[CPA (CERTIFIED PUBLIC ACCOUNTANT)] –
QUESTIONS AND ANSWERS | VERIFIED AND
WELL DETAILED ANSWERS PLUS RATIONALES
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1. An accountant is compiled financial statements for a nonpublic entity and
notices that a material modification is required for the statements to conform
with GAAP. If the client refuses to revise the financial statements, what is the
accountant's most appropriate course of action under SSARS guidelines?
A. Issue an adverse audit opinion.
B. Withdraw from the engagement entirely.
C. Modify the compilation report to describe the departure.
D. Express qualified assurance in the compilation report.
CORRECT ANSWER: C. Modify the compilation report to describe the departure.
RATIONALE: Under Statements on Standards for Accounting and Review Services
(SSARS), if an accountant discovers a material GAAP departure during a
compilation and the client refuses to amend it, the accountant should disclose
the nature and effect of the departure in a separate paragraph of the compilation
report. If the accountant believes a modification is insufficient to address the
issue, withdrawal becomes necessary, but modification is the initial standard
baseline step. Compilations provide no assurance, so expressions like "adverse
audit opinion" or "qualified assurance" are structurally inappropriate.
2. Alpha Corporation purchased a specialized delivery truck on January 1 for
$60,000. The truck has an estimated salvage value of $6,000 and a useful life of
5 years. Using the double-declining balance method, what is the depreciation
expense for the second year of operation?
A. $10,800
B. $14,400
C. $21,600
D. $24,000
, CORRECT ANSWER: B. $14,400
RATIONALE: The straight-line rate is years = 20%. The double-declining
balance rate is twice that amount, or 40%. Under this method, residual/salvage
value is ignored during initial calculations. Year 1 depreciation is $60,000 x 40%
= $24,000. The net book value heading into Year 2 is $60,000 - $24,000 =
$36,000. Year 2 depreciation expense is calculated as $36,000 x 40% = $14,400.
3. During an audit of a manufacturing firm, an auditor performs a structural
analytical procedure that compares total recorded repair and maintenance
expenses across different production quarters. This testing mechanism is
primarily designed to address which of the following balance sheet assertions?
A. Completeness of liabilities
B. Existence of plant assets
C. Valuation and allocation of machinery
D. Classification of capital versus expense items
CORRECT ANSWER: D. Classification of capital versus expense items
RATIONALE: Reviewing repairs and maintenance expenditures via analytical
procedures or detail testing targets the risk that capitalizable assets were
erroneously expensed, or vice versa. This is a direct test of the classification and
presentation assertion, confirming that expenditures are appropriately assigned
under GAAP capitalization frameworks rather than understating fixed assets.
4. A CPA is approached by an audit client to provide investment advisory
services on a contingent fee basis, where the CPA's compensation is directly
tied to the quarterly performance of the client's stock portfolio. According to
the AICPA Code of Professional Conduct, this arrangement is:
A. Permissible if disclosed in writing to the audit committee.
B. Permissible if the CPA's advisory division operates as a distinct legal
subsidiary.
C. Prohibited because contingent fees impair independence for attest clients.
D. Prohibited unless the fee structure is determined by a judicial proceeding or
public authority.
CORRECT ANSWER: C. Prohibited because contingent fees impair independence
for attest clients.
QUESTIONS AND ANSWERS | VERIFIED AND
WELL DETAILED ANSWERS PLUS RATIONALES
| GUARANTEED PASS | LATEST EXAM UPDATE |
EXAM PREP | STUDY GUIDE | PRACTICE TEST|
DOWNLOAD INSTANT PDF
1. An accountant is compiled financial statements for a nonpublic entity and
notices that a material modification is required for the statements to conform
with GAAP. If the client refuses to revise the financial statements, what is the
accountant's most appropriate course of action under SSARS guidelines?
A. Issue an adverse audit opinion.
B. Withdraw from the engagement entirely.
C. Modify the compilation report to describe the departure.
D. Express qualified assurance in the compilation report.
CORRECT ANSWER: C. Modify the compilation report to describe the departure.
RATIONALE: Under Statements on Standards for Accounting and Review Services
(SSARS), if an accountant discovers a material GAAP departure during a
compilation and the client refuses to amend it, the accountant should disclose
the nature and effect of the departure in a separate paragraph of the compilation
report. If the accountant believes a modification is insufficient to address the
issue, withdrawal becomes necessary, but modification is the initial standard
baseline step. Compilations provide no assurance, so expressions like "adverse
audit opinion" or "qualified assurance" are structurally inappropriate.
2. Alpha Corporation purchased a specialized delivery truck on January 1 for
$60,000. The truck has an estimated salvage value of $6,000 and a useful life of
5 years. Using the double-declining balance method, what is the depreciation
expense for the second year of operation?
A. $10,800
B. $14,400
C. $21,600
D. $24,000
, CORRECT ANSWER: B. $14,400
RATIONALE: The straight-line rate is years = 20%. The double-declining
balance rate is twice that amount, or 40%. Under this method, residual/salvage
value is ignored during initial calculations. Year 1 depreciation is $60,000 x 40%
= $24,000. The net book value heading into Year 2 is $60,000 - $24,000 =
$36,000. Year 2 depreciation expense is calculated as $36,000 x 40% = $14,400.
3. During an audit of a manufacturing firm, an auditor performs a structural
analytical procedure that compares total recorded repair and maintenance
expenses across different production quarters. This testing mechanism is
primarily designed to address which of the following balance sheet assertions?
A. Completeness of liabilities
B. Existence of plant assets
C. Valuation and allocation of machinery
D. Classification of capital versus expense items
CORRECT ANSWER: D. Classification of capital versus expense items
RATIONALE: Reviewing repairs and maintenance expenditures via analytical
procedures or detail testing targets the risk that capitalizable assets were
erroneously expensed, or vice versa. This is a direct test of the classification and
presentation assertion, confirming that expenditures are appropriately assigned
under GAAP capitalization frameworks rather than understating fixed assets.
4. A CPA is approached by an audit client to provide investment advisory
services on a contingent fee basis, where the CPA's compensation is directly
tied to the quarterly performance of the client's stock portfolio. According to
the AICPA Code of Professional Conduct, this arrangement is:
A. Permissible if disclosed in writing to the audit committee.
B. Permissible if the CPA's advisory division operates as a distinct legal
subsidiary.
C. Prohibited because contingent fees impair independence for attest clients.
D. Prohibited unless the fee structure is determined by a judicial proceeding or
public authority.
CORRECT ANSWER: C. Prohibited because contingent fees impair independence
for attest clients.
