Question 1

When auditing an entity's financial statements in accordance with Government Auditing Standards (the Yellow Book), an auditor is required to report on:

Accepted Answer

A)  Noteworthy accomplishments of the program. II. The scope of the auditor's testing of internal controls. 
B)  I only. 
C)  II only. 
D)  Both I and II. 
E)  Neither I nor II.

Question 2

Which of the following procedures would an auditor most likely include in the planning phase of a financial statement audit?

Accepted Answer

A)  Obtain an understanding of the entity's risk assessment process. 
B)  Identify specific internal control activities designed to prevent fraud. 
C)  Evaluate the reasonableness of the entity's accounting estimates. 
D)  Perform cutoff tests of the entity's sales and purchases.

Question 3

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

Accepted Answer

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

Question 4

An auditor most likely would inspect loan agreements under which an entity's inventories are pledged to support management's financial statement assertion of completeness with respect to:

Accepted Answer

A)  Presentation and disclosure. 
B)  Transactions and events. 
C)  Account balances. 
D)  All of the above.

Question 5

In evaluating the reasonableness of an accounting estimate, an auditor would be least likely to use which of the following approaches?

Accepted Answer

A)  Review subsequent events or transactions occurring prior to audit completion. 
B)  Develop an independent expectation of the estimate. 
C)  Review and test the process used to develop the estimate. 
D)  Review the minutes of board of directors and shareholder meetings for discussion of the estimate.

Question 6

The GAO standards of reporting for governmental financial audits incorporate the AICPA standards of reporting and prescribe supplemental standards to satisfy the unique needs of governmental audits. Which of the following is a supplemental reporting standard for governmental financial audits?

Accepted Answer

A)  Auditors should report the scope of their testing of compliance with laws and regulations and of internal controls. 
B)  Material indications of illegal acts should be reported in a document distributed only to the entity's senior officials. 
C)  All changes in the audit program from the prior year should be reported to the entity's audit committee. 
D)  Any privileged or confidential information discovered should be reported to the organization that arranged for the audit.

Question 7

Which of the following is not an audit procedure that the independent auditor would perform concerning litigation, claims, and assessments?

Accepted Answer

A)  Obtain assurance from management that it has disclosed all unasserted claims that the lawyer has advised are probable of assertion and must be disclosed. 
B)  Confirm directly with the client's lawyer that all claims have been recorded in the financial statements. 
C)  Inquire of and discuss with management the controls adopted for identifying, evaluating, and accounting for litigation, claims, and assessments. 
D)  Obtain from management a description and evaluation of litigation, claims, and assessments existing at the balance sheet date.

Question 8

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

Accepted Answer

A)  Describes the limitations on the usefulness of the presentation. 
B)  Provides an Explanation: of the differences between an examination and an audit. Provides an Explanation: of the differences between an examination and an audit. 
C)  States that the accountant is responsible for events and circumstances up to one year after the report's date. 
D)  Disclaims an opinion on whether the assumptions provide a reasonable basis for the projection.

Question 9

An auditor should obtain knowledge of a client's information and communication system in order to understand each of the following, except:

Accepted Answer

A)  How transactions are initiated, processed, and reported. 
B)  The process used to prepare financial statements. 
C)  The means used by an entity to communicate financial reporting roles to its staff. 
D)  The means used by an entity to ensure that management directives are carried out.

Question 10

An analysis of which of the following accounts would best aid in verifying that all fixed assets have been capitalized?

Accepted Answer

A)  Cash. 
B)  Depreciation expense. 
C)  Property tax expense. 
D)  Repairs and maintenance.

Question 11

The primary purpose of establishing quality control policies and procedures for deciding whether to accept new clients is to:

Accepted Answer

A)  Minimize the likelihood of association with clients whose management lacks integrity. 
B)  Monitor significant deficiencies in the design and operation of the client's internal control. 
C)  Identify noncompliance with aspects of contractual agreements that affect the financial statements. 
D)  Provide reasonable assurance that personnel will be adequately trained to fulfill their assigned responsibilities.

Question 12

When compiling a nonissuer's financial statements, an accountant would be least likely to:

Accepted Answer

A)  Perform analytical procedures designed to identify relationships that appear to be unusual. 
B)  Read the compiled financial statements and consider whether they appear to include adequate disclosure. 
C)  Omit substantially all of the disclosures required by generally accepted accounting principles. 
D)  Issue a compilation report on one or more, but not all, of the basic financial statements.

Question 13

For which of the following audit tests would an auditor most likely use attribute sampling?

Accepted Answer

A)  Making an independent estimate of the amount of a LIFO inventory. 
B)  Examining invoices in support of the valuation of fixed asset additions. 
C)  Selecting accounts receivable for confirmation of account balances. 
D)  Inspecting employee time cards for proper approval by supervisors.

Question 14

Which of the following strategies most likely could improve the response rate of the confirmations of accounts receivable?

Accepted Answer

A)  Restrict the selection of accounts to be confirmed to those customers with large balances. 
B)  Include a list of items or invoices that constitute the customers' account balances. 
C)  Explain to customers that discrepancies will be investigated by an independent third party. 
D)  Ask customers to respond to the confirmation requests directly to the auditor by fax.

Question 15

Selected data pertaining to Lore Co. for the calendar year 20X4 is as follows: Lore would use which of the following to determine the average days sales in inventory?

Accepted Answer

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

Question 16

An auditor determines that the entity is presenting certain supplementary financial disclosures of pension information that are required by the GASB. Under these circumstances, the auditor should:

Accepted Answer

A)  Add an explanatory paragraph to the auditor's report that refers to the required supplementary information. 
B)  State that the audit is not being performed in accordance with generally accepted auditing standards. 
C)  Document in the working papers that the required supplementary information is presented, but should not apply any procedures to the information. 
D)  Compare the required supplementary information for consistency with the audited financial statements.

Question 17

Which of the following pairs of accounts would be analyzed together in the audit documentation?

Accepted Answer

A)  Notes receivable and interest income. 
B)  Accrued interest receivable and accrued interest payable. 
C)  Notes payable and notes receivable. 
D)  Interest income and interest expense.

Question 18

Selected data pertaining to Lore Co. for the calendar year 20X4 is as follows:  What was the inventory turnover for 20X4?

Accepted Answer

A)  1.2 times. 
B)  1.5 times. 
C)  2.0 times. 
D)  3.0 times.

Question 19

An advantage of using statistical over nonstatistical sampling methods in tests of controls is that the statistical methods:

Accepted Answer

A)  Can more easily convert the sample into a dual-purpose test useful for substantive testing. 
B)  Eliminate the need to use judgment in determining appropriate sample sizes. 
C)  Afford greater assurance than a nonstatistical sample of equal size. 
D)  Provide an objective basis for quantitatively evaluating sample risk.

Question 20

In which of the following circumstances would an auditor not express an unqualified opinion?

Accepted Answer

A)  There has been a material change between periods in accounting principles. 
B)  Quarterly financial data required by the SEC has been omitted. 
C)  The auditor wishes to emphasize an unusually important subsequent event. 
D)  The auditor is unable to obtain audited financial statements of a consolidated investee.

Exam 1: CPA Auditing and Attestation Exam

When auditing an entity's financial statements in accordance with Government Auditing Standards (the Yellow Book) , an auditor is required to report on: