CPA Exam - AUD - Multiple Choice
1. Which of the following represents an appropriate overall response to an increase in
financial statement level risk?
a. Changing the general approach of the audit to ensure control testing of all significant
accounts.
b. Providing management with more specific details about audit sampling procedures.
c. Shifting substantive procedures to interim.
d. Increasing the level of supervision.: d. Increasing the level of supervision.
2. Using a combined approach with most likely involve:
a. Changing the timing of substantive tests by omitting interim-date testing and
performing the tests at year-end.
b. Reducing inherent risk for most of the assertions relevant to significant account
balances.
c. Identifying specific internal controls relevant to specific assertions.
d. Performing more extensive substantive tests with later sample sizes than originally
planned.: c. Identifying specific internal controls relevant to specific assertions.
3. Which of the following auditor concerns most likely would be so serious that the
auditor would conclude that a financial statement audit CANNOT be performed?
a. Management has imposed a restriction that the auditor believes will result in a
qualified opinion.
b. A portion of supporting evidence stored at an offsite storage facility was destroyed by
a hurricane.
c. The CPA lacks experience in the client's operations and industry.
d. There is substantial risk of management intentionally manipulating account-ing
records.: d. There is substantial risk of management intentionally manipulating accounting
records.
4. Before accepting a new client engagement, an auditor should:
a. Evaluate management's integrity through review of the management repre-sentation
letter.
b. Assess the auditor's ability to appropriately staff the potential engagement.
,c. Establish an understanding with the potential client as to a preliminary measure of
materiality.
d. Contact the predecessor auditor and arrange to review the audit files from the
previous year's audit.: b. Assess the auditor's ability to appropriately staff the potentia
engagement.
5. Which of the following statements is correct about an auditor's required
communication with those charged with governance?
a. The auditor should not communicate frequently recurring misstatements unless
they are material.
b. Any matters communicated to those charged with governance also are required to
be communicated to the entity's management.
c. Disagreements with management about the application of accounting prin-ciples
must be communicated in writing to those charged with governance.
d. The auditor is required to inform those charged with governance about sig-nificant
misstatements discovered by the auditor and subsequently corrected by management.:
d. The auditor is required to inform those charged with governance about significant
misstatements discovered by the auditor and subsequently corrected by management.
6. Which of the following items are included in the auditor's communication to those
charged with governance and in management's representation letter to the auditor?
I. The auditor's responsibility under generally accepted auditing standards. II.
Management's responsibility for fair presentation of the financial statements in
conformity with generally accepted accounting principles.
III. Uncorrected, nontrivial misstatements identified by the auditor.
Auditor's Comm. to Governance vs. Mgmt Rep Letter
a. I & III only vs. II & III only
b. I only vs. II only
c. I, II, & III vs. I & II only
d. I & II only vs. I, II, & III: a. I & III only vs. II & III only
7. U.S. GAAS do NOT require a written communication to those charged with governance
to include:
a. The adequacy of the financial statement disclosures.
b. An overview of the planned scope and timing of the audit.
c. Disagreements with management, whether resolved or not.
,d. Significant difficulties encountered in performing the audit.: b. An overview of the
planned scope and timing of the audit.
* may be in writing or orally communicated.
8. According to professional standards, audit documentation should:
a. Include a flowchart to show the design and implementation of internal control.
b. Show who performed the work and the date the work was completed.
c. Be prepared in enough detail so that a new staff auditor who has no previous
connection with the audit can understand the conclusions reached and any significant
judgments made to reach those conclusions.
d. Monitor the effectiveness of the CPA firm's quality control activities.: b. Show who
performed the work and the date the work was completed.
9. According to PCAOB standards, audit documentation must be retained for:
a. Three years.
b. Seven years.
c. One year.
d. Five years.: b. Seven years.
10. Audit documentation serves mainly to:
a. Document the level of independence maintained by the auditor.
b. Satisfy the auditor's responsibilities concerning the Code of Professional conduct.
c. Monitor the effectiveness of the CPA firm's quality control activities.
d. Provide the principal support for the auditor's report.: d. Provide the principal support
for the auditor's report.
11. According to generally accepted auditing standards, audit documentation for
nonissuers must be retained for:
a. One year.
b. Seven years.
c. Three years.
d. Five years.: d. Five years.
12. An auditor's engagement letter most likely would include a statement regarding:
a. The assessment of risk of material misstatement.
b. Billings to be paid in the form of stock of the entity.
, c. The advantage of statistical sampling.
d. The inherent limitations of an audit.: d. The inherent limitations of an audit.
13. What is the allowable form of the understanding with a client when an audit is being
performed?
a. Either an oral understanding or a written understanding is acceptable.
b. An oral understanding is acceptable as long as it is references in the audit
documentation.
c. No requirement exists that the auditor establish an understanding with the client.
d. The understanding should be documented through a written communica-tion with the
client.: d. The understanding should be documented through a written communication with
the client.
(an engagement letter)
14. With respect to planning an audit, which of the following statements is always TRUE?
a. An inventory count must be observed at year-end.
b. Final staffing decisions must be made prior to completion of the planning stage.
c. An engagement should not be accepted after the client's year-end.
d. It is acceptable to perform a portion of the audit of a continuing audit client at interim
dates.: d. It is acceptable to perform a portion of the audit of a continuing audit client at
interim dates.
15. A successor auditor's inquiries of the predecessor auditor should include questions
regarding:
a. The number of engagement personnel the predecessor assigned to the engagement.
b. Communications to management and those charged with governance re-garding
significant deficiencies in internal control.
c. The assessment of the objectivity of the client's internal audit function.
d. The response rate for confirmations of accounts receivable.: b. Communications to
management and those charged with governance regarding significant deficiencies in
internal control.
(and material weaknesses)
16. Jefferson, CPA, has identified five significant deficiencies in internal control during
the audit of Portico Industries, a nonissuer. Two of these conditions are considered to
1. Which of the following represents an appropriate overall response to an increase in
financial statement level risk?
a. Changing the general approach of the audit to ensure control testing of all significant
accounts.
b. Providing management with more specific details about audit sampling procedures.
c. Shifting substantive procedures to interim.
d. Increasing the level of supervision.: d. Increasing the level of supervision.
2. Using a combined approach with most likely involve:
a. Changing the timing of substantive tests by omitting interim-date testing and
performing the tests at year-end.
b. Reducing inherent risk for most of the assertions relevant to significant account
balances.
c. Identifying specific internal controls relevant to specific assertions.
d. Performing more extensive substantive tests with later sample sizes than originally
planned.: c. Identifying specific internal controls relevant to specific assertions.
3. Which of the following auditor concerns most likely would be so serious that the
auditor would conclude that a financial statement audit CANNOT be performed?
a. Management has imposed a restriction that the auditor believes will result in a
qualified opinion.
b. A portion of supporting evidence stored at an offsite storage facility was destroyed by
a hurricane.
c. The CPA lacks experience in the client's operations and industry.
d. There is substantial risk of management intentionally manipulating account-ing
records.: d. There is substantial risk of management intentionally manipulating accounting
records.
4. Before accepting a new client engagement, an auditor should:
a. Evaluate management's integrity through review of the management repre-sentation
letter.
b. Assess the auditor's ability to appropriately staff the potential engagement.
,c. Establish an understanding with the potential client as to a preliminary measure of
materiality.
d. Contact the predecessor auditor and arrange to review the audit files from the
previous year's audit.: b. Assess the auditor's ability to appropriately staff the potentia
engagement.
5. Which of the following statements is correct about an auditor's required
communication with those charged with governance?
a. The auditor should not communicate frequently recurring misstatements unless
they are material.
b. Any matters communicated to those charged with governance also are required to
be communicated to the entity's management.
c. Disagreements with management about the application of accounting prin-ciples
must be communicated in writing to those charged with governance.
d. The auditor is required to inform those charged with governance about sig-nificant
misstatements discovered by the auditor and subsequently corrected by management.:
d. The auditor is required to inform those charged with governance about significant
misstatements discovered by the auditor and subsequently corrected by management.
6. Which of the following items are included in the auditor's communication to those
charged with governance and in management's representation letter to the auditor?
I. The auditor's responsibility under generally accepted auditing standards. II.
Management's responsibility for fair presentation of the financial statements in
conformity with generally accepted accounting principles.
III. Uncorrected, nontrivial misstatements identified by the auditor.
Auditor's Comm. to Governance vs. Mgmt Rep Letter
a. I & III only vs. II & III only
b. I only vs. II only
c. I, II, & III vs. I & II only
d. I & II only vs. I, II, & III: a. I & III only vs. II & III only
7. U.S. GAAS do NOT require a written communication to those charged with governance
to include:
a. The adequacy of the financial statement disclosures.
b. An overview of the planned scope and timing of the audit.
c. Disagreements with management, whether resolved or not.
,d. Significant difficulties encountered in performing the audit.: b. An overview of the
planned scope and timing of the audit.
* may be in writing or orally communicated.
8. According to professional standards, audit documentation should:
a. Include a flowchart to show the design and implementation of internal control.
b. Show who performed the work and the date the work was completed.
c. Be prepared in enough detail so that a new staff auditor who has no previous
connection with the audit can understand the conclusions reached and any significant
judgments made to reach those conclusions.
d. Monitor the effectiveness of the CPA firm's quality control activities.: b. Show who
performed the work and the date the work was completed.
9. According to PCAOB standards, audit documentation must be retained for:
a. Three years.
b. Seven years.
c. One year.
d. Five years.: b. Seven years.
10. Audit documentation serves mainly to:
a. Document the level of independence maintained by the auditor.
b. Satisfy the auditor's responsibilities concerning the Code of Professional conduct.
c. Monitor the effectiveness of the CPA firm's quality control activities.
d. Provide the principal support for the auditor's report.: d. Provide the principal support
for the auditor's report.
11. According to generally accepted auditing standards, audit documentation for
nonissuers must be retained for:
a. One year.
b. Seven years.
c. Three years.
d. Five years.: d. Five years.
12. An auditor's engagement letter most likely would include a statement regarding:
a. The assessment of risk of material misstatement.
b. Billings to be paid in the form of stock of the entity.
, c. The advantage of statistical sampling.
d. The inherent limitations of an audit.: d. The inherent limitations of an audit.
13. What is the allowable form of the understanding with a client when an audit is being
performed?
a. Either an oral understanding or a written understanding is acceptable.
b. An oral understanding is acceptable as long as it is references in the audit
documentation.
c. No requirement exists that the auditor establish an understanding with the client.
d. The understanding should be documented through a written communica-tion with the
client.: d. The understanding should be documented through a written communication with
the client.
(an engagement letter)
14. With respect to planning an audit, which of the following statements is always TRUE?
a. An inventory count must be observed at year-end.
b. Final staffing decisions must be made prior to completion of the planning stage.
c. An engagement should not be accepted after the client's year-end.
d. It is acceptable to perform a portion of the audit of a continuing audit client at interim
dates.: d. It is acceptable to perform a portion of the audit of a continuing audit client at
interim dates.
15. A successor auditor's inquiries of the predecessor auditor should include questions
regarding:
a. The number of engagement personnel the predecessor assigned to the engagement.
b. Communications to management and those charged with governance re-garding
significant deficiencies in internal control.
c. The assessment of the objectivity of the client's internal audit function.
d. The response rate for confirmations of accounts receivable.: b. Communications to
management and those charged with governance regarding significant deficiencies in
internal control.
(and material weaknesses)
16. Jefferson, CPA, has identified five significant deficiencies in internal control during
the audit of Portico Industries, a nonissuer. Two of these conditions are considered to
