AICPA CPA-Auditing CPA Exam Practice Test Instant Access

Question 1

When control risk is assessed as low for assertions related to payroll, substantive tests of payroll balances most likely would be limited to applying analytical procedures and:

AObserving the distribution of paychecks.

BFooting and crossfooting the payroll register.

CInspecting payroll tax returns.

DRecalculating payroll accruals.

Answer : D

Choice 'd' is correct. If the control risk is assessed as low, less substantive testing is necessary. In such an instance, substantive testing would normally be limited to analytical procedures and recalculating yearend accruals.

Choice 'a' is incorrect. Observing distribution of paychecks is a test of controls, not a substantive test.

Choice 'b' is incorrect. Footing and crossfooting the payroll register is an important substantive test, but it is limited in its effectiveness. Even if control risk is assessed as low, more effective substantive procedures should be performed.

Choice 'c' is incorrect. Inspection of payroll tax returns is an extensive substantive test that would be performed if the control risk were assessed as high.

Question 2

Park, CPA, was engaged to audit the financial statements of Tech Co., a new client, for the year ended December 31, 20X3. Park obtained sufficient audit evidence for all of Tech's financial statement items except Tech's opening inventory. Due to inadequate financial records, Park could not verify Tech's January 1, 20X3, inventory balances. Park's opinion on Tech's 20X3 financial statements most likely will be:

AOption A

BOption B

COption C

DOption D

Answer : B

Choice 'b' is correct. When the auditor is unable to satisfy himself or herself regarding the amount of beginning inventory, he or she must disclaim an opinion on the income statement because of the inability to verify the cost of goods sold during the year. The auditor may, however, still be able to issue an unqualified opinion on the balance sheet, since inventory can be verified as of the balance sheet date.

Choices 'a', 'c', and 'd' are incorrect, based on the Explanation: above.

Question 3

Which of the following statements is a basic element of the auditor's standard report?

AThe disclosures provide reasonable assurance that the financial statements are free of material misstatement.

BThe auditor evaluated the overall internal control.

CAn audit includes assessing significant estimates made by management.

DThe financial statements are consistent with those of the prior period.

Answer : C

Choice 'c' is correct. The auditor's standard audit report includes a statement that 'An audit includes assessing...significant estimates made by management...'

Choice 'a' is incorrect. The standard audit report does not state that disclosures provide reasonable assurance that the financial statements are free of material misstatement. The correct statement is:

'...standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement.'

Choice 'b' is incorrect. The standard audit report does not state that the auditor evaluated the overall internal control. The correct statement is 'An audit includes...evaluating the overall financial statement presentation.' Internal control is not mentioned in the standard audit report.

Choice 'd' is incorrect. The standard audit report does not state 'The financial statements are consistent with those of the prior period.' According to the second standard of reporting, consistency is implicitly reported. Only if there is an inconsistency is an explicit statement included.

Question 4

Hannah, CPA, has been engaged to perform financial statement audits for three different clients. The first two clients, McCormick Surf Shop and Kleinpeter Technologies, are both nonissuers, while the third client, Bender Industries, is an issuer. Hannah is required to follow PCAOB standards in her audit of Bender Industries. She has also been asked to conduct the Kleinpeter audit in accordance with both generally accepted auditing standards and the auditing standards of the PCAOB. Regarding the McCormick engagement, Hannah has decided to follow only generally accepted auditing standards, and not the standards of the PCAOB. Which of the following best describes the scope of Hannah's work related to internal control in these three engagements?

AHannah must express an opinion on the effectiveness of internal control in all three engagements.

BHannah must express an opinion on the effectiveness of internal control in both the Bender and Kleinpeter engagements, but is not required to express such an opinion in the McCormick engagement.

CHannah must express an opinion on the effectiveness of internal control in the Bender engagement, but is not required to express such an opinion in the Kleinpeter and McCormick engagements.

DHannah is not required to express an opinion on the effectiveness of internal control in any of the three engagements, since she was hired to perform a financial statement audit and not to report on internal control.

Answer : C

Choice 'c' is correct. Be careful! While it is true that Hannah is following PCAOB standards in both the Bender and Kleinpeter engagements, PCAOB standards do not require expanded testing and reporting on internal control for nonissuers. Therefore, only in the Bender engagement would Hannah be required to express an opinion on the effectiveness of internal control.

Choice ''a'' is incorrect. Hannah is not required to express an opinion on internal control in either the Kleinpeter engagement (because PCAOB standards do not require such an opinion for financial statement audits of nonissuers) or the McCormick engagement (because generally accepted auditing standards do not require such an opinion for financial statement audits).

Choice ''b'' is incorrect. Hannah is not required to express an opinion on internal control in the Kleinpeter engagement because PCAOB standards do not require such an opinion for financial statement audits of nonissuers.

Choice ''d'' is incorrect. Hannah is required to express an opinion on internal control in the Bender engagement. PCAOB standards require the auditor to express such an opinion, in conjunction with financial statement audits of issuers.

Question 5

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

i. Noteworthy accomplishments of the program.

ii. The scope of the auditor's testing of internal controls.

AI only.

BII only.

CBoth I and II.

DNeither I nor II.

Answer : B

Choice 'b' is correct. When auditing an entity's financial statements in accordance with Government Auditing Standards, an auditor is required to report on the scope of the auditor's testing of internal control, but not on noteworthy accomplishments of the program.

Choices 'a', 'c', and 'd' are incorrect, based on the above Explanation: .

Question 6

Symbol B most likely represents:

ACustomer orders.

BReceiving reports.

CCustomer checks.

DSales invoices.

Answer : D

Choice 'd' is correct. The two documents most likely to be generated by the revenue cycle application are credit memos (already identified in the flowchart) and sales invoices.

Choice 'a' is incorrect. Customer orders are input at the beginning of the process, as noted in the flowchart. Customer orders are not generated by the company's revenue cycle.

Choice 'b' is incorrect. Receiving reports are part of the inventory/purchasing/cash disbursements cycle.

Choice 'c' is incorrect. Customer checks and remittances are entered into the application at the top of the flowchart. Customer checks are not an output of the revenue cycle.

Question 7

The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the:

AHuman resources function from the controllership function.

BAdministrative controls from the internal accounting controls.

CAuthorization of transactions from the custody of related assets.

DOperational responsibility from the recordkeeping responsibility.

Answer : C

Choice 'c' is correct. The purpose of segregating the duties of hiring personnel (personnel

department/human resources) and distributing payroll checks (treasurer's department) is to separate the authorization of transactions (hiring, pay rates, etC. are authorized by the personnel department/human resources) from the custody of related assets (cash or checks are held in the treasurer's department).

Choice 'a' is incorrect. Segregation of hiring personnel (human resources/personnel) from distribution of payroll checks (treasurer's department) does not involve the controllership function.

Choice 'b' is incorrect. Keeping administrative controls (management's directives) and accounting controls separate is not accomplished by segregating the hiring and distribution functions.

Choice 'd' is incorrect. Neither operational responsibility nor recordkeeping responsibility includes distributing checks or hiring personnel.

AICPA CPA-Auditing CPA Auditing and Attestation CPA Exam Practice Test