CPA AUDIT || ALL SOLUTIONS ARE ACCURATE.
a client decides not to make an auditor's proposed adjustments that collectively are not material,
and wants the auditor to issue the report based on the unadjusted numbers. which of the
following statements is correct regarding the financial statement presentation?
a. the financial statements are free from material misstatement, but disclosure of the proposed
adjustments is required in the notes to the financial statements
b. the financial statements are free from material misstatement, and no disclosure is required in
the notes to the financial statements
c. the financial statements contain unadjusted misstatements that should result in a qualified
opinion
d. the financial statements do not conform with generally accepted accounting principles
(GAAP) correct answers b. the financial statements are free from material misstatement, and no
disclosure is required in the notes to the financial statements
which of the following comparisons would an auditor most likely make in evaluating an entity's
costs and expenses?
a. the current year's payroll expense with the prior year's payroll expense
b. the budgeted current year's warranty expense with the current year's contingent liabilities
c. the budgeted current year's sales with prior year's sales
d. the current year's accounts receivable with the prior year's accounts receivable correct answers
a. the current year's payroll expense with the prior year's payroll expense
which of the following ratios would an engagement partner most likely consider in the overall
review stage of an audit?
a. current assets/quick assets
b. cost of goods sold/average inventory
,c. total liabilities/net sales
d. accounts receivable/inventory correct answers b. cost of goods sold/average inventory
what effect would the sale of a company's trading securities at their carrying amounts for cash
have on each of the following ratios?
current ratio quick ratio
a. no effect no effect
b. increase increase
c. no effect increase
d. increase no effect correct answers a. current ratio - no effect, quick ratio - no effect
cash is traded for another current asset
an auditor discovered that a client's account receivable turnover is substantially lower for the
current year than for the prior year. this may indicate that:
a. an employee has been lapping receivables in both years
b. fictitious credit sales have been recorded during the year
c. the client recently tightened its credit-granting policies
d. employees have stolen inventory just before the year-end correct answers b. fictitious credit
sales have been recorded during the year
which of the following results of analytical procedures would most likely indicate possible
unrecorded liabilities?
a. accounts payable as a percentage of total liabilities of 25 percent, compared to 35 percent for
the prior period
b. current ratio of 2:1 as compared to 5:1 for the prior period
,c. accounts payable turnover of 5, compared to 10 for the prior period
d. accounts payable balance increase greater than 10 percent over the prior period correct
answers a. accounts payable as a percentage of total liabilities of 25 percent, compared to 35
percent for the prior period
at December 30, Year 3, Vida Co. had cash of 200,000, a current ratio of 1.5:1 and a quick ratio
of 5:1. on December 31, Year 3, all cash was used to reduce accounts payable. how did these
cash payments affect the ratios?
current ratio quick ratio
a. increased decreased
b. decreased increased
c. increased no effect
d. decreased no effect correct answers a. current ratio - increased, quick ratio - decreased
which of the following communications between the auditor with final responsibility for an
engagement and the audit engagement team regarding the susceptibility of a client's financial
statements to material misstatements due to error or fraud is required by auditing standards?
a. discussing the need to maintain a questioning mind and to exercise professional skepticism
throughout the audit
b. explaining the firm's strategy for managing and controlling legal liability due to fraud
c. discussing the firm's policy for allocating budgeted audit hours to detect fraud
d. explaining all procedures to be performed on the engagement to detect significant errors or
fraudulent activity correct answers a. discussing the need to maintain a questioning mind and to
exercise professional skepticism throughout the audit
during the annual audit of Ajax Corp., a publicly held company, Jones, CPA, a continuing
auditor, determined that illegal political contributions had been made during each of the past
seven years, including the year under audit. Jones notified the board of directors about the illegal
, contributions, but they refused to take any action because the amounts involved were immaterial
to the financial statements.
Jones should reconsider the intended degree of reliance to be placed on the :
a. prior year's audit plan
b. management representation letter
c. preliminary judgment about materiality levels
d. letter of audit inquiry to the client's attorney correct answers b. management representation
letter
during an audit, an auditor discovers a fraudulent expense reimbursement for a low-level
manager. the auditor determines that this transaction is inconsequential and several similar
transactions would not be material to the financial statements in the aggregate. which of the
following statements best describes the auditor's required response to the discovery?
a. the auditor should bring the transaction to the attention of an appropriate level of management
b. the auditor should report this finding to those charged with governance
c. the auditor should fully investigate other transactions related to this manager to determine if
fraud exists
d. the auditor's responsibility is satisfied by documenting that the single transaction is
inconsequential correct answers a. the auditor should bring the transaction to the attention of an
appropriate level of management
which of the following statements is correct with respect to fraud encountered during an audit
engagement of a nonissuer?
a. fraudulent financial reporting can include the unintentional misstatement of amounts or
disclosures in financial statements
b. it is often difficult to detect fraudulent intent in matters involving accounting estimates and the
application of accounting principles
a client decides not to make an auditor's proposed adjustments that collectively are not material,
and wants the auditor to issue the report based on the unadjusted numbers. which of the
following statements is correct regarding the financial statement presentation?
a. the financial statements are free from material misstatement, but disclosure of the proposed
adjustments is required in the notes to the financial statements
b. the financial statements are free from material misstatement, and no disclosure is required in
the notes to the financial statements
c. the financial statements contain unadjusted misstatements that should result in a qualified
opinion
d. the financial statements do not conform with generally accepted accounting principles
(GAAP) correct answers b. the financial statements are free from material misstatement, and no
disclosure is required in the notes to the financial statements
which of the following comparisons would an auditor most likely make in evaluating an entity's
costs and expenses?
a. the current year's payroll expense with the prior year's payroll expense
b. the budgeted current year's warranty expense with the current year's contingent liabilities
c. the budgeted current year's sales with prior year's sales
d. the current year's accounts receivable with the prior year's accounts receivable correct answers
a. the current year's payroll expense with the prior year's payroll expense
which of the following ratios would an engagement partner most likely consider in the overall
review stage of an audit?
a. current assets/quick assets
b. cost of goods sold/average inventory
,c. total liabilities/net sales
d. accounts receivable/inventory correct answers b. cost of goods sold/average inventory
what effect would the sale of a company's trading securities at their carrying amounts for cash
have on each of the following ratios?
current ratio quick ratio
a. no effect no effect
b. increase increase
c. no effect increase
d. increase no effect correct answers a. current ratio - no effect, quick ratio - no effect
cash is traded for another current asset
an auditor discovered that a client's account receivable turnover is substantially lower for the
current year than for the prior year. this may indicate that:
a. an employee has been lapping receivables in both years
b. fictitious credit sales have been recorded during the year
c. the client recently tightened its credit-granting policies
d. employees have stolen inventory just before the year-end correct answers b. fictitious credit
sales have been recorded during the year
which of the following results of analytical procedures would most likely indicate possible
unrecorded liabilities?
a. accounts payable as a percentage of total liabilities of 25 percent, compared to 35 percent for
the prior period
b. current ratio of 2:1 as compared to 5:1 for the prior period
,c. accounts payable turnover of 5, compared to 10 for the prior period
d. accounts payable balance increase greater than 10 percent over the prior period correct
answers a. accounts payable as a percentage of total liabilities of 25 percent, compared to 35
percent for the prior period
at December 30, Year 3, Vida Co. had cash of 200,000, a current ratio of 1.5:1 and a quick ratio
of 5:1. on December 31, Year 3, all cash was used to reduce accounts payable. how did these
cash payments affect the ratios?
current ratio quick ratio
a. increased decreased
b. decreased increased
c. increased no effect
d. decreased no effect correct answers a. current ratio - increased, quick ratio - decreased
which of the following communications between the auditor with final responsibility for an
engagement and the audit engagement team regarding the susceptibility of a client's financial
statements to material misstatements due to error or fraud is required by auditing standards?
a. discussing the need to maintain a questioning mind and to exercise professional skepticism
throughout the audit
b. explaining the firm's strategy for managing and controlling legal liability due to fraud
c. discussing the firm's policy for allocating budgeted audit hours to detect fraud
d. explaining all procedures to be performed on the engagement to detect significant errors or
fraudulent activity correct answers a. discussing the need to maintain a questioning mind and to
exercise professional skepticism throughout the audit
during the annual audit of Ajax Corp., a publicly held company, Jones, CPA, a continuing
auditor, determined that illegal political contributions had been made during each of the past
seven years, including the year under audit. Jones notified the board of directors about the illegal
, contributions, but they refused to take any action because the amounts involved were immaterial
to the financial statements.
Jones should reconsider the intended degree of reliance to be placed on the :
a. prior year's audit plan
b. management representation letter
c. preliminary judgment about materiality levels
d. letter of audit inquiry to the client's attorney correct answers b. management representation
letter
during an audit, an auditor discovers a fraudulent expense reimbursement for a low-level
manager. the auditor determines that this transaction is inconsequential and several similar
transactions would not be material to the financial statements in the aggregate. which of the
following statements best describes the auditor's required response to the discovery?
a. the auditor should bring the transaction to the attention of an appropriate level of management
b. the auditor should report this finding to those charged with governance
c. the auditor should fully investigate other transactions related to this manager to determine if
fraud exists
d. the auditor's responsibility is satisfied by documenting that the single transaction is
inconsequential correct answers a. the auditor should bring the transaction to the attention of an
appropriate level of management
which of the following statements is correct with respect to fraud encountered during an audit
engagement of a nonissuer?
a. fraudulent financial reporting can include the unintentional misstatement of amounts or
disclosures in financial statements
b. it is often difficult to detect fraudulent intent in matters involving accounting estimates and the
application of accounting principles
