CPA Practice Exam Questions & Answers
1.When a CPA examines a client's projected financial statements, the
CPA's report should
Answer state that the CPA performed procedures to evaluate manage-
ment's assumptions.
2.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.
Answer Both I and II
3.The GAO standards list several threats to independence. The threat of
famil- iarity is defined as
Answer when, due to a long or close relationship with management or
other personnel, the auditor will be too sympathetic or accepting of
work.
4.Which of the following representations does an accountant make
,implicitly when issuing the standard report for the compilation of a
nonissuer's financial statements?
Answer The accountant is independent with respect to the entity.
5.Heath Co.'s current ratio is 4:1. Which of the following transactions
would normally increase its current ratio?
Answer Selling inventory on account
6.According to the AICPA Code of Professional Conduct, what would a cov-
ered member most appropriately do upon learning that another member of
an attest engagement team is considering employment with the client?
Answer Notify an appropriate person in the firm.
7.Which of the following factors most likely would assist an independent
auditor in assessing the objectivity of the internal auditor?
Answer The organizational status of the director of internal audit
8.If the business environment is experiencing a recession, the auditor most
likely would focus increased attention on which of the following accounts?
Answer - Allowance for doubtful accounts
9.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
, Answer in relation to the complete financial statements.
10.An auditor observes the mailing of monthly statements to a client's
cus- tomers and reviews evidence of follow-up on errors reported by the
cus- tomers. This test of controls most likely is performed to support
manage- ment's financial statement assertion of
Answer existence.
11.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
Answer Statements on Standards for Accounting and Review Services.
12.An auditor's report would be designated an audit of a special-purpose
financial statement when it is issued in connection with
Answer 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.
13.An auditor most likely would not rely on controls if the payroll
department supervisor is responsible for
Answer authorizing payroll rate changes for all employees.
1.When a CPA examines a client's projected financial statements, the
CPA's report should
Answer state that the CPA performed procedures to evaluate manage-
ment's assumptions.
2.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.
Answer Both I and II
3.The GAO standards list several threats to independence. The threat of
famil- iarity is defined as
Answer when, due to a long or close relationship with management or
other personnel, the auditor will be too sympathetic or accepting of
work.
4.Which of the following representations does an accountant make
,implicitly when issuing the standard report for the compilation of a
nonissuer's financial statements?
Answer The accountant is independent with respect to the entity.
5.Heath Co.'s current ratio is 4:1. Which of the following transactions
would normally increase its current ratio?
Answer Selling inventory on account
6.According to the AICPA Code of Professional Conduct, what would a cov-
ered member most appropriately do upon learning that another member of
an attest engagement team is considering employment with the client?
Answer Notify an appropriate person in the firm.
7.Which of the following factors most likely would assist an independent
auditor in assessing the objectivity of the internal auditor?
Answer The organizational status of the director of internal audit
8.If the business environment is experiencing a recession, the auditor most
likely would focus increased attention on which of the following accounts?
Answer - Allowance for doubtful accounts
9.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
, Answer in relation to the complete financial statements.
10.An auditor observes the mailing of monthly statements to a client's
cus- tomers and reviews evidence of follow-up on errors reported by the
cus- tomers. This test of controls most likely is performed to support
manage- ment's financial statement assertion of
Answer existence.
11.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
Answer Statements on Standards for Accounting and Review Services.
12.An auditor's report would be designated an audit of a special-purpose
financial statement when it is issued in connection with
Answer 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.
13.An auditor most likely would not rely on controls if the payroll
department supervisor is responsible for
Answer authorizing payroll rate changes for all employees.
