CPA PRACTICE EXAM QUESTIONS AND ANSWERS
When a CPA examines a client's projected financial statements, the CPA's report
should: - Answers- state that the CPA performed procedures to evaluate management's
assumptions.
Davis, CPA, accepted an engagement to audit the financial statements of Tech
Resources, a nonpublic entity. Before the completion of the audit, Tech requested Davis
to change the engagement to a compilation of financial statements. Before Davis
agrees to change the engagement, Davis is required to consider the:
additional audit effort necessary to complete the audit.
reason given for Tech's request. - Answers- Both I and II
Which of the following factors most likely would assist an independent auditor in
assessing the objectivity of the internal auditor? - Answers- The organizational status of
the director of internal audit
If the business environment is experiencing a recession, the auditor most likely would
focus increased attention on which of the following accounts? - Answers- Allowance for
doubtful accounts
An auditor is reporting on condensed financial statements for an annual period that are
derived from the audited financial statements of an issuer. The auditor's opinion should
indicate whether the information in the condensed financial statements is fairly stated in
all material respects: - Answers- in relation to the complete financial statements.
An auditor observes the mailing of monthly statements to a client's customers and
reviews evidence of follow-up on errors reported by the customers. This test of controls
most likely is performed to support management's financial statement assertion of: -
Answers- existence.
North Co., a privately held entity, asked its tax accountant, King, a CPA in public
practice, to review and generate North's interim financial statements on King's
microcomputer when King prepared North's quarterly tax return. King should not submit
these financial statements to North unless, as a minimum, King complies with the
provisions of: - Answers- Statements on Standards for Accounting and Review
Services.
An auditor's report would be designated an audit of a special-purpose financial
statement when it is issued in connection with: - Answers- a basis of accounting that
the entity uses to comply with an agreement between the entity and one or more third
parties other than the auditor.
, An auditor most likely would not rely on controls if the payroll department supervisor is
responsible for: - Answers- authorizing payroll rate changes for all employees.
Which of the following levels would most likely address the risk of material misstatement
by the auditor's consideration of an entity's control environment? - Answers- Financial
statements
The GAO standards list several threats to independence. The threat of familiarity is
defined as: - Answers- when, due to a long or close relationship with management or
other personnel, the auditor will be too sympathetic or accepting of work.
Which of the following representations does an accountant make implicitly when issuing
the standard report for the compilation of a nonissuer's financial statements? -
Answers- The accountant is independent with respect to the entity.
Heath Co.'s current ratio is 4:1. Which of the following transactions would normally
increase its current ratio? - Answers- Selling inventory on account
According to the AICPA Code of Professional Conduct, what would a covered member
most appropriately do upon learning that another member of an attest engagement
team is considering employment with the client? - Answers- Notify an appropriate
person in the firm.
Which of the following would most likely be associated with obtaining an understanding
of relevant internal factors when satisfying the obligation to understand the entity and its
environment on an audit? - Answers- Revenue recognition practices
Russell CPA is auditing contingent liabilities. What generally is the primary risk of
material misstatement related to related financial statement disclosures? - Answers-
Completeness
Nile, CPA, on completing an audit, was asked by the client to provide technical
assistance in integrating a new IT system. The set of pronouncements designed to
guide Nile in this engagement is the Statement(s) on: - Answers- Standards for
Consulting Services.
Investment and property schedules are presented for purposes of additional analysis in
an auditor-submitted document. The schedules are not required parts of the basic
financial statements but accompany the basic financial statements. When reporting on
such additional information, the measurement of materiality is the: - Answers- same as
that used in forming an opinion on the basic financial statements taken as a whole.
Which of the following is required of an accountant in reviewing a company's financial
statements under the Statements on Standards for Accounting and Review Services
(SSARS)? - Answers- Obtain knowledge of the client's industry
When a CPA examines a client's projected financial statements, the CPA's report
should: - Answers- state that the CPA performed procedures to evaluate management's
assumptions.
Davis, CPA, accepted an engagement to audit the financial statements of Tech
Resources, a nonpublic entity. Before the completion of the audit, Tech requested Davis
to change the engagement to a compilation of financial statements. Before Davis
agrees to change the engagement, Davis is required to consider the:
additional audit effort necessary to complete the audit.
reason given for Tech's request. - Answers- Both I and II
Which of the following factors most likely would assist an independent auditor in
assessing the objectivity of the internal auditor? - Answers- The organizational status of
the director of internal audit
If the business environment is experiencing a recession, the auditor most likely would
focus increased attention on which of the following accounts? - Answers- Allowance for
doubtful accounts
An auditor is reporting on condensed financial statements for an annual period that are
derived from the audited financial statements of an issuer. The auditor's opinion should
indicate whether the information in the condensed financial statements is fairly stated in
all material respects: - Answers- in relation to the complete financial statements.
An auditor observes the mailing of monthly statements to a client's customers and
reviews evidence of follow-up on errors reported by the customers. This test of controls
most likely is performed to support management's financial statement assertion of: -
Answers- existence.
North Co., a privately held entity, asked its tax accountant, King, a CPA in public
practice, to review and generate North's interim financial statements on King's
microcomputer when King prepared North's quarterly tax return. King should not submit
these financial statements to North unless, as a minimum, King complies with the
provisions of: - Answers- Statements on Standards for Accounting and Review
Services.
An auditor's report would be designated an audit of a special-purpose financial
statement when it is issued in connection with: - Answers- a basis of accounting that
the entity uses to comply with an agreement between the entity and one or more third
parties other than the auditor.
, An auditor most likely would not rely on controls if the payroll department supervisor is
responsible for: - Answers- authorizing payroll rate changes for all employees.
Which of the following levels would most likely address the risk of material misstatement
by the auditor's consideration of an entity's control environment? - Answers- Financial
statements
The GAO standards list several threats to independence. The threat of familiarity is
defined as: - Answers- when, due to a long or close relationship with management or
other personnel, the auditor will be too sympathetic or accepting of work.
Which of the following representations does an accountant make implicitly when issuing
the standard report for the compilation of a nonissuer's financial statements? -
Answers- The accountant is independent with respect to the entity.
Heath Co.'s current ratio is 4:1. Which of the following transactions would normally
increase its current ratio? - Answers- Selling inventory on account
According to the AICPA Code of Professional Conduct, what would a covered member
most appropriately do upon learning that another member of an attest engagement
team is considering employment with the client? - Answers- Notify an appropriate
person in the firm.
Which of the following would most likely be associated with obtaining an understanding
of relevant internal factors when satisfying the obligation to understand the entity and its
environment on an audit? - Answers- Revenue recognition practices
Russell CPA is auditing contingent liabilities. What generally is the primary risk of
material misstatement related to related financial statement disclosures? - Answers-
Completeness
Nile, CPA, on completing an audit, was asked by the client to provide technical
assistance in integrating a new IT system. The set of pronouncements designed to
guide Nile in this engagement is the Statement(s) on: - Answers- Standards for
Consulting Services.
Investment and property schedules are presented for purposes of additional analysis in
an auditor-submitted document. The schedules are not required parts of the basic
financial statements but accompany the basic financial statements. When reporting on
such additional information, the measurement of materiality is the: - Answers- same as
that used in forming an opinion on the basic financial statements taken as a whole.
Which of the following is required of an accountant in reviewing a company's financial
statements under the Statements on Standards for Accounting and Review Services
(SSARS)? - Answers- Obtain knowledge of the client's industry
