ESTUDYR
GLEIM’S CPA TEST PREP AUDITING COMPLETE 100
QUESTIONS AND CORRECT DETAILED ANSWERS
A review of a nonpublic company's financial statements is considered:
A. An audit engagement only
B. An attest engagement only
C. An assurance engagement AND an attest engagement
D. A compilation engagement
Rationale: Professional standards classify a review as both an attest engagement (report on subject
matter) and an assurance engagement (provides limited assurance).
Which service is most directly designed to improve the quality of information for decision makers?
A. Tax preparation
B. Bookkeeping
C. Assurance services
D. Consulting on operations
Rationale: Assurance services (per Elliott Committee) are independent services that improve
information quality or context for decision makers.
The objective of a review of the financial statements of a nonissuer is to provide:
A. Absolute assurance
B. Reasonable assurance
C. No assurance
D. Limited (negative) assurance
Rationale: Reviews provide limited (negative) assurance, less than an audit.
In a review of interim financial information, the auditor’s work consists primarily of:
A. Full substantive testing of transactions
B. Issuing a comfort letter
C. Inquiries and analytical procedures on significant accounting matters
D. Performing inventory counts
Rationale: Reviews rely mainly on inquiries and analytical procedures.
Which activity would most likely be considered an attestation engagement?
A. Preparing tax returns
B. Bookkeeping services
C. Issuing a report on a firm's compliance with laws and regulations
D. Management consulting
Rationale: Attestation includes issuing independent reports on subject matter, e.g., compliance.
Which underlies the application of GAAS, especially fieldwork/reporting standards?
A. Sampling methods only
,ESTUDYR
B. Professional skepticism only
C. Materiality and audit risk
D. Quality control
Rationale: Materiality and audit risk are foundational to audit planning and reporting.
International Standards on Auditing are issued by:
A. AICPA
B. IAASB of IFAC
C. PCAOB
D. SEC
Rationale: IAASB (a board within IFAC) issues ISA.
Which AICPA standard did PCAOB not adopt as interim standards?
A. Auditing standards for issuers
B. Quality control standards
C. Accounting and Review Services Standards
D. Independence standards
Rationale: ARS apply only to nonissuers, so PCAOB did not adopt them for public companies.
Which is most accurate about IAASB and IFAC?
A. IFAC is a board within IAASB
B. They are independent and unrelated
C. IAASB is a board within IFAC
D. IAASB regulates PCAOB
Rationale: IAASB is the standard-setting board within the IFAC structure.
PCAOB authority related to public companies includes establishing:
A. Tax rules only
B. Attestation and independence standards
C. Corporate governance law
D. GAAP
Rationale: PCAOB sets auditing, attestation, independence, and quality control standards for issuers.
Auditor independence is impaired if the auditor has:
A. A small immaterial loan from client
B. A personal friendship with client CFO
C. A joint, closely held business investment with the client that is material to auditor’s net worth
D. A non-material mutual fund holding of client stock
Rationale: Joint material investments with the client impair independence.
Under ethical standards, which is an indirect financial interest?
A. Direct stock ownership in client
B. Investment held through a regulated mutual fund
C. Loan from the client
, ESTUDYR
D. Managerial position at client
Rationale: Mutual fund holdings are indirect interests (provided client not dominant in fund).
When is a CPA firm independent with respect to an audit client?
A. Partner directly owns client stock
B. Employee spouse is CFO of client
C. Professional employee on engagement has a spouse employed as a salesperson by the client
D. CPA sits on client's board of directors while auditing
Rationale: Spouse employed as salesperson is generally acceptable if not in a key position.
According to AICPA Code, when may a CPA serve on a company's board?
A. If the CPA audits the company and holds no other connections
B. If the CPA does not audit the company and has no other business connection
C. If the CPA is the CFO as well
D. Under no circumstances
Rationale: Serving on the board while auditing would impair independence; non-audited firms may
allow board service.
Responsibility of a successor auditor regarding predecessor communication:
A. No contact needed
B. Contact predecessor without client permission
C. Obtain the prospective client’s permission to contact the predecessor
D. Accept the engagement immediately without checks
Rationale: Successor must seek client permission before contacting predecessor auditor.
Which is NOT an element of quality control for a CPA firm?
A. Relevant ethical requirements
B. Acceptance and continuance of clients
C. Monitoring
D. Professional skepticism
Rationale: Professional skepticism is an auditor mindset, not one of the firm-level quality control
elements.
Which factor would likely lead a CPA to decline an audit engagement?
A. Client in a regulated industry
B. Insufficient appropriate evidence available to support an opinion
C. New accounting system implemented
D. Complex transactions present
Rationale: Lack of sufficient appropriate evidence negates the purpose of an audit.
Which factor would cause a CPA to decline a new audit engagement?
A. Client has a complicated structure
B. Client uses a related-party transaction policy
C. Management unwilling to permit inquiry of its legal counsel
GLEIM’S CPA TEST PREP AUDITING COMPLETE 100
QUESTIONS AND CORRECT DETAILED ANSWERS
A review of a nonpublic company's financial statements is considered:
A. An audit engagement only
B. An attest engagement only
C. An assurance engagement AND an attest engagement
D. A compilation engagement
Rationale: Professional standards classify a review as both an attest engagement (report on subject
matter) and an assurance engagement (provides limited assurance).
Which service is most directly designed to improve the quality of information for decision makers?
A. Tax preparation
B. Bookkeeping
C. Assurance services
D. Consulting on operations
Rationale: Assurance services (per Elliott Committee) are independent services that improve
information quality or context for decision makers.
The objective of a review of the financial statements of a nonissuer is to provide:
A. Absolute assurance
B. Reasonable assurance
C. No assurance
D. Limited (negative) assurance
Rationale: Reviews provide limited (negative) assurance, less than an audit.
In a review of interim financial information, the auditor’s work consists primarily of:
A. Full substantive testing of transactions
B. Issuing a comfort letter
C. Inquiries and analytical procedures on significant accounting matters
D. Performing inventory counts
Rationale: Reviews rely mainly on inquiries and analytical procedures.
Which activity would most likely be considered an attestation engagement?
A. Preparing tax returns
B. Bookkeeping services
C. Issuing a report on a firm's compliance with laws and regulations
D. Management consulting
Rationale: Attestation includes issuing independent reports on subject matter, e.g., compliance.
Which underlies the application of GAAS, especially fieldwork/reporting standards?
A. Sampling methods only
,ESTUDYR
B. Professional skepticism only
C. Materiality and audit risk
D. Quality control
Rationale: Materiality and audit risk are foundational to audit planning and reporting.
International Standards on Auditing are issued by:
A. AICPA
B. IAASB of IFAC
C. PCAOB
D. SEC
Rationale: IAASB (a board within IFAC) issues ISA.
Which AICPA standard did PCAOB not adopt as interim standards?
A. Auditing standards for issuers
B. Quality control standards
C. Accounting and Review Services Standards
D. Independence standards
Rationale: ARS apply only to nonissuers, so PCAOB did not adopt them for public companies.
Which is most accurate about IAASB and IFAC?
A. IFAC is a board within IAASB
B. They are independent and unrelated
C. IAASB is a board within IFAC
D. IAASB regulates PCAOB
Rationale: IAASB is the standard-setting board within the IFAC structure.
PCAOB authority related to public companies includes establishing:
A. Tax rules only
B. Attestation and independence standards
C. Corporate governance law
D. GAAP
Rationale: PCAOB sets auditing, attestation, independence, and quality control standards for issuers.
Auditor independence is impaired if the auditor has:
A. A small immaterial loan from client
B. A personal friendship with client CFO
C. A joint, closely held business investment with the client that is material to auditor’s net worth
D. A non-material mutual fund holding of client stock
Rationale: Joint material investments with the client impair independence.
Under ethical standards, which is an indirect financial interest?
A. Direct stock ownership in client
B. Investment held through a regulated mutual fund
C. Loan from the client
, ESTUDYR
D. Managerial position at client
Rationale: Mutual fund holdings are indirect interests (provided client not dominant in fund).
When is a CPA firm independent with respect to an audit client?
A. Partner directly owns client stock
B. Employee spouse is CFO of client
C. Professional employee on engagement has a spouse employed as a salesperson by the client
D. CPA sits on client's board of directors while auditing
Rationale: Spouse employed as salesperson is generally acceptable if not in a key position.
According to AICPA Code, when may a CPA serve on a company's board?
A. If the CPA audits the company and holds no other connections
B. If the CPA does not audit the company and has no other business connection
C. If the CPA is the CFO as well
D. Under no circumstances
Rationale: Serving on the board while auditing would impair independence; non-audited firms may
allow board service.
Responsibility of a successor auditor regarding predecessor communication:
A. No contact needed
B. Contact predecessor without client permission
C. Obtain the prospective client’s permission to contact the predecessor
D. Accept the engagement immediately without checks
Rationale: Successor must seek client permission before contacting predecessor auditor.
Which is NOT an element of quality control for a CPA firm?
A. Relevant ethical requirements
B. Acceptance and continuance of clients
C. Monitoring
D. Professional skepticism
Rationale: Professional skepticism is an auditor mindset, not one of the firm-level quality control
elements.
Which factor would likely lead a CPA to decline an audit engagement?
A. Client in a regulated industry
B. Insufficient appropriate evidence available to support an opinion
C. New accounting system implemented
D. Complex transactions present
Rationale: Lack of sufficient appropriate evidence negates the purpose of an audit.
Which factor would cause a CPA to decline a new audit engagement?
A. Client has a complicated structure
B. Client uses a related-party transaction policy
C. Management unwilling to permit inquiry of its legal counsel
