Question 1 (1.6 points)
Which of the following procedures ordinarily should be applied when an independent auditor conducts a review of interim financial information of an issuer?
Question 1 options:
A) Verify changes in key account balances
B) Perform cutoff tests for cash receipts and disbursements.
C) Read the minutes of the board of directors’ meetings.
D) 2Inspect the open purchase order file.
Question 2 (1.6 points)
The criteria used to measure an audit’s effectiveness is/are:
Question 2 options:
A) whether the auditor turned out to be correct
B) the level of audit risk presented by the audit
C) generally accepted accounting principles
D) generally accepted auditing standards
Question 3 (1.6 points)
Reporting standards for financial audits under Government Auditing Standards differ from reporting standards under generally accepted auditing standards in that Government Auditing Standards require the auditor to
Question 3 options:
A) Provide positive assurance that the entity’s audit committee is adequately informed about the effects of any noncompliance with laws, regulations, contracts, and grants.
B) Present the results of the auditor’s tests of economy and efficiency regarding the use of the entity’s resources.
C) Provide negative assurance that the auditor discovered no instances of noncompliance with laws, regulations, contracts, and grants
D) Describe the scope of the auditor’s tests of compliance with laws, regulations, contracts, and grants.
Question 4 (1.6 points)
According to an additional requirement in Government Auditing Standards, the elements of a finding for a financial audit include
Question 4 options:
A) Condition, cause, and effect.
B) Criteria, condition, and an opinion.
C) Condition, effect, and an opinion.
D) Criteria, report distribution, and an opinion.
Question 5 (1.6 points)
Which of the following would not be a required confirmation of management responsibility when addressing fraud in the management representation letter?
Question 5 options:
A) To disclose to the auditor any knowledge or suspicion of fraud involving management.
B) To design, implement, and maintain a system of internal controls designed to prevent and detect fraud.
C) To report any significant fraud to the appropriate authorities.
D) To disclose to the auditor the results of management’s assessment of the risk that the financial statements may be materially misstated due to fraud.
Question 6 (1.6 points)
Question 6 options:
A) is directly affected by the acceptable level of audit risk
B) may be lowered if the auditor raises the tolerable detection risk
C) is the risk the financial statements might contain material misstatements or omissions
D) is directly affected by the internal controls
Question 7 (1.6 points)
The auditor’s primary responsibility is:
Question 7 options:
A) to prepare the financial statements
B) to attest to the fairness of the financial statements
C) to issue the financial statements
D) to attest to the correctness of the financial statements
Question 8 (1.6 points)
Which of the following services is an attest engagement?
Question 8 options:
A) An examination of internal controls.
B) A review of prospective financial information.
C) A compilation engagement where the accountant lacks independence.
D) A preparation engagement.
Question 9 (1.6 points)
Which of the following bodies issues standards for audits of recipients of federal awards?
Question 9 options:
A) Financial Accounting Standards Board.
B) Government Accountability Office.
C) Governmental Accounting Standards Board.
D) Governmental Auditing Standards Board.
Question 10 (1.6 points)
Each of the following is an ethical principle that should guide the work of auditors in the conduct of audits under government auditing standards, except
Question 10 options:
A) Poper use of Government information
B) The public interest.
Question 11 (1.6 points)
According to Statements on Standards for Accounting and Review Engagements, in which of the following situations would the accountant be required to issue a report?
Question 11 options:
A) An accountant compiles financial statements that are reasonably expected to be used by a third party.
B) An accountant withdraws from a review engagement after substantially completing all of the required work.
C) An accountant prepares financial statements which are expected to be presented to a bank for the purpose of obtaining a loan.
D) An accountant prepares an entity’s financial statements which omit substantially all GAAP disclosures.
Question 12 (1.6 points)
During planning, an auditor of a nonissuer should communicate which of the following to those charged with governance at an entity?
Question 12 options:
A) The audit does not relieve management of its responsibilities for the financial statements.
B) The auditor is responsible for preparing financial statements in conformity with the applicable financial reporting framework.
C) The auditor will express an opinion on the effectiveness of internal controls over compliance with laws and regulations.
D) All audit findings will be communicated in writing to those charged with governance.
Question 13 (1.6 points)
The accountant must do which of the following during reviews and audits, but not during a compilation:
Question 13 options:
A) Obtain a management representation letter.
B) Assist the entity in presenting accounting information.
C) Gain an understanding of the entity’s internal control.
D) Make a preliminary assessment of control risk.
Question 14 (1.6 points)
The financial statements are the responsibility of:
Question 14 options:
A) the auditor
B) financial statement users
C) the stockholders
Question 15 (1.6 points)
While conducting an audit in accordance with Government Auditing Standards (the Yellow Book), an auditor determines that fraud has been committed in one of the client’s government contracts. The auditor reports the fraud to the client’s audit committee, which takes no action to report the fraud to appropriate parties. To which of the following entities is the auditor required to report this situation?
Question 15 options:
A) The Association of Certified Fraud Examiners.
B) The client’s board of directors.
C) The counterparty to the contract.
D) The client’s board of directors.
Question 16 (1.6 points)
Accepting an engagement to examine an entity’s financial projection most likely would be appropriate if the projection were to be distributed to
Question 16 options:
A) Potential stockholders who request a prospectus or a registration statement.
B) Stockholders of record as of the report date.
C) Employees who work for the entity.
D) A group of investors with which the entity is negotiating.
Question 17 (1.6 points)
During a review of financial statements, an accountant decides to emphasize a matter in the review report. Which of the following is an example of a matter that the accountant would most likely want to emphasize?
Question 17 options:
A) The entity has had significant tax expenses as a result of a new tax law.
B) The entity has had significant transactions with related parties.
C) The IRS has notified the entity that it intends to audit income tax returns for prior years.
D) Other entities in the same industry have recently changed from LIFO to FIFO.
Question 18 (1.6 points)
Which of the following items would be the least persuasive type of audit evidence?
Question 18 options:
A) A copy of a bank statement provided to the auditor by the client.
B) A confirmation of bank balances as of year-end received by the auditor directly from the bank.
C) A letter of representation signed by the client’s president and chief executive officer.
D) A schedule comparing an estimate of interest expense, prepared by the auditor, to the amount reported on the client’s trial balance.
Question 19 (1.6 points)
Reporting standards for financial audits under Government Auditing Standards (the Yellow Book) differ from reporting under generally accepted auditing standards in that Government Auditing Standards require the auditor to
Question 19 options:
A) Present the results of the auditor’s tests of controls.
B) Provide negative assurance that the auditor discovered no evidence of intentional override of internal controls.
C) Describe the scope of the auditor’s principal substantive tests.
D) Provide positive assurance that control activities regarding segregation of duties are consistent with the entity’s control objectives.
Question 20 (1.6 points)
Which of the following would be a consideration in planning an auditor’s sample for a test of controls?
Question 20 options:
A) Preliminary judgments about materiality levels.
B) The level of detection for the account.
C) The auditor’s allowable risk of assessing control risk is too low.
D) The auditor’s allowable risk of assessing control risk is too high.
Question 21 (1.6 points)
Which of the following statements describes an auditor’s obligation to identify deficiencies in the design or operation of internal control?
Question 21 options:
A) The auditor need not search for significant deficiencies or material weaknesses unless management requests an attestation that “no material weaknesses were noted in the audit.”
B) The auditor need not search for significant deficiencies and material weaknesses but should document and communicate any reportable conditions that are discovered.
C) The auditor should design and apply tests of controls to discover control deficiencies that could result in material misstatements.
D) The auditor should search for significant deficiencies and material weaknesses if the auditor expects to assess control risk at below the maximum.
Question 22 (1.6 points)
Which of the following audit procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity’s ability to continue as a going concern?
Question 22 options:
A) Reviewing lease agreements to determine whether leased assets should be capitalized.
B) Comparing the market value of property to amounts owed on the property.
C) Reading the minutes of meetings of the stockholders and the board of directors.
D) Inspecting title documents to verify whether any assets are pledged as collateral.
Question 23 (1.6 points)
When performing a review under SSAEs or SSARSs, the practitioner must
Question 23 options:
A) Confirm that the responsible party is the engaging party.
B) Request a written assertion from the responsible party.
C) Restrict the use of the report.
D) Be independent.
Question 24 (1.6 points)
When auditing an entity’s financial statements in accordance with generally accepted government auditing standards, an auditor should prepare a written report on the auditor’s
Question 24 options:
A) Field work and procedures that substantiated the auditor’s specific findings and conclusions.
B) Identification of the causes of performance problems and recommendations for actions to improve operations.
C) Testing of internal control.
D) Opinion on the entity’s attainment of the goals and objectives specified by applicable laws and regulations.
Question 25 (1.6 points)
Which of the following components of internal control contributes most to a strong control environment?
Question 25 options:
A) Management adheres to internal control policies.
B) Policy manuals provide a clear understanding of internal controls.
C) Duties are clearly defined and separated.
D) Controls are assessed through ongoing activities and evaluations.
Question 26 (1.6 points)
SSARSs are primarily useful for the preparation, compilation, and review of financial statements for
Question 26 options:
A) Private companies.
B) Companies subject to the Securities Exchange Act of 1934.
C) Companies that report to the SEC.
Question 27 (1.6 points)
The auditor reviews a schedule of aged accounts receivable. The management assertion being tested is:
Question 27 options:
A) valuation or allocation
B) rights and obligations
D) existence or occurrence
Question 28 (1.6 points)
An auditor prepares an analysis of the repair and maintenance expense account to consider if any items should be classified as capital expenditures. This procedure would be most applicable to the audit objective of
Question 28 options:
A) verifying that the repairs are complete
B) verifying that the fixed assets are complete
C) verifying that the company owns its fixed assets
D) verifying that the repairs exist
Question 29 (1.6 points)
When assessing an internal auditor’s objectivity, the independent auditor should
Question 29 options:
A) Review the internal auditor’s current audit plan, including the nature, timing, and extent of audit work.
B) Determine the educational level and the professional experience of the internal auditor.
C) Ascertain the organization level to which the internal audit function reports
D) Examine workpapers of the internal auditor to verify evidence of supervision and review.
Question 30 (1.6 points)
Which of the following would be a consideration in planning an auditor’s sample for a test of controls?
Question 30 options:
A) The auditor’s allowable risk of assessing control risk is too high.
B) Preliminary judgments about materiality levels.
C) The level of detection for the account.
D) The auditor’s allowable risk of assessing control risk is too low.
Question 31 (1.6 points)
Which of the following cognizant agencies is most likely to be assigned to an auditee?
Question 31 options:
A) An independent federal agency that does not provide funding to the auditee.
B) The federal agency that provides the most funding to the auditee.
C) A preselected federal agency whose sole purpose is to monitor single audits.
D) The federal agency that is located within the auditee’s region.
Question 32 (1.6 points)
In May 20X3, an auditor reissues the auditor’s report on the 20X1 financial statements at a continuing client’s request. The 20X1 financial statements are not restated and the auditor does not revise the wording of the report. The auditor should
Question 32 options:
A) Use the original report date on the reissued report.
B) Use the current-period auditor’s report date on the reissued report.
C) Use the release date of the reissued report
D) Dual date the reissued report.
Question 33 (1.6 points)
Which item is not included in the accountant’s documentation of a preparation engagement?
Question 33 options:
A) A copy of the financial statements.
B) A statement about whether the statements were fairly presented
C) The engagement letter.
D) Significant judgments made by the accountant during the engagement.
Question 34 (1.6 points)
Which of the following would more likely be included in the current file rather than the permanent file?
Question 34 options:
A) General ledger trial balance and board of director meeting minutes.
B) Audit program and inventory account lead schedule.
C) Equity accounts analyses and long-term debt account information.
D) Control flowcharts and auditor reconciliations.
Question 35 (1.6 points)
When planning a review of an audit client’s interim financial statements, which of the following procedures should the accountant perform to update the accountant’s understanding of the entity and its environment?
Question 35 options:
A) Inquire of the entity’s outside legal counsel about the status of any previous pending litigation and any new litigation involving the entity.
B) Select a sample of material revenue transactions occurring during the interim period and examine supporting documentation.
C) Consider the results of audit procedures performed with respect to the current year’s financial statements.
D) Perform analytical procedures on selected accounts by comparing the interim amounts to the amounts for the previous audited fiscal year end.
Question 36 (1.6 points)
Which of the following is a suitable title for a financial statement prepared using a special purpose framework?
Question 36 options:
A) Statement of operations.
B) Statement of income – regulatory basis.
C) Statement of comprehensive income.
D) Income statement.
Question 37 (1.6 points)
According to the general standards in Government Auditing Standards,
Question 37 options:
A) Performing nonaudit services creates an inherent impairment of independence.
B) The audit organization, but not the auditor, may provide any nonaudit services.
C) An audit organization must be free of the appearance of an impairment to independence.
D) An audit organization performing audits under GAGAS must have an external peer review every 5 years.
Question 38 (1.6 points)
An entity has failed to provide documentation for a newly acquired material asset and informs its auditors that the documentation is lost. According to generally accepted government auditing standards, what would this situation typically indicate to the auditors?
Question 38 options:
A) Fraudulent activity.
B) Abusive activity.
C) A heightened risk of fraud.
D) Misappropriation of assets.
Question 39 (1.6 points)
The auditor must obtain “sufficient, competent” evidential matter to support his opinion. “Competent” means:
Question 39 options:
Question 40 (1.6 points)
An enterprise engaged a CPA to audit its financial statements in accordance with Government Auditing Standards (the Yellow Book) because of the provisions of government grant funding agreements. Under these circumstances, the CPA is required to report on the enterprise’s internal control, either in the report on the financial statements or in
Question 40 options:
A) A separate report.
B) The report on the performance audit.
C) A letter to the government funding agency.
D) The notes to the financial statements.
Question 41 (1.6 points)
A CPA has been engaged to apply agreed-upon procedures in accordance with Statements on Standards for Attestation Engagements to prospective financial statements. Which of the following conditions must be met for the CPA to perform the engagement?
The prospective financial statements must be prepared according to GAAP.
The client must agree to assume responsibility for the prospective financial statements.
The CPA must provide results of the engagement but may elect to do so either orally or in writing.
The client must agree to accept the CPA’s opinion regarding the prospective financial statements.
Question 41 options:
A) The CPA must provide results of the engagement but may elect to do so either orally or in writing.
B) The client must agree to accept the CPA’s opinion regarding the prospective financial statements.
C) The client must agree to assume responsibility for the prospective financial statements.
D) The prospective financial statements must be prepared according to GAAP.
Question 42 (1.6 points)
An auditor reviews credit ratings of customers with accounts receivable that are past due. The auditor is most likely reviewing this evidence to verify
Question 42 options:
A) presentation and disclosure
B) existence or occurrence
C) valuation or allocation
D) rights and obligations
Question 43 (1.6 points)
An auditor must be independent when rendering:
Question 43 options:
A) management consulting services
B) tax-consulting services
C) attestation services
D) all of the above
Question 44 (1.6 points)
An enterprise engaged a CPA to audit its financial statements in accordance with Government Auditing Standards (the Yellow Book) because of the provisions of government grant funding agreements. Under these circumstances, the CPA is required to report on the enterprise’s internal controls either in the report on the financial statements or in
Question 44 options:
A) The report on the performance audit.
B) A separate report.
C) The notes to the financial statements.
D) A letter to the government funding agency.
Question 45 (1.6 points)
Management chooses to place supplementary information required by the FASB or GASB in notes to the financial statements. According to GAAS, this information may be identified as
Question 45 options:
A) Disclosures required by the FASB or GASB.
B) Supplementary information required by the FASB or GASB.
C) Audited financial data required by generally accepted accounting principles.
Question 46 (1.6 points)
When the financial statements contain an immaterial inconsistency as to the application of accounting principles, the auditor will issue a(n)
Question 46 options:
A) adverse opinion
B) standard, unqualified opinion
C) disclaimer of opinion
D) qualified opinion
Question 47 (1.6 points)
In accordance with Government Auditing Standards, which set of documentation from a financial statement audit should contain sufficient information to enable an experienced auditor having no previous connection with the audit to conclude that sufficient evidence was collected?
Question 47 options:
A) Auditor’s working papers.
B) Auditor’s engagement letter.
C) Client’s procedures manual.
D) Client’s financial statements.
Question 48 (1.6 points)
Which of the following procedures would be generally performed when evaluating the accounts receivable balance in an engagement to review financial statements in accordance with Statements on Standards for Accounting and Review Services?
Question 48 options:
A) Perform a reasonableness test of the balance by computing days’ sales in receivables.
B) Review subsequent bank statements for evidence of cash deposits
C) Confirm individually significant receivable balances with customers.
D) Vouch a sample of subsequent cash receipts from customers.
Question 49 (1.6 points)
Which of the following statements is correct concerning internal control matters identified in a nonissuer financial statement audit?
Question 49 options:
A) An auditor is required to search for internal control matters that require communication to client management.
B) An auditor may report, in writing, that no material weaknesses were noted during an audit.
C) All identified internal control matters are considered material weaknesses and must be communicated to the client’s management.
D) All internal control matters must be communicated orally to those charged with governance.
Question 50 (1.6 points)
Each of the following is normally performed while conducting a review of interim financial information except
Question 50 options:
A) Comparing disaggregated revenue data.
B) Making inquiries of financial management.
C) Obtaining litigation updates from external legal counsel.
D) Reading minutes of the meetings of the board of directors.
Question 51 (10 points)
Internal control is made up of five different components that are interrelated. Select from the option list provided which of the five components is being described for each of the following. Each choice may be used once, more than once, or not at all
Question 51 options:
The quarterly review made by the internal audit committee.
Storing customer receipts in a safe until deposited at the bank.
Training procedures for new employees.
A zero tolerance policy that calls for the termination of anyone acting unethically.
The hiring of a new CEO with a very different management style.
1. Control activities
2. Risk Assessment
3. Information and communication systems
5. Control Environment
Question 52 (10 points)
Select from the option list provided whether each activity would be categorized as a financial audit, an attestation engagement, or a performance audit in accordance with Government Auditing Standards. Each choice may be used once, more than once, or not at all.
Question 52 options:
Assessing compliance with legal requirements
Reporting on the fairness of a balance sheet
Examining the accuracy or reliability of performance measures
Assessing economy and efficiency.
Reviewing allowable, reasonable, or final contract costs
1. Financial audit
2. Attestation engagement
3. Performance Audit