Cpa - Auditing

Front 1

A CPA's test of the accuracy of inventory counts involves two storehouses. Storehouse A contains 10,000 inventory items and Storehouse B contains 5,000 items. The CPA plans to use sampling without replacement to test for an estimated 5% error rate. If the CPA's sampling plan calls for a specified reliability of 95% and a maximum tolerable error occurrence rate of 7.5% for both storehouses, the ratio of the size of the CPA's sample from Storehouse A to the size of the sample from Storehouse B should be:

Back 1

More than 1:1 but less than 2:1

Front 2

A company issues audited financial statements under circumstances which require the presentation of a statement of cash flows. If the company refuses to present a statement of cash flows, the independent auditor should:

Back 2

Qualify his opinion with an "except for" qualification and a description of the omission in a middle paragraph of the report.

Front 3

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

Back 3

Discontinue a line of business.

Front 4

A CPA should not submit unaudited financial statements of a nonpublic company to a client or other unless, as a minimum, the CPA complies with the provisions applicable to:

Back 4

Compilation engagements.

Front 5

Accepting an engagement to compile financial projection for a publicly held company most likely would be inappropriate if the projection were to be distributed to:

Back 5

All stockholders of record as of the report date.

Front 6

Accepting an engagement to examine an entity's financial project most likely would be appropriate if the projection were to be distributed to:

Back 6

A bank with which the entity is negotiating for a loan.

Front 7

An auditor's program to examine long-term debt should include steps tat require:

Back 7

Examine bond trust indentures.

Front 8

An accountant who is not independent of a client is precluded from issuing a:

Back 8

Special report on compliance with contractual agreements.

Front 9

An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions about:

Back 9

Valuation or allocation.

Front 10

An auditor concluded that no excessive costs for idle plant were charged to inventory. This conclusion most likely related to the auditor's objective to obtain evidence about the financial statement assertions regarding inventory, including presentation and disclosure and:

Back 10

Valuation and allocation.

Front 11

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

Back 11

Presentation and disclosure.

Front 12

An auditor's decision either to apply analytical procedures as substantive tests or to perform test to transactions and account balances usually is determined by the:

Back 12

Relative effectiveness and efficiency of the tests.

Front 13

An auditor's selected items for test counts while observing a client's physical inventory. The auditor then traced the test counts to the client's inventory listing. This procedure most likely obtained evidence concerning management's assertion of:

Back 13

Completeness.

Front 14

An auditor's primary consideration regarding an entity's internal control policies and procedures is whether the policies and procedures:

Back 14

Affect the financial statement assertions.

Front 15

An auditor searching for related party transactions should obtain an understanding of each subsidiary's relationship to the total entity because:

Back 15

The business structure may be deliberately designed to obscure related party transactions.

Front 16

An auditor uses the knowledge provided by the understanding of internal control and the final assessed level of control risk primarily to determine the nature, timing, and extent of the:

Back 16

Substantive tests.

Front 17

An accountant's standard report on a compilation of a projection should not included:

Back 17

A statement that the accountant expresses only limited assurance that the results may be achieved.

Front 18

An examination of a financial forecast is a professional service that involves:

Back 18

Evaluating the preparation of a financial forecast and the support underlying management's assumptions.

Front 19

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

Back 19

Personal inquiry and observation.

Front 20

As the acceptable level of detection risk decreases, an auditor may:

Back 20

Postpone the planned timing of substantive tests from interim dates to the year-end.

Front 21

In a properly designed internal control system, the same employee most likely would match vendors' invoices with receiving reports and also:

Back 21

Recompute the calculations on vendors' invoices.

Front 22

Which of the following internal control activities most likely would prevent direct labor hours from being charged to manufacturing overhead?

Back 22

Use of time tickets to record actual labor worked on production orders.

Front 23

Hill, CPA, has been retained to audit the financial statements of Monday Co. Monday's predecessor auditor was Post, CPA, who has been notified by Monday that Post's services have been terminated. Under these circumstances, which party should initiate the communications between Hill and Post?

Back 23

Hill, the successor auditor

Front 24

In planning an audit of a new client, an auditor most likely would consider the methods used to process accounting information because such methods:

Back 24

Influence the design of internal control.

Front 25

Which of the following circumstances most likely would cause an auditor to consider whether material misstatements exist in an entity's financial statements?

Back 25

Transactions selected for testing are not supported by proper documentation.

Front 26

Which of the following is a step in an auditor's decision to assess control risk at below the maximum?

Back 26

Identify specific internal control policies and procedures that are likely to detect or prevent material misstatements.

Front 27

Upon receipt of customers' checks in the mailroom, a responsible employee should prepare a remittance listing that is forwarded to the cashier. A copy of the listing should be sent to the:

Back 27

Accounts receivable bookkeeper to update the subsidiary accounts receivable records.

Front 28

Which of the following procedures most likely would not be an internal control procedure designed to reduce the risk of errors in the billing process?

Back 28

Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger.

Front 29

Which of the following tests of controls most likely would help assure an auditor that goods shipped are properly billed?

Back 29

Examine shipping documents for matching sales invoices.

Front 30

The overall attitude and awareness of an entity's board of directors concerning the importance of the internal control structure usually is reflected in its:

Back 30

Control environment.

Front 31

Of the following which is the least persuasive type of audit evidence?

Back 31

Copies of sales invoices inspected by the auditor.

Front 32

The third standard of field work states that sufficient competent evidential matter is to be obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit. The substantive evidential matter required by this standard may be obtained, in part, through:

Back 32

Analytical procedures.

Front 33

Which of the following presumptions does not relate to the competence of audit evidence?

Back 33

An auditor's opinion, to be economically useful, is formed within reasonable time and based on evidence obtained at a reasonable cost.

Front 34

Which of the following procedures is least likely to be performed before the balance sheet date?

Back 34

Search for unrecorded liabilities.

Front 35

The primary objective of analytical procedures used in the final review stage of an audit is to:

Back 35

Assist the auditor in assessing the validity of the conclusions reached.

Front 36

Cooper, CPA, is auditing the financial statements of a small rural municipality. The receivable balances represent residents' delinquent real estate taxes. The internal control structure at the municipality is weak. To determine the existence of the accounts receivable balances at the balance sheet date, Cooper would most likely:

Back 36

Send positive confirmation requests.

Front 37

Auditors should request that an audit client send a letter of inquiry to those attorneys who have been consulted concerning litigation, claims, or assessments. The primary reason for this request is to provide:

Back 37

Corroborative evidential matter.

Front 38

Soon after Boyd's audit report was issued, Boyd learned of certain related party transactions that occurred during the year under audit. These transactions were not disclosed in the notes to the financial statements. Boyd should:

Back 38

Determine whether the lack of disclosure would affect the auditor's report.

Front 39

The scope of an audit is not restricted when an attorney's response to an auditor as a result of a client's letter of audit inquiry limits the response to:

Back 39

Matters to which the attorney has given substantive attention in the form of legal representation.

Front 40

If the objective of a test of details is to detect overstatements of sales, the auditor should trace transactions from the:

Back 40

Accounting records to the source documents.

Front 41

Which of the following types of audit evidence is the least persuasive?

Back 41

Prenumbered purchase order forms.

Front 42

Which of the following procedures would an auditor most likely perform to verify management's assertion of completeness?

Back 42

Compare a sample of shipping documents to related sales invoices.

Front 43

In using the work of a specialist, an understanding should exist among the auditor, the client, and the specialist as to the nature of the specialist's work. The documentation of this understanding should cover:

Back 43

The specialist's understanding of the auditor's corroborative use of the specialist's findings.

Front 44

Auditors try to identify predictable relationships when using analytical procedures. Relationships involving transactions from which of the following accounts most likely would yield the highest level of evidence?

Back 44

Interest expense.

Front 45

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

Back 45

Reasonable in the circumstances.

Front 46

Which of the following audit procedures is best for identifying unrecorded trade accounts payable?

Back 46

Reviewing cash disbursements recorded subsequent to the balance sheet date to determine whether the related payables apply to the prior period.

Front 47

Limitation on the scope of the auditor's examination may require the auditor to issue a qualified opinion or to disclaim an opinion. Which of the following would generally be a limitation on the scope of the auditor's examination?

Back 47

The unavailability of sufficient competent evidential matter.

Front 48

When, in the auditor's judgment, the financial statements are not presented fairly in conformity with generally accepted accounting principles, the auditor will issue a(n):

Back 48

Adverse opinion.

Front 49

In connection with the examination of the consolidated financial statements of Mott Industries, Frazier, CPA, plans to refer to another CPA's examination of the financial statements of a subsidiary company. Under these circumstances Frazier's report must disclose:

Back 49

The magnitude of the portion of the financial statements examined by the other CPA.

Front 50

When there is a significant change in accounting principle, an auditor's report should refer to the lack of consistency in:

Back 50

An explanatory paragraph following the opinion paragraph.

Front 51

Restrictions imposed by a client prohibit the observation of physical inventories, which account for 35% of all assets. Alternative audit procedures cannot be applied, although the auditor was able to examine satisfactory evidence for all other items in the financial statements. The auditor should issue a(an):

Back 51

Disclaimer of opinion.

Front 52

Which of the following bodies promulgates standards for audits of federal financial assistance recipients?

Back 52

General Accounting Office.

Front 53

When an accountant examines a financial forecast that fails to disclose several significant assumptions used to prepare the forecast, the accountant should describe the assumptions in the accountant's report and issue a(an):

Back 53

Adverse opinion.

Front 54

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:

Back 54

A system of quality control.

Front 55

One example of a "special report," as defined by Statements on Auditing Standards, is a report issued in connection with:

Back 55

Price-level basis financial statements.

Front 56

When a CPA is approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining:

Back 56

Whether the engagement should be accepted.

Front 57

To exercise due professional care an auditor should:

Back 57

Critically review the judgment exercised by those assisting in the audit.

Front 58

When the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the accounting department the:

Back 58

Debit memo.

Front 59

When obtaining an understanding of an entity's internal control procedures, an auditor should concentrate on the substance of the procedures rather than their form because:

Back 59

Management may establish appropriate procedures but not enforce compliance with them.

Front 60

Which of the following most likely would not be considered an inherent limitation of the potential effectiveness of an entity's internal control?

Back 60

Incompatible duties.

Front 61

Of the following which is the least persuasive type of audit evidence?

Back 61

Copies of sales invoices inspected by the auditor.

Front 62

In order to efficiently establish the correctness of the accounts payable cutoff, an auditor will be most likely to:

Back 62

Coordinate cutoff tests with physical inventory observation.

Front 63

Which of the following audit procedures would most likely assist an auditor in identifying conditions and events that may indicate there could be substantial doubt about an entity's ability to continue as a going concern?

Back 63

Review compliance with the terms of debt agreements.

Front 64

In pursuing a CPA firm's quality control objectives, a CPA firm may maintain records indicating which partners or employees of the CPA firm were previously employed by the CPA firm's clients. Which quality control objective would this be most likely to satisfy?

Back 64

Independence.

Front 65

For a large population of cash disbursement transactions, Smith, CPA, is testing compliance with internal control by using attribute sampling techniques. Anticipating an occurrence rate of 3% Smith found from a table that the required sample size is 400 with a desired upper precision limit of 5% and reliability of 95%. If Smith anticipated an occurrence rate of only 2% but wanted to maintain the same desired upper precision limit and reliability the sample size would be closest to:

Back 65

200.

Front 66

Tests of controls are performed in order to determine whether or not:

Back 66

Controls are functioning as designed.

Front 67

The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the:

Back 67

Timing of inventory observation procedures to be performed.

Front 68

Which of the following factors most likely would affect an auditor's judgment about the quantity, type, and content of the auditor's working papers?

Back 68

The assessed level of control risk.

Front 69

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

Back 69

Inquiring of the entity's legal counsel concerning litigation, claims, and assessments arising after year end.

Front 70

King, CPA, was engaged to audit the financial statements of Newton Company after its fiscal year had ended. King neither observed the inventory count nor confirmed the receivables by direct communication with debtors, but was satisfied concerning both after applying alternative procedures. King's auditor's report most likely contained a(an):

Back 70

Unqualified opinion.

Front 71

Which of the following controls most likely would help ensure that all credit sales transactions of an entity are recorded?

Back 71

The billing department supervisor matches prenumbered shipping documents with entries in the sales journal.

Front 72

Loeb, CPA, has completed preparation of the Bloto Company's unaudited financial statements and has prepared the following report to accompany them:

The accompanying balance sheet of the Bloto Company as of August 31, 2011, and the related statements of income, retained earnings, and cash flows for the year then ended were not audited by us and accordingly we do not express an opinion on them.

The financial statements fail to disclose that the debentures issued on July 15, 2007, limit the payment of cash dividends to the amount of earnings after August 31, 2009. The company's statements of income for the years 2010 and 2011, both of which are unaudited, show this amount to be $18,900. Generally accepted accounting principles require disclosure of matters of this nature.

Which of the following comments best describes the appropriateness of this report?

Back 72

The report is satisfactory.

Front 73

Morgan, CPA, is the principal auditor for a multinational corporation. Another CPA has examined and reported on the financial statements of a significant subsidiary of the corporation. Morgan is satisfied with the independence and professional reputation of the other auditor, as well as the quality of the other auditor's examination. With respect to Morgan's report on the financial statements, taken as a whole, Morgan:

Back 73

May refer to the examination of the other auditor.

Front 74

A principal auditor decides not to refer to the audit of another CPA who audited a subsidiary of the principal auditor's client. After making inquiries about the other CPA's professional reputation and independence, the principal auditor most likely would:

Back 74

Contact the other CPA and review the audit programs and working papers pertaining to the subsidiary.

Front 75

An auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing audited financial statements. If the auditor concludes that the financial statements do not require revision, but the client refuses to revise or eliminate the material inconsistency, the auditor may:

Back 75

Revise the auditor's report to include a separate explanatory paragraph describing the material inconsistency.

Front 76

A limitation on the scope of an auditor's examination sufficient to preclude an unqualified opinion will usually result when management:

Back 76

Does not make the minutes of the Board of Directors' meetings available to the auditor.

Front 77

When reporting on an entity's internal control structure under Government Auditing Standards, an auditor should issue a written report that includes a:

Back 77

Description of the scope of the auditor's work in obtaining an understanding of the internal control structure and in assessing control risk.

Front 78

Hill, CPA, is auditing the financial statements of Helping Hand, a not-for-profit organization that receives financial assistance from governmental agencies. To detect misstatements in Helping Hand's financial statements resulting from violations of laws and regulations, Hill should focus on violations that:

Back 78

Have a direct and material effect on the amounts in the organization's financial statements.

Front 79

In reporting on compliance with laws and regulations during a financial statement audit in accordance with Government Auditing Standards, an auditor should include in the auditor's report:

Back 79

Material instances of fraud and illegal acts that were discovered.

Front 80

Which of the following conditions is necessary for a practitioner to accept an attest engagement to examine and report on an entity's internal control structure over financial reporting?

Back 80

Management presents its written assertion about the effectiveness of the internal control structure.

Front 81

An auditor who was engaged to perform an examination of the financial statements of a nonpublic entity has been asked by the client to refrain from performing various audit procedures and change the nature of the engagement to a review of the financial statements in accordance with standards established by the AICPA. The client's request was made because the cost to complete the examination was significant. Under the circumstances the auditor would most likely:

Back 81

Honor the client's request.

Front 82

Baker, CPA, was engaged to review the financial statements of Hall Company, a nonpublic entity. Evidence came to Baker's attention that indicated substantial doubt as to Hall's ability to continue as a going concern. The principal conditions and events that caused the substantial doubt have been fully disclosed in the notes to Hall's financial statements. Which of the following statements best describes Baker's reporting responsibility concerning this matter?

Back 82

Baker is not required to modify the accountant's review report.

Front 83

Rainbow wants to use unrestricted random sampling without replacement in 2010. Compared to 2009, the population size of the raw-materials inventory is approximately the same, and the variability of the items in the inventory is approximately the same. Rainbow specifies the same precision but desires to change the specified reliability from 90% to 95%. Under these assumptions, the required sample size for 2010 should be:

Back 83

Larger than the 2009 sample size.

Front 84

The existence of audit risk is recognized by the statement in the auditor's standard report that the:

Back 84

Auditor obtains reasonable assurance about whether the financial statements are free of material misstatement.

Front 85

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?

Back 85

Stratify the cash disbursements population so that the unusually large disbursements are selected.

Front 86

To obtain evidence that user identification and password controls are functioning as designed, an auditor would most likely:

Back 86

Attempt to sign-on to the system using invalid user identifications and passwords.

Front 87

The independent auditor should acquire an understanding of a client's internal audit function to determine whether the work of internal auditors will be a factor in determining the nature, timing, and extent of the independent auditor's procedures. The work performed by internal auditors might be such a factor when the internal auditor's work includes:

Back 87

Study and evaluation of internal accounting control.