CPA Audit- Exam Questions and
answer
the primary objective of an auditor when considering the acceptance of an initial audit engagement
of a nonissuer is to:
a) establish whether the preconditions for an audit are present
b) agree w mgt on timing the tests at interim
c) limit the auditor's responsibility if mgt fails to provide written representations
d) specify the degree to which mgt intends to rely on the auditor's testing of internal ctrls -
Answerestablish whether the preconditions for an audit are present
an auditor is testing a client's pension benefit obligation. which of the following types of evidence
would be most appropriate for determining that the financial statement balance is fairly stated?
a) client prepared schedule showing accounting entries made to the GL balance
b) an actuarial valuation obtained by an outside firm
c) confirmation of pmts received by the retirees
d) analytical procedures that compare last year's balance to this year's balance - Answeran actuarial
valuation obtained by an outside firm because it calculates fair value of the obligation
which of the following would provide an auditor of a nonissuer with the best evidence of fair value
pertaining to a client's investments in derivative instruments that are listed on a national exchange
and disclosed at fair value?
a) client's personnel who trade the derivative
b) quoted market prices
c) docs related to the original purchase of the derivative
d) estimates of fair value provided by broker dealers - Answerquoted market prices since it is on a
national exchange
which of the following qualitative factors would an auditor consider most relevant to the
consideration of whether a discovered misstatement is material?
a) audit team found a mistmt that if recorded affects the client's compliance with loan covenants
b) audit team found one mistmt due to an error
c) audit team found a miscalculation in the client's tax filing that does not affect the client's current
FS but has the effect of increasing its tax liability in the future
, d) the co recently emerged from bankruptcy after receiving addtl bank financing - AnswerA is correct
because if the mistmt was recorded it affects the client's compliance with loan convenants
if, while performing a review engagement, an accountant has reason to believe that a material
misappropriation of assets might have occurred, what should the accountant do?
a) assess whether controls are in place to deter similar misappropriations
b) require an investigation to determine whether the misappropriation actually occurred
c) disclose the potential misappropriation as supplementary info in the accountant's report
d) document communications with senior mgt about the matter - AnswerD is correct
in the integrated audit of an issuer, an auditor has identified entity- level controls that are important
to the conclusion as to whether the company has effective internal control over financial reporting.
each of the following is an example of an entity- level control, except:
a) controls over the period end financial reporting process
b) co's risk assessment process
c) controls over the completeness of deposited cash
d) controls over mgt override - Answercontrols over the completeness of deposited cash relates to
controls at the account level
which of the following is a complete and accurate list of the walkthrough procedures usually
performed in an issuer's integrated audit?
a) inquiry, observation, analytical procedures, TOC
b) inquiry, sampling, analytical procedures, TOC
c) inquiry, observation, inspection of relevant documentation, and reperformance of controls
d) inquiry, inspection of relevant documentation, sampling, and reperformance of controls -
Answerinquiry, observation, inspection of relevant documentation, and reperformance of controls
an overall response to address a high-assessed risk of material misstatement at the financial
statement level of a nonissuer may include:
a) increasing reliance on results on internal control testing
b) emphasizing the need for more accounting staff
c) incorporating addtl predictability into the selection of procedures
d) providing more supervision of the audit team - Answerproviding more supervision of the audit
team
answer
the primary objective of an auditor when considering the acceptance of an initial audit engagement
of a nonissuer is to:
a) establish whether the preconditions for an audit are present
b) agree w mgt on timing the tests at interim
c) limit the auditor's responsibility if mgt fails to provide written representations
d) specify the degree to which mgt intends to rely on the auditor's testing of internal ctrls -
Answerestablish whether the preconditions for an audit are present
an auditor is testing a client's pension benefit obligation. which of the following types of evidence
would be most appropriate for determining that the financial statement balance is fairly stated?
a) client prepared schedule showing accounting entries made to the GL balance
b) an actuarial valuation obtained by an outside firm
c) confirmation of pmts received by the retirees
d) analytical procedures that compare last year's balance to this year's balance - Answeran actuarial
valuation obtained by an outside firm because it calculates fair value of the obligation
which of the following would provide an auditor of a nonissuer with the best evidence of fair value
pertaining to a client's investments in derivative instruments that are listed on a national exchange
and disclosed at fair value?
a) client's personnel who trade the derivative
b) quoted market prices
c) docs related to the original purchase of the derivative
d) estimates of fair value provided by broker dealers - Answerquoted market prices since it is on a
national exchange
which of the following qualitative factors would an auditor consider most relevant to the
consideration of whether a discovered misstatement is material?
a) audit team found a mistmt that if recorded affects the client's compliance with loan covenants
b) audit team found one mistmt due to an error
c) audit team found a miscalculation in the client's tax filing that does not affect the client's current
FS but has the effect of increasing its tax liability in the future
, d) the co recently emerged from bankruptcy after receiving addtl bank financing - AnswerA is correct
because if the mistmt was recorded it affects the client's compliance with loan convenants
if, while performing a review engagement, an accountant has reason to believe that a material
misappropriation of assets might have occurred, what should the accountant do?
a) assess whether controls are in place to deter similar misappropriations
b) require an investigation to determine whether the misappropriation actually occurred
c) disclose the potential misappropriation as supplementary info in the accountant's report
d) document communications with senior mgt about the matter - AnswerD is correct
in the integrated audit of an issuer, an auditor has identified entity- level controls that are important
to the conclusion as to whether the company has effective internal control over financial reporting.
each of the following is an example of an entity- level control, except:
a) controls over the period end financial reporting process
b) co's risk assessment process
c) controls over the completeness of deposited cash
d) controls over mgt override - Answercontrols over the completeness of deposited cash relates to
controls at the account level
which of the following is a complete and accurate list of the walkthrough procedures usually
performed in an issuer's integrated audit?
a) inquiry, observation, analytical procedures, TOC
b) inquiry, sampling, analytical procedures, TOC
c) inquiry, observation, inspection of relevant documentation, and reperformance of controls
d) inquiry, inspection of relevant documentation, sampling, and reperformance of controls -
Answerinquiry, observation, inspection of relevant documentation, and reperformance of controls
an overall response to address a high-assessed risk of material misstatement at the financial
statement level of a nonissuer may include:
a) increasing reliance on results on internal control testing
b) emphasizing the need for more accounting staff
c) incorporating addtl predictability into the selection of procedures
d) providing more supervision of the audit team - Answerproviding more supervision of the audit
team
