AICPA CPA-Auditing CPA Exam Questions Instant Access

Question 1

Before performing a review of a nonissuer's financial statements, an accountant should:

AComplete a series of inquiries concerning the entity's procedures for recording, classifying, and summarizing transactions.

BApply analytical procedures to provide limited assurance that no material modifications should be made to the financial statements.

CObtain a sufficient level of knowledge of the accounting principles and practices of the industry in which the entity operates.

DInquire whether management has omitted substantially all of the disclosures required by generally accepted accounting principles.

Answer : C

Choice 'c' is correct. Before performing a review of a nonissuer's financial statements, an accountant should obtain a sufficient level of knowledge of the accounting principles and practices of the industry in which the entity operates.

Choices 'a', 'b', and 'd' are incorrect. These are appropriate steps performed during the review, not prior to it.

Question 2

In assessing the competence and objectivity of an entity's internal auditor, an independent auditor least likely would consider information obtained from:

ADiscussions with management personnel.

BExternal quality reviews of the internal auditor's activities.

CPrevious experience with the internal auditor.

DThe results of analytical procedures.
Explanation
Choice 'd' is correct. Analytical procedures may be used to enhance the auditor's understanding of the client's business or to evaluate financial statement assertions, but generally would not be helpful in assessing the competence and objectivity of an entity's internal auditor.
Choice 'a' is incorrect. In assessing competence and objectivity, the auditor usually considers information obtained from discussions with management personnel.
Choice 'b' is incorrect. In assessing competence and objectivity, the auditor usually considers information obtained from external quality reviews of internal audit activities.
Choice 'c' is incorrect. In assessing competence and objectivity, the auditor usually considers information obtained from previous experience with the internal audit function.

Answer : D

Question 3

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:

AA statement of assurance that all controls over fraud and illegal acts were tested.

BMaterial instances of fraud and illegal acts that were discovered.

CThe materiality criteria used by the auditor in considering whether instances of noncompliance were significant.

DAn opinion on whether compliance with laws and regulations affected the entity's goals and objectives.

Answer : B

Choice 'b' is correct. Only material instances of fraud and illegal acts discovered need to be communicated in the auditor's report on compliance. If applicable, the report should state that other instances of noncompliance were communicated to management in a separate letter.

Choice 'a' is incorrect. The report would state that consideration of internal control over compliance would not necessarily disclose all significant deficiencies (reportable conditions). Not only would there be no assurance that all controls were tested, the auditor would assert the exact opposite.

Choice 'c' is incorrect. The auditor would not disclose the materiality criteria used in considering whether instances of noncompliance were significant.

Choice 'd' is incorrect. The auditor does not express an opinion on whether the compliance affected the entity's goals and objectives.

Question 4

While auditing the financial statements of a nonissuer, a CPA was requested to change the engagement to a review in accordance with Statements on Standards for Accounting and Review Services (SSARS) because of a scope limitation. If the CPA believes the client's request is reasonable, the CPA's review report should:

i. Refer to the scope limitation that caused the change.

ii. Describe the auditing procedures that have already been applied.

AI only.

BII only.

CBoth I and II.

DNeither I nor II.

Answer : D

Choice 'd' is correct. If the CPA believes the client's request is reasonable, he/she must comply with the standards for a review and issue an appropriate report. The report should not refer to the original engagement, to any auditing procedures performed, or to the scope limitation.

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

Reporting on Comparative Financial Statements

Question 5

Which of the following information discovered during an audit most likely would raise a question concerning possible illegal acts?

ARelated party transactions, although properly disclosed, were pervasive during the year.

BThe entity prepared several large checks payable to cash during the year.

CMaterial internal control weaknesses previously reported to management were not corrected.

DThe entity was a campaign contributor to several local political candidates during the year.
Explanation
Choice 'b' is correct. Information that may raise a question concerning possible illegal acts include unusually large payments made to:
* Cash
* Bearer
* Purchase cashiers checks
* Transfer funds to numbered accounts
Choice 'a' is incorrect. Related party transactions may provide an indication of fraud, particularly if not made in the ordinary course of business, but they are generally not indicative of illegal acts.
Choice 'c' is incorrect. Failure to correct material internal control weaknesses may represent a conscious decision by management to accept that degree of risk because of cost or other considerations.
Choice 'd' is incorrect. Contributions to local political candidates are legal and generally would not raise a question about possible illegal acts.

Answer : B

Question 6

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

ACompare a sample of shipping documents to related sales invoices.

BObserve the client's distribution of payroll checks.

CConfirm a sample of recorded receivables by direct communication with the debtors.

DReview standard bank confirmations for indications of kiting.

Answer : A

Choice 'a' is correct. In order to verify management's assertion of completeness, an auditor would most likely compare a sample of shipping documents to related sales invoices to determine that all goods shipped were properly included in sales.

Choice 'b' is incorrect. Observing the client's distribution of payroll checks would test management's assertion regarding existence of employees.

Choice 'c' is incorrect. Confirming a sample of recorded receivables by direct communication with the debtors (i.e., sending accounts receivable confirmations) would verify management's assertion of existence of the accounts receivable.

Choice 'd' is incorrect. Reviewing standard bank confirmations does not provide evidence of kiting.

Kiting involves interbank transfers, and bank confirmations only show year-end balances, not transfers between banks.

Question 7

Which of the following best describes the responsibility of the auditor to report significant deficiencies and material weaknesses in an attest engagement to examine the effectiveness of a nonissuer's internal control?

AThe auditor must communicate both significant deficiencies and material weaknesses.

BThe auditor must communicate material weaknesses, but need not disclose significant deficiencies.

CThe auditor must communicate significant deficiencies, but need not separately identify material weaknesses.

DNeither significant deficiencies nor material weaknesses are required to be communicated.

Answer : A

Choice 'a' is correct. In an attest engagement to examine the effectiveness of an entity's internal control, the auditor must communicate both significant deficiencies and material weaknesses to management and those charged with governance.

Choice 'b' is incorrect. The auditor is required to communicate significant deficiencies.

Choices 'c' and 'd' are incorrect. Both significant deficiencies and material weaknesses are required to be communicated to management and those charged with governance.

AICPA CPA Auditing and Attestation CPA-Auditing CPA Exam Questions