AUD - PRACTICE TESTS QUESTIONS & ANSWERS
Which of the following is a primary purpose of audit documentation? - Answers -To
support the audit was performed in accordance with GAAS.
Which of the following audit procedures probably would provide the most reliable
evidence concerning the entity's assertion of rights and obligations related to
inventories? - Answers -Inspecting agreements to determine whether any inventory is
pledged as collateral or subject to liens. These documents will probably verify
ownership and show lender's restrictions on the inventories.
What is the most likely course of action that an auditor would take after determining that
performing substantive tests on inventory will take less time than performing test of
controls? - Answers -Perform only substantive tests on inventory. There is no other
reason to test controls, the auditor would not be likely to test controls.
For the most effective internal control, monthly bank statements should be received
directly from the banks and reviewed by the: - Answers -Internal auditor as they're
generally independent of other functions relating to cash.
When using confirmations to provide evidence about the completeness assertion for
accounts payable, the appropriate population most likely would be: - Answers -Vendors
with whom the entity has previously done business.
Inventory turnover equals cost of goods sold divided by average inventory. Beginning
inventory ($6,000) plus purchases ($24,000) less ending inventory equals cost of goods
sold ($18,000). Thus, ending inventory equals $12,000 and inventory turnover =
$18,000 / [($6,000 + $12,000) / 2] = 2.0. - Answers -2.0 times.
Which of the following would not be considered an attest engagement subject to
attestation standards? - Answers -Attest engagements covered under Statements on
Standards for Attestation Engagements (SSAE) specifically exclude services performed
in accordance with Statements on Standards for Accounting and Review Services
(SSARS). Since a review of a nonpublic company's financial statements is conducted
under SSARS, it is not subject to attestation standards.
During an engagement to prepare financial statements, an accountant was precluded
by management from including a statement on each page of the financial statements
indicating that no assurance is provided. Which of the following actions would be
appropriate? - Answers -If management will not allow a statement to be included on
each page of the financial statements indicating that no assurance is provided, it would
be appropriate for the accountant to issue a disclaimer making it clear that no
assurance is provided. The accountant could also choose to instead perform a
compilation engagement or withdraw from the engagement altogether.
, An auditor determined materiality for planning purposes before year-end based on a
nonissuer entity's prior year financial statements. During the audit, the auditor learns the
actual financial results are significantly different from those of the prior year because of
a merger. The auditor's most appropriate response would be to: - Answers -Revise
materiality for the financial statements as a whole.
When materiality levels are assessed based upon estimated or preliminary results and
those results differ significantly from actual amounts, it is appropriate for the auditor to
revise the assessment of established materiality levels.
In an audit of an issuer's financial statements, the auditor determined that there was
substantial doubt the issuer's ability to continue as a going concern for a reasonable
period of time. If there was no other significant audit findings, which of the following
indicates the proper form of the audit report that should be issued? - Answers -For
issuers, an explanatory paragraph is required to be included in the auditor's report when
there is substantial doubt about the entity's ability to continue as a going concern. In the
absence of no other significant audit findings or scope limitations, an unqualified opinion
with an explanatory paragraph would be appropriate.
If a U.S. auditor is reporting on financial statements of a nonissuer prepared in
accordance with a financial reporting framework generally accepted in another country
and intended for use only outside the U.S., then the auditor: - Answers -Should report
using either a U.S. form of report or the report form and content of the other country as
long as the requirements for that report have been met.
From which of the following populations most likely would a sample be drawn by an
auditor who is confirming accounts receivable as of June 30? - Answers -Accounts
receivable detail listing as of June 30.
Which of the following accounts would an auditor most likely test prior to the balance
sheet date? - Answers -Maintenance and repairs expense.
Maintenance and repairs expense is a component of the statement of income and the
amount reported includes the transactions that took place during the full period of the
financial statements. Therefore, an auditor would likely begin testing transactions prior
to the balance sheet date. An auditor is required, however, to determine whether
sufficient procedures have been performed to extend any interim conclusions to year-
end.
If an audit firm determines that a quality control review is required, but it has not yet
been performed, what should an audit engagement partner do? - Answers -Refrain
from issuing the audit report until after the quality control review has been completed.
Government auditing standards require: - Answers -A written report on internal control
in every audit.
Which of the following is a primary purpose of audit documentation? - Answers -To
support the audit was performed in accordance with GAAS.
Which of the following audit procedures probably would provide the most reliable
evidence concerning the entity's assertion of rights and obligations related to
inventories? - Answers -Inspecting agreements to determine whether any inventory is
pledged as collateral or subject to liens. These documents will probably verify
ownership and show lender's restrictions on the inventories.
What is the most likely course of action that an auditor would take after determining that
performing substantive tests on inventory will take less time than performing test of
controls? - Answers -Perform only substantive tests on inventory. There is no other
reason to test controls, the auditor would not be likely to test controls.
For the most effective internal control, monthly bank statements should be received
directly from the banks and reviewed by the: - Answers -Internal auditor as they're
generally independent of other functions relating to cash.
When using confirmations to provide evidence about the completeness assertion for
accounts payable, the appropriate population most likely would be: - Answers -Vendors
with whom the entity has previously done business.
Inventory turnover equals cost of goods sold divided by average inventory. Beginning
inventory ($6,000) plus purchases ($24,000) less ending inventory equals cost of goods
sold ($18,000). Thus, ending inventory equals $12,000 and inventory turnover =
$18,000 / [($6,000 + $12,000) / 2] = 2.0. - Answers -2.0 times.
Which of the following would not be considered an attest engagement subject to
attestation standards? - Answers -Attest engagements covered under Statements on
Standards for Attestation Engagements (SSAE) specifically exclude services performed
in accordance with Statements on Standards for Accounting and Review Services
(SSARS). Since a review of a nonpublic company's financial statements is conducted
under SSARS, it is not subject to attestation standards.
During an engagement to prepare financial statements, an accountant was precluded
by management from including a statement on each page of the financial statements
indicating that no assurance is provided. Which of the following actions would be
appropriate? - Answers -If management will not allow a statement to be included on
each page of the financial statements indicating that no assurance is provided, it would
be appropriate for the accountant to issue a disclaimer making it clear that no
assurance is provided. The accountant could also choose to instead perform a
compilation engagement or withdraw from the engagement altogether.
, An auditor determined materiality for planning purposes before year-end based on a
nonissuer entity's prior year financial statements. During the audit, the auditor learns the
actual financial results are significantly different from those of the prior year because of
a merger. The auditor's most appropriate response would be to: - Answers -Revise
materiality for the financial statements as a whole.
When materiality levels are assessed based upon estimated or preliminary results and
those results differ significantly from actual amounts, it is appropriate for the auditor to
revise the assessment of established materiality levels.
In an audit of an issuer's financial statements, the auditor determined that there was
substantial doubt the issuer's ability to continue as a going concern for a reasonable
period of time. If there was no other significant audit findings, which of the following
indicates the proper form of the audit report that should be issued? - Answers -For
issuers, an explanatory paragraph is required to be included in the auditor's report when
there is substantial doubt about the entity's ability to continue as a going concern. In the
absence of no other significant audit findings or scope limitations, an unqualified opinion
with an explanatory paragraph would be appropriate.
If a U.S. auditor is reporting on financial statements of a nonissuer prepared in
accordance with a financial reporting framework generally accepted in another country
and intended for use only outside the U.S., then the auditor: - Answers -Should report
using either a U.S. form of report or the report form and content of the other country as
long as the requirements for that report have been met.
From which of the following populations most likely would a sample be drawn by an
auditor who is confirming accounts receivable as of June 30? - Answers -Accounts
receivable detail listing as of June 30.
Which of the following accounts would an auditor most likely test prior to the balance
sheet date? - Answers -Maintenance and repairs expense.
Maintenance and repairs expense is a component of the statement of income and the
amount reported includes the transactions that took place during the full period of the
financial statements. Therefore, an auditor would likely begin testing transactions prior
to the balance sheet date. An auditor is required, however, to determine whether
sufficient procedures have been performed to extend any interim conclusions to year-
end.
If an audit firm determines that a quality control review is required, but it has not yet
been performed, what should an audit engagement partner do? - Answers -Refrain
from issuing the audit report until after the quality control review has been completed.
Government auditing standards require: - Answers -A written report on internal control
in every audit.
