application of accounting principles.
H) Auditor's engagement letter.
I) Letter for underwriters.
J) Accounts receivable confirmation request.
K) Request for bank cutoff statement.
L) Explanatory paragraph of an auditor's report on financial statements.
M) Partner's engagement review notes.
N) Management representation letter.
O) Successor auditor's communication with predecessor auditor.
P) Predecessor auditor's communication with successor auditor.

Question 2

For effective internal accounting control, the accounts payable department should compare the information on each vendor's invoice with the:

Accepted Answer

A)  Receiving report and the purchase order. 
B)  Receiving report and the voucher. 
C)  Vendor's packing slip and the purchase order. 
D)  Vendor's packing slip and the voucher.

Question 3

When management's assertion about the effectiveness of a nonissuer's internal control is presented in a representation letter that will not accompany the CPA's report:

Accepted Answer

A)  Use of the report is restricted to management and the board of directors. 
B)  The report should contain a statement of management's assertion. 
C)  The CPA should not accept the engagement. 
D)  The report should include a negative assurance with respect to the effectiveness of the entity's internal control.

Question 4

Which of the following procedures most likely would be considered a weakness in an entity's internal controls over payroll?

Accepted Answer

A)  A voucher for the amount of the payroll is prepared in the general accounting department based on the payroll department's payroll summary. 
B)  Payroll checks are prepared by the payroll department and signed by the treasurer. 
C)  The employee who distributes payroll checks returns unclaimed payroll checks to the payroll department. 
D)  The personnel department sends employees' termination notices to the payroll department.

Question 5

An accountant's standard report on a compilation of a projection should not include a statement that:

Accepted Answer

A)  There will usually be differences between the forecasted and actual results. 
B)  The hypothetical assumptions used in the projection are reasonable in the circumstances. 
C)  The accountant has no responsibility to update the report for future events and circumstances. 
D)  The compilation of a projection is limited in scope.

Question 6

An auditor's communication of internal control related matters noted in an audit usually should be addressed to:

Accepted Answer

A)  Management and those charged with governance. 
B)  The director of internal auditing. 
C)  The chief financial officer. 
D)  The chief accounting officer.

Question 7

An accountant compiles unaudited financial statements that are not expected to be used by a third party. The accountant may decline to issue a compilation report provided:

Accepted Answer

A)  Each page of the financial statements is clearly marked to restrict its use. II. A written engagement letter is used to document the understanding with the client. III. A written representation letter is obtained from the client's management.  
B)  Option A 
C)  Option B 
D)  Option C 
E)  Option D

Question 8

A successor auditor most likely would make specific inquiries of the predecessor auditor regarding:

Accepted Answer

A)  Specialized accounting principles of the client's industry. 
B)  The competency of the client's internal audit staff. 
C)  The uncertainty inherent in applying sampling procedures. 
D)  Disagreements with management as to auditing procedures.

Question 9

Which of the following statements concerning an auditor's communication of significant deficiencies identified during the audit of a nonissuer is correct?

Accepted Answer

A)  The auditor should request a meeting with management one level above the source of the significant deficiencies to discuss suggestions for remedial action. 
B)  Any report issued on significant deficiencies should indicate that providing assurance on internal control was not the purpose of the audit. 
C)  Significant deficiencies discovered and communicated at an interim date should be reexamined with tests of controls before completing the engagement. 
D)  Suggestions concerning administration efficiencies and business strategies should not be communicated in the same report with significant deficiencies.

Question 10

Which of the following statements is generally correct about the reliability of audit evidence?

Accepted Answer

A)  The more effective the internal control structure, the more assurance it provides about the reliability of the accounting data and financial statements. 
B)  Reliability of audit evidence refers to the amount of corroborative evidence obtained. 
C)  Information obtained indirectly from independent outside sources is more persuasive than the auditor's direct personal knowledge obtained through observation and inspection. 
D)  Reliability of audit evidence refers to the audit evidence obtained from outside the entity.

Question 11

Which of the following procedures would a CPA most likely perform in the planning stage of a financial statement audit?

Accepted Answer

A)  Obtain representations from management regarding the availability of all financial records. 
B)  Communicate with those charged with governance concerning the prior year's audit adjustments. 
C)  Make inquiries of the client's attorney regarding pending and threatened litigation and assessments. 
D)  Compare recorded financial information with anticipated results from budgets and forecasts.

Question 12

The auditor should obtain sufficient knowledge of the client's information and communication system relevant to financial reporting to understand all of the following, except

Accepted Answer

A)  Classes of transactions in the entity's operations that are significant to the financial statements, and how those transactions are processed, from initiation to inclusion in the financial statements. 
B)  The financial reporting process, including development of significant accounting estimates and inclusion of appropriate disclosures. 
C)  The means the entity uses to communicate roles, responsibilities, and significant matters relating to financial reporting. 
D)  Control activities related to each account balance, transaction class, and disclosure component in the financial statements or to every assertion relevant to them.

Question 13

Which of the following characteristics most likely would be an advantage of using classical variables sampling rather than probability-proportional-to-size (PPS) sampling?

Accepted Answer

A)  The selection of negative balances requires no special design considerations. 
B)  The sampling process can begin before the complete population is available. 
C)  The auditor need not consider the preliminary judgments about materiality. 
D)  The sample will result in a smaller sample size if few errors are expected.

Question 14

Internal control includes which of the following components:

Accepted Answer

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

Question 15

To determine whether internal control relative to the revenue cycle of a wholesaling entity is operating effectively in minimizing the failure to prepare sales invoices, an auditor most likely would select a sample of transactions from the population represented by the:

Accepted Answer

A)  Sales order file. 
B)  Customer order file. 
C)  Shipping document file. 
D)  Sales invoice file.

Question 16

An auditor's report would be designated a special report when it is issued in connection with:

Accepted Answer

A)  Interim financial information of a publicly held company that is subject to a limited review. 
B)  Compliance with aspects of regulatory requirements related to audited financial statements. 
C)  Application of accounting principles to specified transactions. 
D)  Limited use prospective financial statements such as a financial projection.

Question 17

Which of the following internal controls would an entity most likely use to assist in satisfying the completeness assertion related to long-term investments?

Accepted Answer

A)  Senior management verifies that securities in the bank safe deposit box are registered in the entity's name. 
B)  The internal auditor compares the securities in the bank safe deposit box with recorded investments. 
C)  The treasurer vouches the acquisition of securities by comparing brokers' advices with canceled checks. 
D)  The controller compares the current market prices of recorded investments with the brokers' advices on file.

Question 18

To be effective, analytical procedures in the overall review stage of an audit engagement should be performed by:

Accepted Answer

A)  The staff accountant who performed the substantive auditing procedures. 
B)  The managing partner who has responsibility for all audit engagements at that practice office. 
C)  A manager or partner who has a comprehensive knowledge of the client's business and industry. 
D)  The CPA firm's quality control manager or partner who has responsibility for the firm's peer review program.

Question 19

Which of the following statements most likely represents a disadvantage for an entity that keeps microcomputer-prepared data files rather than manually prepared files?

Accepted Answer

A)  Attention is focused on the accuracy of the programming process rather than errors in individual transactions. 
B)  It is usually easier for unauthorized persons to access and alter the files. 
C)  Random error associated with processing similar transactions in different ways is usually greater. 
D)  It is usually more difficult to compare recorded accountability with physical count of assets.

Question 20

An attest engagement is one in which a CPA is engaged to:

Accepted Answer

A)  Issue an examination, a review, or an agreed-upon procedures report on subject matter, or on an assertion about the subject matter, that is the responsibility of another party. 
B)  Provide tax advice or prepare a tax return based on financial information the CPA has not audited or reviewed. 
C)  Testify as an expert witness in accounting, auditing, or tax matters, given certain stipulated facts. 
D)  Assemble the financial statements of a nonissuer based on the assumptions of the entity's management without expressing any assurance.

Exam 1: CPA Auditing and Attestation Exam