AICPA CPA-Auditing CPA Exam Questions Instant Access

Question 1

In auditing accounts receivable, the negative form of confirmation request most likely would be used when:

AThe total recorded amount of accounts receivable is immaterial to the financial statements taken as a whole.

BResponse rates in prior years to properly designed positive confirmation requests were inadequate.

CRecipients are likely to return positive confirmation requests without verifying the accuracy of the information.

DThe combined assessed level of inherent risk and control risk relative to accounts receivable is low.

Answer : D

Choice 'd' is correct. Negative confirmations are most likely to be used when the assessed level of audit risk, including inherent and control risk, is low.

Choice 'a' is incorrect. If the total amount of accounts receivable is immaterial, the auditor is not likely to send any confirmations.

Choice 'b' is incorrect. If prior year response rates were low, negative confirmations would not be used since the auditor would be concerned that the negative confirmations would not receive adequate attention from the recipients.

Choice 'c' is incorrect. An auditor would need to feel comfortable that the confirmations would receive adequate attention from the recipients before deciding to send negative confirmations.

Question 2

An auditor vouched data for a sample of employees in a payroll register to approved clock card data to provide assurance that:

APayments to employees are computed at authorized rates.

BEmployees work the number of hours for which they are paid.

CSegregation of duties exists between the preparation and distribution of the payroll.

DInternal controls relating to unclaimed payroll checks are operating effectively.

Answer : B

Choice 'b' is correct. By vouching to time card data, the auditor is testing the existence assertion for hours worked.

Choice 'a' is incorrect. Vouching to approved time card data would provide evidence about hours worked, not pay rates. Pay rates would be tested by comparing to personnel records.

Choice 'c' is incorrect. Vouching to approved time cards does not provide evidence about segregation of duties.

Choice 'd' is incorrect. Vouching to the approved time cards does not provide evidence about internal controls related to unclaimed paychecks. The auditor would need to observe a payroll distribution to evaluate these controls.

Question 3

An auditor concludes that a client has committed an illegal act that has not been properly accounted for or disclosed. The auditor should withdraw from the engagement if the:

AAuditor is precluded from obtaining sufficient appropriate evidence about the illegal act.

BIllegal act has an effect on the financial statements that is both material and direct.

CAuditor cannot reasonably estimate the effect of the illegal act on the financial statements.

DClient refuses to accept the auditor's report as modified for the illegal act.
Explanation
Choice 'd' is correct. The auditor should withdraw from the engagement if the client refuses to accept the auditor's modified report.
Choice 'a' is incorrect. If the auditor is precluded from obtaining sufficient evidence, the auditor should consider disclaiming an opinion.
Choice 'b' is incorrect. The auditor must consider the effects of a direct material illegality on the financial statements and on other aspects of the audit, but need not withdraw from the engagement.
Choice 'c' is incorrect. If the auditor cannot estimate the effect of the illegal act on the financial statements, the auditor should consider disclaiming an opinion.

Answer : D

Question 4

A CPA firm evaluates its personnel advancement experience to ascertain whether individuals meeting stated criteria are assigned increased degrees of responsibility. This is evidence of the firm's adherence to which of the following prescribed standards:

AProfessional ethics.

BSupervision and review.

CAccounting and review services.

DQuality control.

Answer : D

Choice 'd' is correct. The AICPA's Statements on Quality Control Standards assert that professional development policies and procedures should be established by the firm in order to provide reasonable assurance that personnel will have the knowledge required to perform their work and progress within the firm.

Choice 'a' is incorrect. The auditors' responsibility is to the public and is defined in the 'AICPA Code of Professional Conduct,' which includes a set of mandatory rules and which derives its authority from the bylaws of the AICPA.

Choice 'b' is incorrect. Supervision and review are part of GAAS fieldwork standards.

Choice 'c' is incorrect. Accounting and review services pertain to the unaudited financial statements of a nonpublic company.

Question 5

Which of the following controls would an entity most likely use in safeguarding against the loss of marketable securities?

AAn independent trust company that has no direct contact with the employees who have recordkeeping responsibilities has possession of the securities.

BThe internal auditor verifies the marketable securities in the entity's safe each year on the balance sheet date.

CThe independent auditor traces all purchases and sales of marketable securities through the subsidiary ledgers to the general ledger.

DA designated member of the board of directors controls the securities in a bank safe-deposit box.

Answer : A

Choice 'a' is correct. The control most likely to be used by an entity in safeguarding against the loss of marketable securities is that an independent trust company that has no direct contact with the employees who have recordkeeping responsibilities, has possession of the securities. For good internal control over the safeguarding of any asset, the individual who has the recordkeeping responsibilities over that asset should never have access to it.

Choice 'b' is incorrect. Verifying the securities held in the entity's safe would detect that the loss occurred, but it would not prevent the loss.

Choice 'c' is incorrect. Tracing purchases and sales of marketable securities would verify that the transactions were properly recorded, but would not safeguard against loss.

Choice 'd' is incorrect. Having one person control the securities in a bank safe-deposit box is a weakness in internal control because that one person can steal the securities. A better system requires that at least two employees have joint control over the securities in a bank safe-deposit box.

Question 6

Which of the following procedures would most likely be included in a review engagement of a nonissuer?

APreparing a bank transfer schedule.

BInquiring about related party transactions.

CAssessing the internal control structure.

DPerforming cutoff tests on sales and purchases transactions.

Answer : B

Choice 'b' is correct. A review engagement is based on inquiry and analytical procedures. Inquiring about related party transactions is a procedure which would most likely be included in a review engagement of a nonpublic entity.

Choice 'a' is incorrect. Preparing a bank transfer schedule pertains to an audit engagement.

Choice 'c' is incorrect. Assessing the internal control structure pertains to an audit engagement.

Choice 'd' is incorrect. Performing cutoff tests on sales and purchases transactions pertains to an audit engagement.

Question 7

The third general standard states that due care is to be exercised in the performance of an audit. This standard is ordinarily interpreted to require:

AThorough review of the existing safeguards over access to assets and records.

BLimited review of the indications of employee fraud and illegal acts.

CObjective review of the adequacy of the technical training and proficiency of firm personnel.

DCritical review of the judgment exercised at every level of supervision.

Answer : D

Choice 'd' is correct. The third general standard of due care is ordinarily interpreted to require critical review of the judgment exercised at every level of supervision, and the judgment exercised by those assisting in the audit.

Choice 'a' is incorrect. The third general standard of due care does not require a thorough review of the existing safeguards over access to assets and records.

Choice 'b' is incorrect. The standard of due care does not specifically require a limited review of the indications of employee fraud and illegal acts.

Choice 'c' is incorrect. The standard of due care does not require a review of audit staff training and proficiency.

AICPA CPA Auditing and Attestation CPA-Auditing CPA Exam Questions