,
,2016 Wiley
®
CPAexcel
EXAM REVIEW
STUDY GUIDE
JANUARY 2016
AUDITING AND ATTESTATION
O. Ray Whittington, CPA, PhD
,Cover Design: John Wiley & Sons, Inc.
Cover image: © iStockphoto/turtleteeth
The following items, copyright © by the American Institute of Certified Public Accountants, Inc., are reprinted with permission:
1. Material from Uniform CPA Examination Questions and Answers, 1978 through 2014.
2. Information for Uniform CPA Examination Candidates, Board of Examiners, 2013.
Material from the Certified Internal Auditor Examination, Copyright © 1994 through 1997 by the Institute of Internal Auditors, Inc., are
reprinted and/or adapted with permission.
Material from the Certified Management Accountant Examinations, Copyright © 1993 through 1997 by the Institute of Certified
Management Accountants, are reprinted and/or adapted with permission.
Material adapted, with permission, from Writing for Accountants, Aletha Hendrickson, South-Western Publishing Co., 1993.
Copyright © 2016 by John Wiley & Sons, Inc. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic,
mechanical, photocopying, recording, scanning or otherwise, except as permitted under Section 107 or 108 of the 1976 United States
Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-
copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600, or on the
Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John
Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, or online at http://www.wiley.com/go/
permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they
make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically
disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by
sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You
should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other
commercial damages, including but not limited to special, incidental, consequential, or other damages.
For general information on our other products and services or for technical support, please contact our Customer Care Department
within the US at 800-762-2974, outside the US at 317-572-3993 or fax 317-572-4002.
Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic
books. For more information about Wiley products, visit our website at www.wiley.com
ISBN 978-1-119-11996-8 (paperback); 978-1-119-25659-5 (ebk); 978-1-119-25660-1 (ebk)
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
,CONTENTS
Preface v
About the Author vi
About the Contributor vi
INTRODUCTION 1
Chapter 1: Beginning Your CPA Review Program 3
Chapter 2: Examination Grading 17
Chapter 3: Solutions Approach 19
Chapter 4: Taking the Examination 27
Chapter 5: Exam Content Overview 31
AUDITING AND ATTESTATION 39
Module 1: Professional Responsibilities 41
Module 2: Engagement Planning, Obtaining an Understanding of the
Client and Assessing Risks 99
Module 3: Understanding Internal Control and Assessing Control Risk 161
Module 4: Responding to Risk Assessment: Evidence Accumulation
and Evaluation 229
Module 5: Reporting 315
Module 6: Accounting and Review Services 413
Module 7: Audit Sampling 447
Module 8: Auditing with Technology 487
Module 41: Information Technology (Supplement) 505
APPENDICES 537
Appendix A: Outlines of Professional Standards 539
Appendix B: Auditing and Attestation Sample Examination 671
Appendix C: Sample Auditing and Attestation Testlet Released
by AICPA 699
Appendix D: 2015 Released AICPA Questions for Auditing
and Attestation 705
INDEX 725
iii
,
,PREFACE
Passing the CPA exam upon your first attempt is possible! The
Wiley CPAexcel® Exam Review 2016 Study Guide January: Auditing
and Attestation preparation materials provide you with the necessary
materials (visit our website at www.wiley.com/cpa for more informa-
tion). It’s up to you to add the hard work and commitment. Together
we can beat the pass rate on each section of about 50%. All Wiley
CPAexcel® products are continuously updated to provide you with
the most comprehensive and complete knowledge base. Choose your
products from the Wiley preparation materials and you can proceed
confidently. You can select support materials that are exam-based
and user-friendly. You can select products that will help you pass!
Remaining current is one of the keys to examination
success. Here is a list of what’s new in this edition of the
Wiley CPAexcel® Exam Review 2016 Study Guide January:
Auditing and Attestation text.
• The AICPA Content Specification Outlines on Auditing and
Attestation for the Computerized CPA Examination beginning
in 2014
• AICPA questions released in 2015
• The new task-based simulations
• Coverage of new audit and attestation standards, especially
• Latest AICPA auditing, ethics, and quality control standards,
DON’T FORGET TO including the new clarity standards
VISIT OUR WEBSITE • Latest Public Company Accounting Oversight Board auditing
standards
AT
• International auditing standards
WWW.WILEY.COM/GO/
The objective of this work is to provide you with the knowledge
CPAERRATA
to pass the Auditing and Attestation portion of the Uniform Certified
FOR SUPPLEMENTS Public Accounting (CPA) Exam. The text is divided up into eight
AND UPDATES. areas of study called modules. Each module contains written text
with discussion, examples, and demonstrations of the key exam con-
cepts. Following each text area, actual American Institute of Certi-
fied Public Accountants (AICPA) unofficial questions and answers
are presented to test your knowledge. We are indebted to the AICPA
for permission to reproduce and adapt examination materials from
past examinations. Author-constructed questions and simulations
are provided for new areas or areas that require updating. All author-
constructed questions and simulations are modeled after AICPA
question formats. The multiple-choice questions are grouped into
topical areas, giving candidates a chance to assess their areas of
strength and weakness. Selection and inclusion of topical content
is based upon current AICPA Content Specification Outlines. Only
testable topics are presented. If the CPA exam does not test it, this
text does not present it.
The CPA exam is one of the toughest exams you will ever take.
It will not be easy. But if you follow our guidelines and focus on
your goal, you will be thrilled with what you can accomplish.
—Ray Whittington
January 2016
v
,ABOUT THE AUTHOR
Ray Whittington, PhD, CPA, CMA, CIA, is the dean of the
Driehaus College of Business at DePaul University. Prior to joining
the faculty at DePaul, Professor Whittington was the Director of
Accountancy at San Diego State University. From 1989 through
1991, he was the Director of Auditing Research for the American
Institute of Certified Public Accountants (AICPA), and he previously
was on the audit staff of KPMG. He previously served as a member
of the Auditing Standards Board of the AICPA and as a member of
the Accounting and Review Services Committee and the Board of
Regents of the Institute of Internal Auditors. Professor Whittington
has published numerous textbooks, articles, monographs, and con-
tinuing education courses.
ABOUT THE CONTRIBUTOR
Kurt Pany, PhD, CPA, is a Professor of Accounting at Arizona
State University. His basic and advanced auditing courses provided
the basis on which he received the Arizona Society of CPAs’ Excel-
lence in Teaching Award and an Arizona CPA Foundation Award
for Innovation in the Classroom for the integration of computer
and professional ethics applications. His professional experience
includes serving for four years on the AICPA’s Auditing Standards
Board, serving as an academic fellow in the Auditing Division of the
AICPA, and, prior to entering academe, working as a staff auditor
for Deloitte and Touche.
vi
, INTRODUCTION
To maximize the efficiency of your review
program, begin by studying (not merely reading) Chapter 1: Beginning Your CPA Review
this chapter and the next three chapters of this Program 3
volume. They have been carefully organized Chapter 2: Examination Grading 17
and written to provide you with important Chapter 3: Solutions Approach 19
information to assist you in successfully
completing the Auditing and Attestation Chapter 4: Taking the Examination 27
section of the CPA exam. Beyond providing a Chapter 5: Exam Content Overview 31
comprehensive outline to help you organize the
material tested on the Auditing and Attestation
exam, Chapter 1 will assist you in organizing
a study program to prepare for the exam. Self-
discipline is essential.
1
,
,2016 Wiley
®
CPAexcel
EXAM REVIEW
STUDY GUIDE
JANUARY 2016
AUDITING AND ATTESTATION
O. Ray Whittington, CPA, PhD
,Cover Design: John Wiley & Sons, Inc.
Cover image: © iStockphoto/turtleteeth
The following items, copyright © by the American Institute of Certified Public Accountants, Inc., are reprinted with permission:
1. Material from Uniform CPA Examination Questions and Answers, 1978 through 2014.
2. Information for Uniform CPA Examination Candidates, Board of Examiners, 2013.
Material from the Certified Internal Auditor Examination, Copyright © 1994 through 1997 by the Institute of Internal Auditors, Inc., are
reprinted and/or adapted with permission.
Material from the Certified Management Accountant Examinations, Copyright © 1993 through 1997 by the Institute of Certified
Management Accountants, are reprinted and/or adapted with permission.
Material adapted, with permission, from Writing for Accountants, Aletha Hendrickson, South-Western Publishing Co., 1993.
Copyright © 2016 by John Wiley & Sons, Inc. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic,
mechanical, photocopying, recording, scanning or otherwise, except as permitted under Section 107 or 108 of the 1976 United States
Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-
copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600, or on the
Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John
Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, or online at http://www.wiley.com/go/
permissions.
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they
make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically
disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by
sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You
should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profit or any other
commercial damages, including but not limited to special, incidental, consequential, or other damages.
For general information on our other products and services or for technical support, please contact our Customer Care Department
within the US at 800-762-2974, outside the US at 317-572-3993 or fax 317-572-4002.
Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic
books. For more information about Wiley products, visit our website at www.wiley.com
ISBN 978-1-119-11996-8 (paperback); 978-1-119-25659-5 (ebk); 978-1-119-25660-1 (ebk)
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
,CONTENTS
Preface v
About the Author vi
About the Contributor vi
INTRODUCTION 1
Chapter 1: Beginning Your CPA Review Program 3
Chapter 2: Examination Grading 17
Chapter 3: Solutions Approach 19
Chapter 4: Taking the Examination 27
Chapter 5: Exam Content Overview 31
AUDITING AND ATTESTATION 39
Module 1: Professional Responsibilities 41
Module 2: Engagement Planning, Obtaining an Understanding of the
Client and Assessing Risks 99
Module 3: Understanding Internal Control and Assessing Control Risk 161
Module 4: Responding to Risk Assessment: Evidence Accumulation
and Evaluation 229
Module 5: Reporting 315
Module 6: Accounting and Review Services 413
Module 7: Audit Sampling 447
Module 8: Auditing with Technology 487
Module 41: Information Technology (Supplement) 505
APPENDICES 537
Appendix A: Outlines of Professional Standards 539
Appendix B: Auditing and Attestation Sample Examination 671
Appendix C: Sample Auditing and Attestation Testlet Released
by AICPA 699
Appendix D: 2015 Released AICPA Questions for Auditing
and Attestation 705
INDEX 725
iii
,
,PREFACE
Passing the CPA exam upon your first attempt is possible! The
Wiley CPAexcel® Exam Review 2016 Study Guide January: Auditing
and Attestation preparation materials provide you with the necessary
materials (visit our website at www.wiley.com/cpa for more informa-
tion). It’s up to you to add the hard work and commitment. Together
we can beat the pass rate on each section of about 50%. All Wiley
CPAexcel® products are continuously updated to provide you with
the most comprehensive and complete knowledge base. Choose your
products from the Wiley preparation materials and you can proceed
confidently. You can select support materials that are exam-based
and user-friendly. You can select products that will help you pass!
Remaining current is one of the keys to examination
success. Here is a list of what’s new in this edition of the
Wiley CPAexcel® Exam Review 2016 Study Guide January:
Auditing and Attestation text.
• The AICPA Content Specification Outlines on Auditing and
Attestation for the Computerized CPA Examination beginning
in 2014
• AICPA questions released in 2015
• The new task-based simulations
• Coverage of new audit and attestation standards, especially
• Latest AICPA auditing, ethics, and quality control standards,
DON’T FORGET TO including the new clarity standards
VISIT OUR WEBSITE • Latest Public Company Accounting Oversight Board auditing
standards
AT
• International auditing standards
WWW.WILEY.COM/GO/
The objective of this work is to provide you with the knowledge
CPAERRATA
to pass the Auditing and Attestation portion of the Uniform Certified
FOR SUPPLEMENTS Public Accounting (CPA) Exam. The text is divided up into eight
AND UPDATES. areas of study called modules. Each module contains written text
with discussion, examples, and demonstrations of the key exam con-
cepts. Following each text area, actual American Institute of Certi-
fied Public Accountants (AICPA) unofficial questions and answers
are presented to test your knowledge. We are indebted to the AICPA
for permission to reproduce and adapt examination materials from
past examinations. Author-constructed questions and simulations
are provided for new areas or areas that require updating. All author-
constructed questions and simulations are modeled after AICPA
question formats. The multiple-choice questions are grouped into
topical areas, giving candidates a chance to assess their areas of
strength and weakness. Selection and inclusion of topical content
is based upon current AICPA Content Specification Outlines. Only
testable topics are presented. If the CPA exam does not test it, this
text does not present it.
The CPA exam is one of the toughest exams you will ever take.
It will not be easy. But if you follow our guidelines and focus on
your goal, you will be thrilled with what you can accomplish.
—Ray Whittington
January 2016
v
,ABOUT THE AUTHOR
Ray Whittington, PhD, CPA, CMA, CIA, is the dean of the
Driehaus College of Business at DePaul University. Prior to joining
the faculty at DePaul, Professor Whittington was the Director of
Accountancy at San Diego State University. From 1989 through
1991, he was the Director of Auditing Research for the American
Institute of Certified Public Accountants (AICPA), and he previously
was on the audit staff of KPMG. He previously served as a member
of the Auditing Standards Board of the AICPA and as a member of
the Accounting and Review Services Committee and the Board of
Regents of the Institute of Internal Auditors. Professor Whittington
has published numerous textbooks, articles, monographs, and con-
tinuing education courses.
ABOUT THE CONTRIBUTOR
Kurt Pany, PhD, CPA, is a Professor of Accounting at Arizona
State University. His basic and advanced auditing courses provided
the basis on which he received the Arizona Society of CPAs’ Excel-
lence in Teaching Award and an Arizona CPA Foundation Award
for Innovation in the Classroom for the integration of computer
and professional ethics applications. His professional experience
includes serving for four years on the AICPA’s Auditing Standards
Board, serving as an academic fellow in the Auditing Division of the
AICPA, and, prior to entering academe, working as a staff auditor
for Deloitte and Touche.
vi
, INTRODUCTION
To maximize the efficiency of your review
program, begin by studying (not merely reading) Chapter 1: Beginning Your CPA Review
this chapter and the next three chapters of this Program 3
volume. They have been carefully organized Chapter 2: Examination Grading 17
and written to provide you with important Chapter 3: Solutions Approach 19
information to assist you in successfully
completing the Auditing and Attestation Chapter 4: Taking the Examination 27
section of the CPA exam. Beyond providing a Chapter 5: Exam Content Overview 31
comprehensive outline to help you organize the
material tested on the Auditing and Attestation
exam, Chapter 1 will assist you in organizing
a study program to prepare for the exam. Self-
discipline is essential.
1
,
