CPA PRACTICE EXAM QUESTIONS AND
ANSWERS WITH SOLUTIONS 2024
When a CPA examines a client's projected financial statements, the CPA's report should: - ANSWER state
that the CPA performed procedures to evaluate management's assumptions.
Davis, CPA, accepted an engagement to audit the financial statements of Tech Resources, a nonpublic
entity. Before the completion of the audit, Tech requested Davis to change the engagement to a
compilation of financial statements. Before Davis agrees to change the engagement, Davis is required to
consider the:
additional audit effort necessary to complete the audit.
reason given for Tech's request. - ANSWER Both I and II
The GAO standards list several threats to independence. The threat of familiarity is defined as: - ANSWER
when, due to a long or close relationship with management or other personnel, the auditor will be too
sympathetic or accepting of work.
Which of the following representations does an accountant make implicitly when issuing the standard
report for the compilation of a nonissuer's financial statements? - ANSWER The accountant is
independent with respect to the entity.
Heath Co.'s current ratio is 4:1. Which of the following transactions would normally increase its current
ratio? - ANSWER Selling inventory on account
According to the AICPA Code of Professional Conduct, what would a covered member most appropriately
do upon learning that another member of an attest engagement team is considering employment with
the client? - ANSWER Notify an appropriate person in the firm.
Which of the following factors most likely would assist an independent auditor in assessing the
objectivity of the internal auditor? - ANSWER The organizational status of the director of internal audit
If the business environment is experiencing a recession, the auditor most likely would focus increased
attention on which of the following accounts? - ANSWER Allowance for doubtful accounts
, An auditor is reporting on condensed financial statements for an annual period that are derived from the
audited financial statements of an issuer. The auditor's opinion should indicate whether the information
in the condensed financial statements is fairly stated in all material respects: - ANSWER in relation to the
complete financial statements.
An auditor observes the mailing of monthly statements to a client's customers and reviews evidence of
follow-up on errors reported by the customers. This test of controls most likely is performed to support
management's financial statement assertion of: - ANSWER existence.
North Co., a privately held entity, asked its tax accountant, King, a CPA in public practice, to review and
generate North's interim financial statements on King's microcomputer when King prepared North's
quarterly tax return. King should not submit these financial statements to North unless, as a minimum,
King complies with the provisions of: - ANSWER Statements on Standards for Accounting and Review
Services.
An auditor's report would be designated an audit of a special-purpose financial statement when it is
issued in connection with: - ANSWER a basis of accounting that the entity uses to comply with an
agreement between the entity and one or more third parties other than the auditor.
An auditor most likely would not rely on controls if the payroll department supervisor is responsible for: -
ANSWER authorizing payroll rate changes for all employees.
Which of the following levels would most likely address the risk of material misstatement by the
auditor's consideration of an entity's control environment? - ANSWER Financial statements
Which of the following would most likely be associated with obtaining an understanding of relevant
internal factors when satisfying the obligation to understand the entity and its environment on an audit?
- ANSWER Revenue recognition practices
Russell CPA is auditing contingent liabilities. What generally is the primary risk of material misstatement
related to related financial statement disclosures? - ANSWER Completeness
ANSWERS WITH SOLUTIONS 2024
When a CPA examines a client's projected financial statements, the CPA's report should: - ANSWER state
that the CPA performed procedures to evaluate management's assumptions.
Davis, CPA, accepted an engagement to audit the financial statements of Tech Resources, a nonpublic
entity. Before the completion of the audit, Tech requested Davis to change the engagement to a
compilation of financial statements. Before Davis agrees to change the engagement, Davis is required to
consider the:
additional audit effort necessary to complete the audit.
reason given for Tech's request. - ANSWER Both I and II
The GAO standards list several threats to independence. The threat of familiarity is defined as: - ANSWER
when, due to a long or close relationship with management or other personnel, the auditor will be too
sympathetic or accepting of work.
Which of the following representations does an accountant make implicitly when issuing the standard
report for the compilation of a nonissuer's financial statements? - ANSWER The accountant is
independent with respect to the entity.
Heath Co.'s current ratio is 4:1. Which of the following transactions would normally increase its current
ratio? - ANSWER Selling inventory on account
According to the AICPA Code of Professional Conduct, what would a covered member most appropriately
do upon learning that another member of an attest engagement team is considering employment with
the client? - ANSWER Notify an appropriate person in the firm.
Which of the following factors most likely would assist an independent auditor in assessing the
objectivity of the internal auditor? - ANSWER The organizational status of the director of internal audit
If the business environment is experiencing a recession, the auditor most likely would focus increased
attention on which of the following accounts? - ANSWER Allowance for doubtful accounts
, An auditor is reporting on condensed financial statements for an annual period that are derived from the
audited financial statements of an issuer. The auditor's opinion should indicate whether the information
in the condensed financial statements is fairly stated in all material respects: - ANSWER in relation to the
complete financial statements.
An auditor observes the mailing of monthly statements to a client's customers and reviews evidence of
follow-up on errors reported by the customers. This test of controls most likely is performed to support
management's financial statement assertion of: - ANSWER existence.
North Co., a privately held entity, asked its tax accountant, King, a CPA in public practice, to review and
generate North's interim financial statements on King's microcomputer when King prepared North's
quarterly tax return. King should not submit these financial statements to North unless, as a minimum,
King complies with the provisions of: - ANSWER Statements on Standards for Accounting and Review
Services.
An auditor's report would be designated an audit of a special-purpose financial statement when it is
issued in connection with: - ANSWER a basis of accounting that the entity uses to comply with an
agreement between the entity and one or more third parties other than the auditor.
An auditor most likely would not rely on controls if the payroll department supervisor is responsible for: -
ANSWER authorizing payroll rate changes for all employees.
Which of the following levels would most likely address the risk of material misstatement by the
auditor's consideration of an entity's control environment? - ANSWER Financial statements
Which of the following would most likely be associated with obtaining an understanding of relevant
internal factors when satisfying the obligation to understand the entity and its environment on an audit?
- ANSWER Revenue recognition practices
Russell CPA is auditing contingent liabilities. What generally is the primary risk of material misstatement
related to related financial statement disclosures? - ANSWER Completeness
