Gleim's CPA Test Prep
Auditing
[1]
Which of the following is required documentation in an audit in accordance with generally accepted
auditing standards?
A. A flowchart or narrative of the accounting system describing the recording and classification of
transactions for financial reporting.
B. An audit program setting forth in detail the procedures necessary to accomplish the engagement's
objectives.
C. A planning memorandum establishing the timing of the audit procedures and coordinating the
assistance of entity personnel.
D. An internal control questionnaire identifying policies and procedures that assure specific
objectives will be achieved.
• Answer (A) is incorrect because the auditor should document the understanding of internal
control, but a flowchart or narrative of the information system for financial reporting is just one
method. For example, the auditor may use a questionnaire to document the understanding.
• Answer (B) is correct. According to AU 311, in planning the audit, the auditor should consider the
nature, extent, and timing of the work to be performed and should prepare a written audit program
(or a set of written audit programs) for every audit. The audit program sets forth in reasonable
detail the specific audit procedures the auditor believes are necessary to accomplish the audit
objectives.
• Answer (C) is incorrect because the auditor may request and receive assistance from entity
personnel, but a planning memorandum establishing the timing is not required under GAAS.
• Answer (D) is incorrect because the auditor should document the understanding of internal
control, but a questionnaire is only one method of accomplishing this objective. For example,
flowcharts and narratives are other methods.
[2]
Audit programs should be designed so that
A. Most of the required procedures can be performed as interim work.
B. Inherent risk is assessed at a sufficiently low level.
C. The auditor can make constructive suggestions to management.
D. The audit evidence gathered supports the auditor's conclusions.
• Answer (A) is incorrect because, depending on the assertion, work may be performed at interim
dates or in the subsequent events period.
• Answer (B) is incorrect because the auditor must assess inherent risk based upon the
characteristics of the client.
• Answer (C) is incorrect because suggestions to management are not required in an audit.
• Answer (D) is correct. The auditor is responsible for collecting sufficient, competent evidential
matter. Audit programs describe the steps involved in that process. The evidence should support
the auditor's conclusions.
[3]
, In designing written audit programs, an auditor should establish specific audit objectives that relate
primarily to the
A. Timing of audit procedures.
B. Cost-benefit of gathering evidence.
C. Selected audit techniques.
D. Financial statement assertions.
• Answer (A) is incorrect because timing is important in meeting the objectives of the audit but does
not relate to the audit objectives themselves.
• Answer (B) is incorrect because the cost-benefit of gathering evidence is important to the auditor
but is not the primary objective.
• Answer (C) is incorrect because audit objectives determine the specific audit techniques.
• Answer (D) is correct. Most audit work consists of obtaining and evaluating evidence about
financial statement assertions, which are management representations embodied in financial
statement components. AU 326 states, "In obtaining evidential matter in support of financial
statement assertions, the auditor develops specific audit objectives in light of those assertions."
[4]
In comparison with the detailed audit program of the independent auditor who is engaged to audit
the financial statements of a large publicly held company, the audit client's comprehensive internal
audit program is
A. More detailed and covers areas that normally are not considered by the independent auditor.
B. More detailed although it covers fewer areas than are normally covered by the independent
auditor.
C. Substantially identical to the audit program used by the independent auditor because both consider
substantially identical areas.
D. Less detailed and covers fewer areas than are normally considered by the independent auditor.
• Answer (A) is correct. The independent auditor's objective is limited to expressing an opinion on
the fairness of the financial statements. The internal auditor's work is more comprehensive
because (s)he must evaluate and help to improve the effectiveness of the organization's risk
management, control, and governance processes. Thus, an internal auditor's scope of work extends
to the reliability and integrity of operational as well as financial information; the effectiveness and
efficiency of operations; the safeguarding of assets; and compliance with laws, regulations, and
contracts.
• Answer (B) is incorrect because the internal audit program covers more areas than that of the
independent auditor.
• Answer (C) is incorrect because the internal audit program is more detailed and covers more areas.
• Answer (D) is incorrect because the internal audit program is more detailed and covers more
areas.
[5]
Which of the following is the authoritative body designated to promulgate attestation standards?
A. Auditing Standards Board.
, B. Governmental Accounting Standards Board.
C. Financial Accounting Standards Board.
D. General Accounting Office.
• Answer (A) is correct. Statements on Standards for Attestation Engagements are issued by the
Auditing Standards Board, the Accounting and Review Services Committee, and the Management
Consulting Services Executive Committee. The Council of the AICPA granted these bodies, which
also promulgate SASs, SSARSs, and SSCSs, respectively, the authority to interpret Conduct Rules
201 and 202. The SSAEs are issued pursuant to that authority.
• Answer (B) is incorrect because the GASB issues accounting and reporting standards for local and
state governments.
• Answer (C) is incorrect because the FASB establishes GAAP.
• Answer (D) is incorrect because the GAO issues government auditing standards.
[6]
Which of the following is a conceptual difference between the attestation standards and generally
accepted auditing standards?
A. The attestation standards provide a framework for the attest function beyond historical financial
statements.
B. The requirement that the practitioner be independent in mental attitude is omitted from the
attestation standards.
C. The attestation standards do not permit an attest engagement to be part of a business acquisition
study or a feasibility study.
D. None of the standards of field work in generally accepted auditing standards are included in the
attestation standards.
• Answer (A) is correct. Two principal conceptual differences exist between the attestation
standards and GAAS. First, the attestation standards provide a framework for the attest function
beyond historical financial statements. Second, the attestation standards accommodate the growing
number of attest services in which the practitioner expresses assurance below the level that is
expressed for the traditional audit (an opinion).
• Answer (B) is incorrect because, in any attest engagement, the practitioner must be independent in
mental attitude.
• Answer (C) is incorrect because attestation services may be provided in conjunction with other
services provided to clients.
• Answer (D) is incorrect because the attestation standards and GAAS require that work be
adequately planned and that assistants be properly supervised. Both also require sufficient
evidence.
[7]
In performing an attest engagement, a CPA typically
A. Supplies litigation support services.
B. Assesses control risk at a low level.
C. Expresses a conclusion about a written assertion.
, D. Provides management consulting advice.
• Answer (A) is incorrect because litigation support services are consulting services.
• Answer (B) is incorrect because the CPA assesses control risk in an audit but not necessarily in all
attest engagements. Furthermore, the assessment may not be at a low level.
• Answer (C) is correct. When a CPA in the practice of public accounting performs an attest
engagement, the engagement is subject to the attestation standards. An attest engagement is one in
which a practitioner is engaged to issue or does issue an examination, a review, or an agreed-upon
procedures report on subject matter, or an assertion about the subject matter, that is the
responsibility of another party. Moreover, according to the second attestation standard of
reporting, "The report shall state the practitioner's conclusion about the subject matter or the
assertion in relation to the criteria against which the subject matter was evaluated." However, the
conclusion may refer to that assertion or to the subject matter to which the assertion relates.
Furthermore, given one or more material deviations from the criteria, the practitioner should
modify the report and ordinarily should express the conclusion directly on the subject matter.
• Answer (D) is incorrect because an attest engagement results in a report on subject matter or on an
assertion about the subject matter.
[8]
Which of the following professional services would be considered an attest engagement?
A. A consulting service engagement to provide computer advice to a client.
B. An engagement to report on compliance with statutory requirements.
C. An income tax engagement to prepare federal and state tax returns.
D. The compilation of financial statements from a client's accounting records.
• Answer (A) is incorrect because the attestation standards explicitly do not apply to consulting
services in which the practitioner provides advice or recommendations to a client.
• Answer (B) is correct. Attest services have traditionally been limited to expressing an opinion on
historical financial statements on the basis of an audit in accordance with GAAS. But CPAs
increasingly provide assurance on representations other than historical statements and in forms
other than an opinion. Thus, attest services may extend to engagements related to management's
compliance with specified requirements or the effectiveness of internal control over compliance.
• Answer (C) is incorrect because tax return preparation is not an attest service according to the
attestation standards.
• Answer (D) is incorrect because a compilation of a financial statement is not an attest service
according to the attestation standards.
[9]
Which of the following is not an attestation standard?
A. Sufficient evidence shall be obtained to provide a reasonable basis for the conclusion that is
expressed in the report.
B. The report shall identify the subject matter or the assertion being reported on and state the
character of the engagement.
C. The work shall be adequately planned and assistants, if any, shall be properly supervised.
D. A sufficient understanding of internal control shall be obtained to plan the engagement.
Auditing
[1]
Which of the following is required documentation in an audit in accordance with generally accepted
auditing standards?
A. A flowchart or narrative of the accounting system describing the recording and classification of
transactions for financial reporting.
B. An audit program setting forth in detail the procedures necessary to accomplish the engagement's
objectives.
C. A planning memorandum establishing the timing of the audit procedures and coordinating the
assistance of entity personnel.
D. An internal control questionnaire identifying policies and procedures that assure specific
objectives will be achieved.
• Answer (A) is incorrect because the auditor should document the understanding of internal
control, but a flowchart or narrative of the information system for financial reporting is just one
method. For example, the auditor may use a questionnaire to document the understanding.
• Answer (B) is correct. According to AU 311, in planning the audit, the auditor should consider the
nature, extent, and timing of the work to be performed and should prepare a written audit program
(or a set of written audit programs) for every audit. The audit program sets forth in reasonable
detail the specific audit procedures the auditor believes are necessary to accomplish the audit
objectives.
• Answer (C) is incorrect because the auditor may request and receive assistance from entity
personnel, but a planning memorandum establishing the timing is not required under GAAS.
• Answer (D) is incorrect because the auditor should document the understanding of internal
control, but a questionnaire is only one method of accomplishing this objective. For example,
flowcharts and narratives are other methods.
[2]
Audit programs should be designed so that
A. Most of the required procedures can be performed as interim work.
B. Inherent risk is assessed at a sufficiently low level.
C. The auditor can make constructive suggestions to management.
D. The audit evidence gathered supports the auditor's conclusions.
• Answer (A) is incorrect because, depending on the assertion, work may be performed at interim
dates or in the subsequent events period.
• Answer (B) is incorrect because the auditor must assess inherent risk based upon the
characteristics of the client.
• Answer (C) is incorrect because suggestions to management are not required in an audit.
• Answer (D) is correct. The auditor is responsible for collecting sufficient, competent evidential
matter. Audit programs describe the steps involved in that process. The evidence should support
the auditor's conclusions.
[3]
, In designing written audit programs, an auditor should establish specific audit objectives that relate
primarily to the
A. Timing of audit procedures.
B. Cost-benefit of gathering evidence.
C. Selected audit techniques.
D. Financial statement assertions.
• Answer (A) is incorrect because timing is important in meeting the objectives of the audit but does
not relate to the audit objectives themselves.
• Answer (B) is incorrect because the cost-benefit of gathering evidence is important to the auditor
but is not the primary objective.
• Answer (C) is incorrect because audit objectives determine the specific audit techniques.
• Answer (D) is correct. Most audit work consists of obtaining and evaluating evidence about
financial statement assertions, which are management representations embodied in financial
statement components. AU 326 states, "In obtaining evidential matter in support of financial
statement assertions, the auditor develops specific audit objectives in light of those assertions."
[4]
In comparison with the detailed audit program of the independent auditor who is engaged to audit
the financial statements of a large publicly held company, the audit client's comprehensive internal
audit program is
A. More detailed and covers areas that normally are not considered by the independent auditor.
B. More detailed although it covers fewer areas than are normally covered by the independent
auditor.
C. Substantially identical to the audit program used by the independent auditor because both consider
substantially identical areas.
D. Less detailed and covers fewer areas than are normally considered by the independent auditor.
• Answer (A) is correct. The independent auditor's objective is limited to expressing an opinion on
the fairness of the financial statements. The internal auditor's work is more comprehensive
because (s)he must evaluate and help to improve the effectiveness of the organization's risk
management, control, and governance processes. Thus, an internal auditor's scope of work extends
to the reliability and integrity of operational as well as financial information; the effectiveness and
efficiency of operations; the safeguarding of assets; and compliance with laws, regulations, and
contracts.
• Answer (B) is incorrect because the internal audit program covers more areas than that of the
independent auditor.
• Answer (C) is incorrect because the internal audit program is more detailed and covers more areas.
• Answer (D) is incorrect because the internal audit program is more detailed and covers more
areas.
[5]
Which of the following is the authoritative body designated to promulgate attestation standards?
A. Auditing Standards Board.
, B. Governmental Accounting Standards Board.
C. Financial Accounting Standards Board.
D. General Accounting Office.
• Answer (A) is correct. Statements on Standards for Attestation Engagements are issued by the
Auditing Standards Board, the Accounting and Review Services Committee, and the Management
Consulting Services Executive Committee. The Council of the AICPA granted these bodies, which
also promulgate SASs, SSARSs, and SSCSs, respectively, the authority to interpret Conduct Rules
201 and 202. The SSAEs are issued pursuant to that authority.
• Answer (B) is incorrect because the GASB issues accounting and reporting standards for local and
state governments.
• Answer (C) is incorrect because the FASB establishes GAAP.
• Answer (D) is incorrect because the GAO issues government auditing standards.
[6]
Which of the following is a conceptual difference between the attestation standards and generally
accepted auditing standards?
A. The attestation standards provide a framework for the attest function beyond historical financial
statements.
B. The requirement that the practitioner be independent in mental attitude is omitted from the
attestation standards.
C. The attestation standards do not permit an attest engagement to be part of a business acquisition
study or a feasibility study.
D. None of the standards of field work in generally accepted auditing standards are included in the
attestation standards.
• Answer (A) is correct. Two principal conceptual differences exist between the attestation
standards and GAAS. First, the attestation standards provide a framework for the attest function
beyond historical financial statements. Second, the attestation standards accommodate the growing
number of attest services in which the practitioner expresses assurance below the level that is
expressed for the traditional audit (an opinion).
• Answer (B) is incorrect because, in any attest engagement, the practitioner must be independent in
mental attitude.
• Answer (C) is incorrect because attestation services may be provided in conjunction with other
services provided to clients.
• Answer (D) is incorrect because the attestation standards and GAAS require that work be
adequately planned and that assistants be properly supervised. Both also require sufficient
evidence.
[7]
In performing an attest engagement, a CPA typically
A. Supplies litigation support services.
B. Assesses control risk at a low level.
C. Expresses a conclusion about a written assertion.
, D. Provides management consulting advice.
• Answer (A) is incorrect because litigation support services are consulting services.
• Answer (B) is incorrect because the CPA assesses control risk in an audit but not necessarily in all
attest engagements. Furthermore, the assessment may not be at a low level.
• Answer (C) is correct. When a CPA in the practice of public accounting performs an attest
engagement, the engagement is subject to the attestation standards. An attest engagement is one in
which a practitioner is engaged to issue or does issue an examination, a review, or an agreed-upon
procedures report on subject matter, or an assertion about the subject matter, that is the
responsibility of another party. Moreover, according to the second attestation standard of
reporting, "The report shall state the practitioner's conclusion about the subject matter or the
assertion in relation to the criteria against which the subject matter was evaluated." However, the
conclusion may refer to that assertion or to the subject matter to which the assertion relates.
Furthermore, given one or more material deviations from the criteria, the practitioner should
modify the report and ordinarily should express the conclusion directly on the subject matter.
• Answer (D) is incorrect because an attest engagement results in a report on subject matter or on an
assertion about the subject matter.
[8]
Which of the following professional services would be considered an attest engagement?
A. A consulting service engagement to provide computer advice to a client.
B. An engagement to report on compliance with statutory requirements.
C. An income tax engagement to prepare federal and state tax returns.
D. The compilation of financial statements from a client's accounting records.
• Answer (A) is incorrect because the attestation standards explicitly do not apply to consulting
services in which the practitioner provides advice or recommendations to a client.
• Answer (B) is correct. Attest services have traditionally been limited to expressing an opinion on
historical financial statements on the basis of an audit in accordance with GAAS. But CPAs
increasingly provide assurance on representations other than historical statements and in forms
other than an opinion. Thus, attest services may extend to engagements related to management's
compliance with specified requirements or the effectiveness of internal control over compliance.
• Answer (C) is incorrect because tax return preparation is not an attest service according to the
attestation standards.
• Answer (D) is incorrect because a compilation of a financial statement is not an attest service
according to the attestation standards.
[9]
Which of the following is not an attestation standard?
A. Sufficient evidence shall be obtained to provide a reasonable basis for the conclusion that is
expressed in the report.
B. The report shall identify the subject matter or the assertion being reported on and state the
character of the engagement.
C. The work shall be adequately planned and assistants, if any, shall be properly supervised.
D. A sufficient understanding of internal control shall be obtained to plan the engagement.
