Question 1

An auditor may decide not to test controls related to certain assertions because the auditor believes:

Accepted Answer

A)  Sufficient appropriate evidence to support the assertions is likely to be available. 
B)  Evaluating the effectiveness of controls is inefficient. 
C)  More emphasis on tests of controls than substantive tests is warranted. 
D)  Considering the relationship of assertions to specific account balances is more efficient.

Question 2

The permanent (continuing) file of audit documentation most likely would include copies of the:

Accepted Answer

A)  Lead schedules. 
B)  Attorney's letters. 
C)  Bank statements. 
D)  Debt agreements.

Question 3

An auditor's report contains the following sentences: We did not audit the financial statements of JK Co., a wholly owned subsidiary, which statements reflect total assets and revenues constituting 17 percent and 19 percent, respectively, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for JK Co., is based solely on the report of the other auditors. These sentences:

Accepted Answer

A)  Are an improper form of reporting. 
B)  Divide responsibility. 
C)  Disclaim an opinion. 
D)  Qualify the opinion.

Question 4

Which of the following procedures would an auditor most likely perform in auditing the statement of cash flows?

Accepted Answer

A)  Compare the amounts included in the statement of cash flows to similar amounts in the prior year's statement of cash flows. 
B)  Reconcile the cutoff bank statements to verify the accuracy of the year-end bank balances. 
C)  Vouch all bank transfers for the last week of the year and first week of the subsequent year. 
D)  Reconcile the amounts included in the statement of cash flows to the other financial statements' balances and amounts.

Question 5

Performing inquiry and analytical procedures is the primary basis for an accountant to issue a:

Accepted Answer

A)  Report on compliance with requirements governing major federal assistance programs in accordance with the Single Audit Act. 
B)  Review report on prospective financial statements that present an entity's expected financial position, given one or more hypothetical assumptions. 
C)  Management advisory report prepared at the request of a client's audit committee. 
D)  Review report on comparative financial statements for a nonissuer in its second year of operations.

Question 6

Which of the following statements is correct concerning an auditor's required communication with those charged with governance?

Accepted Answer

A)  This communication is required to occur before the auditor's report on the financial statements is issued. 
B)  This communication should include management changes in the application of significant accounting policies. 
C)  Any significant matter communicated to those charged with governance also should be communicated to management. 
D)  Significant audit adjustments proposed by the auditor and recorded by management need not be communicated to those charged with governance.

Question 7

An auditor issued an audit report that was dual dated for a subsequent event occurring after the original date of the auditor's report but before issuance of the related financial statements. The auditor's responsibility for events occurring subsequent to the original report date was:

Accepted Answer

A)  Limited to include only events occurring up to the date of the last subsequent event referenced. 
B)  Limited to the specific event referenced. 
C)  Extended to subsequent events occurring through the later date. 
D)  Extended to include all events occurring since the original report date.

Question 8

Which of the following events occurring after the issuance of an auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements?

Accepted Answer

A)  A technological development that could affect the entity's future ability to continue as a going concern. 
B)  The discovery of information regarding a contingency that existed before the financial statements were issued. 
C)  The entity's sale of a subsidiary that accounts for 30% of the entity's consolidated sales. 
D)  The final resolution of a lawsuit explained in a separate paragraph of the auditor's report.

Question 9

The risk of incorrect acceptance and the likelihood of assessing control risk too low relate to the:

Accepted Answer

A)  Allowable risk of tolerable misstatement. 
B)  Preliminary estimates of materiality levels. 
C)  Efficiency of the audit. 
D)  Effectiveness of the audit.

Question 10

An auditor's engagement letter most likely would include a statement regarding:

Accepted Answer

A)  Management's responsibility to provide certain written representations to the auditor. 
B)  Conditions under which the auditor may modify the preliminary judgment about materiality. 
C)  Internal control activities that would reduce the auditor's assessment of risk. 
D)  Materiality matters that could modify the auditor's preliminary assessment of fraud risk.

Question 11

Which of the following best describes a CPA's engagement to report on a nonissuer's internal control over financial reporting?

Accepted Answer

A)  An attestation engagement to examine and report on management's written assertions about the effectiveness of its internal control. 
B)  An audit engagement to render an opinion on the entity's internal control. 
C)  A prospective engagement to project, for a period of time not to exceed one year, and report on the expected benefits of the entity's internal control. 
D)  A consulting engagement to provide constructive advice to the entity on its internal control.

Question 12

For a particular entity's financial statements to be presented fairly in conformity with generally accepted accounting principles, it is not required that the principles selected:

Accepted Answer

A)  Be appropriate in the circumstances for the particular entity. 
B)  Reflect transactions in a manner that presents the financial statements within a range of acceptable 
C)  Present information in the financial statements that is classified and summarized in a reasonable manner. 
D)  Be applied on a basis consistent with those followed in the prior year.

Question 13

Which of the following audit procedures would an auditor most likely perform to test controls relating to management's assertion concerning the completeness of sales transactions?

Accepted Answer

A)  Verify that extensions and footings on the entity's sales invoices and monthly customer statements have been recomputed. 
B)  Inspect the entity's reports of prenumbered shipping documents that have not been recorded in the sales journal. 
C)  Compare the invoiced prices on prenumbered sales invoices to the entity's authorized price list. 
D)  Inquire about the entity's credit granting policies and the consistent application of credit checks.

Question 14

An auditor confirmed accounts receivable as of an interim date, and all confirmations were returned and appeared reasonable. Which of the following additional procedures most likely should be performed at year-end?

Accepted Answer

A)  Send confirmations for all new customer balances incurred from the interim date to year-end. 
B)  Resend confirmations for any significant customer balances remaining at year-end. 
C)  Review supporting documents for new large balances occurring after the interim date, and evaluate any significant changes in balances at year-end. 
D)  Review cash collections subsequent to the interim date and the year-end.

Question 15

In determining the effectiveness of an entity's internal controls relating to the occurrence assertion for payroll transactions, an auditor most likely would inquire about and:

Accepted Answer

A)  Observe the segregation of duties concerning personnel responsibilities and payroll disbursement. 
B)  Inspect evidence of accounting for prenumbered payroll checks. 
C)  Recompute the payroll deductions for employee fringe benefits. 
D)  Verify the preparation of the monthly payroll account bank reconciliation.

Question 16

For certain controls, such as segregation of duties, documentary evidence may not exist. An auditor would most likely test the controls by:

Accepted Answer

A)  Reperformance and corroboration. 
B)  Observation and inquiry. 
C)  Inspection and vouching. 
D)  Confirmation and recomputation.

Question 17

How would increases in tolerable misstatement and assessed level of control risk affect the sample size in a substantive test of details?

Accepted Answer

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

Question 18

Audit evidence concerning segregation of duties ordinarily is best obtained by:

Accepted Answer

A)  Performing tests of transactions that corroborate management's financial statement assertions. 
B)  Observing the employees as they apply control procedures. 
C)  Obtaining a flowchart of activities performed by available personnel. 
D)  Developing audit objectives that reduce control risk.

Question 19

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. During our audit we discovered evidence of the company's failure to safeguard inventory from loss, damage, and misappropriation.

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 20

When a client engages in transactions involving derivatives, the auditor should:

Accepted Answer

A)  Develop an understanding of the economic substance of each derivative. 
B)  Confirm with the client's broker whether the derivatives are for trading purposes. 
C)  Notify those charged with governance about the risks involved in derivative transactions. 
D)  Add an explanatory paragraph to the auditor's report describing the risks associated with each derivative.

Exam 1: CPA Auditing and Attestation Exam