AICPA CPA-Auditing CPA Exam Questions Instant Access

Question 1

Which of the following procedures would an auditor least likely perform before the balance sheet date?

AConfirmation of accounts payable.

BObservation of merchandise inventory.

CAssessment of the risk of material misstatement.

DIdentification of related parties.
Explanation
Choice 'a' is correct. The auditor should consider whether the year-end balances of the particular asset or liability accounts that might be selected for interim examination are reasonably predictable with respect to amount, relative significance, and composition. Accounts payable is relatively difficult to predict because it may fluctuate at management's discretion.
Choice 'b' is incorrect. The auditor should consider whether the year-end balances of the particular asset or liability accounts that might be selected for interim examination are reasonably predictable with respect to amount, relative significance, and composition. Inventory is relatively predictable with respect to amount, composition and relative significance.
Choice 'c' is incorrect. During planning, the auditor is required to obtain an understanding of the entity and its environment, including its internal control, and to assess risk. Such preliminary planning is often conducted prior to the balance sheet date.
Choice 'd' is incorrect. Audit testing at interim dates may permit early consideration of significant matters affecting the year-end financial statements, such as the identification of related parties.
Supplemental Questions

Answer : A

Question 2

Which of the following procedures is more likely to be performed in a review engagement of a nonissuer than in a compilation engagement?

AGaining an understanding of the entity's business transactions.

BMaking a preliminary assessment of control risk.

CObtaining a representation letter from the chief executive officer.

DAssisting the entity in adjusting the accounting records.

Answer : C

Choice 'c' is correct. Obtaining a representation letter from the CEO is more likely to be performed in a review engagement of a nonissuer (where obtaining the letter is required) than in a compilation engagement.

Choice 'a' is incorrect. Gaining an understanding of the entity's business transactions would be performed in both a compilation and a review engagement.

Choice 'b' is incorrect. Making a preliminary assessment of control risk would only be performed in an audit, not in a compilation or review.

Choice 'd' is incorrect. Assisting the entity in adjusting (compiling) the accounting records is more likely to be performed in a compilation engagement than in a review.

Question 3

Tracing copies of computer-prepared sales invoices to copies of the corresponding computer-prepared shipping documents provides evidence that:

AShipments to customers were properly billed.

BEntries in the accounts receivable subsidiary ledger were for sales actually shipped.

CSales billed to customers were actually shipped.

DNo duplicate shipments to customers were made.

Answer : C

Choice 'c' is correct. Tracing from invoices to shipping documents would provide evidence that sales billed to customers were actually shipped. An invoice for which the corresponding shipping documents could not be located might be indicative of fictitious sales (i.e., sales that were recorded but never actually shipped).

Choice 'a' is incorrect. The auditor would need to start with shipping documents and trace to invoices to ensure that shipments were properly billed.

Choice 'b' is incorrect. An invoice may exist for which no entry was made in the accounts receivable subsidiary ledger. Therefore, the auditor would need to trace from entries in the accounts receivable subsidiary ledger (and not from invoices) to shipping documents, to obtain evidence that recorded receivables were for sales actually shipped.

Choice 'd' is incorrect. Tracing from invoices to shipping documents would not necessarily indicate when a duplicate shipment was made, as the auditor would not necessarily realize that two sets of shipping documents related to the same invoice.

Question 4

The auditor should obtain sufficient knowledge of the client's information and communication system relevant to financial reporting to understand all of the following, except:

AClasses of transactions in the entity's operations that are significant to the financial statements, and how those transactions are processed, from initiation to inclusion in the financial statements.

BThe financial reporting process, including development of significant accounting estimates and inclusion of appropriate disclosures.

CThe means the entity uses to communicate roles, responsibilities, and significant matters relating to financial reporting.

DControl activities related to each account balance, transaction class, and disclosure component in the financial statements or to every assertion relevant to them.
Explanation
Choice 'd' is correct. Ordinarily, audit planning does not require an understanding of the control activities related to each account balance, transaction class, and disclosure component in the FS or to every assertion relevant to them.
Choice 'a' is incorrect. The auditor is required to understand significant classes of transactions and how they are processed.
Choice 'b' is incorrect. The auditor is required to understand the financial reporting process.
Choice 'c' is incorrect. The auditor is required to understand the methods used by the entity to communicate matters relevant to financial reporting.

Answer : D

Question 5

Which of the following audit techniques most likely would provide an auditor with the most assurance about the effectiveness of the operation of internal control?

AConfirmation with outside parties.

BInquiry of client personnel.

CRecomputation of account balance amounts.

DObservation of client personnel.
Explanation
Choice 'd' is correct. Observation of client personnel is the audit technique most likely to provide an auditor with the most assurance about the effectiveness of the operation of an internal control. This technique is especially effective for controls that leave little or no audit trail.
Choice 'a' is incorrect. Confirmation with outside parties is a common substantive test (direct test of an account balance), not a procedure used to test controls.
Choice 'b' is incorrect. While inquiry of client personnel can provide some evidence about the effectiveness of the operation of internal control, the auditor's direct observation generally provides greater assurance than does inquiry.
Choice 'c' is incorrect. Recomputation of account balance amounts is a substantive test, not a test of controls.

Answer : D

Question 6

When unaudited financial statements of a nonissuer are presented in comparative form with audited financial statements in the subsequent year, the unaudited financial statements should be clearly marked to indicate their status and:

i. The report on the unaudited financial statements should be reissued.

ii. The report on the audited financial statements should include a separate paragraph describing the responsibility assumed for the unaudited financial statements.

AI only.

BII only.

CBoth I and II.

DEither I or II.

Answer : D

Choice 'd' is correct. When audited financial statements are presented in comparative form with unaudited financial statements from a prior year, the auditor should either reissue his or her report on the unaudited statements or include a separate paragraph in the current year report describing the responsibility assumed for the unaudited statements.

Choices 'a', 'b', and 'c' are incorrect, per above Explanation: .

Question 7

An auditor was unable to obtain audited financial statements or other evidence supporting an entity's investment in a foreign subsidiary. Between which of the following opinions should the entity's auditor choose?

AAdverse and unqualified with an explanatory paragraph added.

BDisclaimer and unqualified with an explanatory paragraph added.

CQualified and adverse.

DQualified and disclaimer.

Answer : D

Choice 'd' is correct. When an auditor is unable to obtain audited financial statements or other evidence supporting an entity's investment in a subsidiary (foreign or domestic), the auditor should issue a qualified or disclaimer of opinion depending on the materiality of the investment in the subsidiary.

Choices 'a', 'b', and 'c' are incorrect. An adverse opinion is only issued when the FS are not presented fairly in conformity with GAAP, and an unqualified opinion with an explanatory paragraph is not appropriate for a scope limitation.

AICPA CPA Auditing and Attestation CPA-Auditing CPA Exam Questions