Auditing Practice Exam #3 UPDATED
ACTUAL Exam Questions and CORRECT
Answers
A practitioner's report on agreed-upon procedures should contain:
A. A statement that the practitioner conducted an examination of the subject matter.
B. A statement that the engagement was conducted in accordance with generally accepted
auditing standards established by the American Institute of Certified Public Accountants.
C. A description of procedures performed and related findings.
D. A disclaimer of opinion on the financial statements. - CORRECT ANSWER - C. A
description of procedures performed and related findings.
A practitioner's report on agreed-upon procedures should contain a description of procedures
performed and related findings.
Which of the following factors are included in an entity's control environment?
Participation of
those charged integrity & organ.
w/ gov ethical val. struct.
No Yes Yes
Yes Yes No
Yes Yes Yes
Yes No Yes - CORRECT ANSWER - C. Yes Yes Yes
,An accountant has been engaged by a nonissuer to compile financial statements that omit
substantially all disclosures required by GAAP. The accountant may comply with this request
provided that the omission is not intended to mislead users of the financial statements and:
A. The omission is clearly indicated in the compilation report.
B. The reason for omitting the disclosures is acknowledged in the notes to the financial
statements.
C. The compilation contains a restricted use paragraph.
D. An adverse opinion is rendered on the financial statements. - CORRECT ANSWER -
A. The omission is clearly indicated in the compilation report.
The accountant may compile financial statements that omit substantially all disclosures provided
that:
1. The accountant's report clearly indicates the omission by including a fourth paragraph
disclosing such omissions; and
2. To the accountant's knowledge, the omission is not intended to mislead any person who might
be expected to use the financial statements.
The Lawrence Center for the Performing Arts receives government financial assistance and is
subject to Government Auditing Standards. The auditor's responsibilities associated with this
engagement include all of the following, except:
A. Obtain an understanding of the effect of laws and regulations that have a direct and material
effect on the determination of financial statement amounts.
B. Assess whether management has identified laws and regulations that have a direct and
material effect on determination of amounts in the financial statements.
,C. Obtain sufficient evidences to form an opinion on internal control over compliance.
D. Communicate to management and the audit committee that an audit performed purely in
accordance with generally accepted auditing standards may not be sufficient if there are
additional regulatory requirements. - CORRECT ANSWER - C. Obtain sufficient
evidences to form an opinion on internal control over compliance.
Audits performed in accordance with Government Auditing Standards do not include expression
of an opinion on internal control over compliance. A GAAS compliance audit would include
accumulating sufficient evidence to form an opinion regarding compliance but not internal
control over compliance.
Which of the following is true about the term "judgmental misstatements?"
A. It includes both identified misstatements and an estimate of unidentified misstatements.
B. It refers to misstatements that have been specifically identified by the auditor.
C. It refers to the cumulative effect of misstatements from prior years on the current year's
financial statements.
D. It refers to misstatements due to differences arising from accounting estimates that the auditor
considers unreasonable or due to the inappropriate selection of accounting policies. - CORRECT
ANSWER - D. It refers to misstatements due to differences arising from accounting
estimates that the auditor considers unreasonable or due to the inappropriate selection of
accounting policies.
In which of the following situations would a CPA's independence be considered to be impaired?
I. The CPA obtains a fully collateralized automobile loan from a financial institution client.
, II. The CPA is in litigation with an audit client relating to billing for consulting services for
which the amount is immaterial.
A. I only.
B. Both I and II.
C. Neither I nor II.
D. II only. - CORRECT ANSWER - C. Neither I nor II.
Independence is not impaired by a fully collateralized automobile loan with a financial
institution client. Independence is not impaired by litigation with an audit client if the dollar
amount is immaterial and unrelated to the audit work.
In establishing the existence and ownership of a long-term investment in the form of publicly
traded stock, an auditor should inspect the securities or:
A. Inspect the audited financial statements of the investee company.
B. Determine that the investment is carried at the lower of cost or market.
C. Correspond with the investee company to verify the number of shares owned.
D. Confirm the number of shares owned that are held by an independent custodian. - CORRECT
ANSWER - D. Confirm the number of shares owned that are held by an independent
custodian.
Confirmation of the number of shares owned that are held by an independent custodian on behalf
of the client is an effective means of testing existence and ownership.
ACTUAL Exam Questions and CORRECT
Answers
A practitioner's report on agreed-upon procedures should contain:
A. A statement that the practitioner conducted an examination of the subject matter.
B. A statement that the engagement was conducted in accordance with generally accepted
auditing standards established by the American Institute of Certified Public Accountants.
C. A description of procedures performed and related findings.
D. A disclaimer of opinion on the financial statements. - CORRECT ANSWER - C. A
description of procedures performed and related findings.
A practitioner's report on agreed-upon procedures should contain a description of procedures
performed and related findings.
Which of the following factors are included in an entity's control environment?
Participation of
those charged integrity & organ.
w/ gov ethical val. struct.
No Yes Yes
Yes Yes No
Yes Yes Yes
Yes No Yes - CORRECT ANSWER - C. Yes Yes Yes
,An accountant has been engaged by a nonissuer to compile financial statements that omit
substantially all disclosures required by GAAP. The accountant may comply with this request
provided that the omission is not intended to mislead users of the financial statements and:
A. The omission is clearly indicated in the compilation report.
B. The reason for omitting the disclosures is acknowledged in the notes to the financial
statements.
C. The compilation contains a restricted use paragraph.
D. An adverse opinion is rendered on the financial statements. - CORRECT ANSWER -
A. The omission is clearly indicated in the compilation report.
The accountant may compile financial statements that omit substantially all disclosures provided
that:
1. The accountant's report clearly indicates the omission by including a fourth paragraph
disclosing such omissions; and
2. To the accountant's knowledge, the omission is not intended to mislead any person who might
be expected to use the financial statements.
The Lawrence Center for the Performing Arts receives government financial assistance and is
subject to Government Auditing Standards. The auditor's responsibilities associated with this
engagement include all of the following, except:
A. Obtain an understanding of the effect of laws and regulations that have a direct and material
effect on the determination of financial statement amounts.
B. Assess whether management has identified laws and regulations that have a direct and
material effect on determination of amounts in the financial statements.
,C. Obtain sufficient evidences to form an opinion on internal control over compliance.
D. Communicate to management and the audit committee that an audit performed purely in
accordance with generally accepted auditing standards may not be sufficient if there are
additional regulatory requirements. - CORRECT ANSWER - C. Obtain sufficient
evidences to form an opinion on internal control over compliance.
Audits performed in accordance with Government Auditing Standards do not include expression
of an opinion on internal control over compliance. A GAAS compliance audit would include
accumulating sufficient evidence to form an opinion regarding compliance but not internal
control over compliance.
Which of the following is true about the term "judgmental misstatements?"
A. It includes both identified misstatements and an estimate of unidentified misstatements.
B. It refers to misstatements that have been specifically identified by the auditor.
C. It refers to the cumulative effect of misstatements from prior years on the current year's
financial statements.
D. It refers to misstatements due to differences arising from accounting estimates that the auditor
considers unreasonable or due to the inappropriate selection of accounting policies. - CORRECT
ANSWER - D. It refers to misstatements due to differences arising from accounting
estimates that the auditor considers unreasonable or due to the inappropriate selection of
accounting policies.
In which of the following situations would a CPA's independence be considered to be impaired?
I. The CPA obtains a fully collateralized automobile loan from a financial institution client.
, II. The CPA is in litigation with an audit client relating to billing for consulting services for
which the amount is immaterial.
A. I only.
B. Both I and II.
C. Neither I nor II.
D. II only. - CORRECT ANSWER - C. Neither I nor II.
Independence is not impaired by a fully collateralized automobile loan with a financial
institution client. Independence is not impaired by litigation with an audit client if the dollar
amount is immaterial and unrelated to the audit work.
In establishing the existence and ownership of a long-term investment in the form of publicly
traded stock, an auditor should inspect the securities or:
A. Inspect the audited financial statements of the investee company.
B. Determine that the investment is carried at the lower of cost or market.
C. Correspond with the investee company to verify the number of shares owned.
D. Confirm the number of shares owned that are held by an independent custodian. - CORRECT
ANSWER - D. Confirm the number of shares owned that are held by an independent
custodian.
Confirmation of the number of shares owned that are held by an independent custodian on behalf
of the client is an effective means of testing existence and ownership.
