2013 AICPA released AUD MCQs

2013 AICPA Newly Released Questions – Auditing

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AICPA QUESTIONS RATED MODERATE DIFFICULTY DIFFICULTY 1. CPA-

Which of the following types of audit evidence provides the least assurance of reliability? a.

Receivable confirmations received from the the client's customers.

b.

Prenumbered receiving reports reports completed completed by the client's employees.

c.

Prior months' bank statements statements obtained from the the client.

d.

Municipal property property tax bills prepared in the client's name.

Explanation

Choice "b" is correct.



2. CPA-

An auditor is considering whether whether the omission of the confirmation confirmation of investments impairs the the auditor's ability to support a previously expressed unmodified opinion. The auditor need not perform this omitted procedure if: a.

The results of alternative procedures that were performed performed compensate for the omission.

b.

The auditor's auditor's assessed level of detection risk is low.

c.

The omission is documented in a communication with with the audit committee.

d. No individual investment investment is material material to the financial statements statements taken as a whole.

Explanation

Choice "a" is correct.



3. CPA-

Which of the following explanations most likely would satisfy an auditor who questions management about significant debits to accumulated depreciation accounts i n the current year? a.

Prior years' depreciation expenses were erroneously understated.

b.

Current year's depreciation expense was erroneously understated.

c.

The estimated remaining useful lives of plant assets were revised revised upward.

d.

Plant assets were were retired retired during the current year. year.

Explanation

Choice "d" is correct.



4. CPA-

An auditor has substantial doubt doubt about the entity's ability to continue as a going concern for a reasonable period of time because of negative cash flows and working capital deficiencies. Under these circumstances, the auditor would be most concerned about the: a.

Control environment factors that affect the organizational structure. structure.

b.

Correlation of detection risk and inherent inherent risk.

c.

Effectiveness of the entity's internal control activities.

d.

Possible effects on the entity's financial statements.

Explanation




5. CPA-

Subsequent to issuing a report on audited financial statements, a CPA discovers that the accounts receivable confirmation process omitted a number of accounts that are m aterial, in the aggregate. Which of the following actions should the CPA take immediately? a.

Bring the matter to the attention of the board of directors or audit committee.

b.

Withdraw the auditor's report from from those persons currently currently relying on it.

c.

Perform alternative procedures to verify account balances.

d.

Discuss the potential financial statement adjustments with client management. management.

Explanation

Choice "c" is correct.



6. CPA-

An entity engaged an accountant accountant to review its financial statements statements in accordance with Statements on Standards for Accounting and Review Services. The accountant determined that the entity maintained its accounts on a comprehensive basis of accounting other than generally accepted accounting principles (GAAP). In this situation, the accountant most likely would have taken which of the following actions? a.

Withdrawn from the the engagement engagement because because the entity has no t been following GAAP.

b.

Advised management to make the adjustments adjustments necessary for the account balances to to conform with with GAAP.

c.

Modified the review report to reflect the fact that the financial statements were were presented on another comprehensive basis of accounting.

d.

Requested that management justify the use of the the other comprehensive basis of accounting in the management representation letter.

Explanation




7. CPA-

Which of the following factors should an external auditor obtain updated information about when assessing an internal auditor's competence? a.

The reporting reporting status of the internal auditor within the organization.

b.

The educational educational level and professional professional experiences of the internal auditor.

c.

Whether policies policies prohibit the internal auditor from auditing areas where relatives are employed.

d.

Whether the the board of directors, audit committee, or owner-manager oversees oversees employment decisions related to the internal auditor.

Explanation




8. CPA-

An auditor traces the serial numbers on equipment to to a nonissuer's sub-ledger. Which of the following management assertions is supported by this test? a.

Valuation and allocation.

b. Completeness. c.

Rights and obligations.

d.

Presentation and disclosure.

Explanation




9. CPA-

Which of the following should a practitioner perform as part of an engagement for agreed-upon procedures in accordance with Statements on Standards for Attestation Engagements ? a.

Issue a report on findings based on specified procedures performed. performed.

b.

Assess whether whether the procedures meet the needs of the parties.

c.

Express negative assurance on findings of work performed.

d.

Report the differences differences between between agreed-upon agreed-upon and audit procedures. procedures.

Explanation




10. CPA-

When the operating effectiveness of a control is no t evidenced by written documentation, an auditor should obtain evidence about the control's effectiveness by: a.

Mailing confirmations.

b.

Inquiry and other procedures such as observation.

c.

Analytical procedures.

d.

Recalculating the balance in related accounts.

Explanation




11. CPA-

An auditor is evaluating a client's internal internal controls. Which of the following situations would be the most difficult internal control issue for an auditor to detect? a. The accounting staff neglects the control, due to increased transactions transactions to be processed. b.

The technology technology department department writes writes a program that that does no t properly implement the control, due to a lack of understanding.

c.

Two employees, employees, who work in different departments, departments, are circumventing an internal control.

d.

Someone erroneously erroneously disables edit checks in a software program designed to identify control exceptions.

Explanation




12. CPA-

Inherent risk and control risk differ from detection risk in which of the following ways? a.

Inherent risk and control risk are calculated by the client.

b.

Inherent risk and control risk exist independently of the audit.

c.

Inherent risk and control risk are controlled by the auditor.

d.

Inherent risk risk and control control risk exist as a result of the auditor's judgment about materiality.

Explanation




13. CPA-

Which of the following matters does an auditor usually include in the engagement letter? a.

Arrangements regarding fees and billing.

b.

Analytical procedures that the auditor auditor plans to perform. perform.

c.

Indications of negative cash flows flows from operating activities.

d. Identification of working capital deficiencies.

Explanation




14. CPA-

Which of the following is a n important consideration when deciding the nature of tests to use in a financial statement audit? a.

Tests of of details details typically provide a low level of assurance. assurance.

b.

Analytical procedures are an inefficient means of obtaining assurance.

c.

The procedures to be applied applied on a particular engagement are a matter of the auditor's professional judgment.

d.

The use of tests of controls controls should be considered without regard to the level of assurance required.

Explanation




15. CPA-

Which of the following procedures would an auditor most likely complete to test the existence assertion of property, plant and equipment? a.

Obtaining a listing of all all current-year additions, vouching significant additions to original invoices, and determining that they have been placed in service.

b.

Obtaining a detailed fixed-asset register and ensuring items are appropriately capitalized.

c.

Obtaining a listing of current-year additions and verifying that that items are recorded in the proper period.

d. Obtaining a detailed fixed-asset register and ensuring depreciation methods methods are applied consistently.

Explanation




16. CPA-

Which of the following is co rrect regarding a compilation of financial statements engagement in accordance with Statement on Standards for Accounting and Review Services? a.

If the accountant's independence is impaired, a qualified opinion must be issued.

b.

The accountant may no t base the report on information obtained from prior engagements with the same client.

c.

The accountant is no t required to make inquiries nor perform procedures to corroborate the information provided by the client.

d.

The accountant accountant should perform analytical procedures to financial financial data.

Explanation




17. CPA-

What is the primary objective of the fraud brainstorming session? a.

Determine audit risk and materiality.

b.

Identify whether whether analytical procedures should be applied to the revenue revenue accounts.

c.

Assess the potential for material misstatement due to to fraud.

d.

Determine whether whether the planned procedures in the audit program will satisfy the general audit objectives.

Explanation




18. CPA-

While performing an audit of the f inancial statements of a company for the year ended December 31, year 1, the auditor notes that the company's sales increased substantially in December, year 1, with a corresponding decrease in January, year 2. In assessing the risk of fraudulent financial reporting or misappropriation of assets, what should be the auditor's initial indication about the potential for fraud in sales revenue? a.

There is a broad indication of misappropriation of assets. assets.

b.

There is an indication of theft of the entity's assets.

c.

There is an indication of embezzling receipts.

d.

There is a broad broad indication of financial financial reporting fraud.

Explanation




19. CPA-

According to the Sarbanes-Oxley Sarbanes-Oxley Act of 2002, which which of the following non-audit services services can be provided by a registered public accounting firm to the client contemporaneously with the audit when preapproval is granted by audit committee action? a.

Internal audit outsourcing services.

b.

Tax services.

c.

Actuarial services related to the audit.

d.

Advice on financial information system design.

Explanation




20. CPA-

Which of the following situations would no t impair objectivity, integrity, or independence with respect to an audit client? a.

An auditor takes the client's audit committee committee to Las Vegas for the weekend.

b. An out-of-town out-of-town client takes the the audit engagement team out to dinner at a renowned renowned local restaurant. restaurant. c.

An auditor provides client management with box seats for the season at a major league baseball baseball franchise.

d.

A client takes takes the audit engagement engagement team on a two-day ski trip after the audit team worked worked for two two consecutive weekends.

Explanation




21. CPA-

When a PCAOB auditing standard indicates that an auditor "could" perform a specific procedure, how should the auditor decide whether and how to perform the procedure? a.

By comparing the PCAOB standard with with related AICPA auditing standards. standards.

b.

By exercising professional judgment in the the circumstances. circumstances.

c.

By soliciting input from the issuer's audit committee.

d.

By evaluating whether the audit is likely to be subject to inspection by the PCAOB. PCAOB.

Explanation




22. CPA-

While performing certain non-audit services for an insu rance company, a professional accountant is asked to recommend the appropriate accounting treatment for a weather hedge transaction. The accountant has worked with financial hedges but has no experience with weather hedges. Which of the following actions by the accountant would be in compliance with the IFAC Code of Ethics for Professional Accountants? a.

Agree to recommend the appropriate accounting treatment after after performing sufficient research research on weather hedges.

b.

Refuse to conduct the research and make a recommendation, recommendation, because of insufficient experience.

c.

Refuse to conduct the research and make a recommendation, recommendation, because of a conflict of interest. interest.

d.

Agree with with the accounting treatment recommended by the company's hedge fund trader.

Explanation




23. CPA-

According to the SEC, SEC, members of an issuer's audit committee may not: a.

Establish procedures for employees employees to to anonymously report fraud.

b. Be responsible for the compensation of any registered public accounting firm employed by the registrant to provide an audit report. c.

Accept any consulting, advisory, or other compensatory fee from the registrant for services other than than as a member of the board.

d. Engage independent independent counsel as deemed necessary to carry out out their duties.

Explanation




24. CPA-

Which of the following would no t be included in an accountant's documentation of a compilation of a client's financial statements? a.

Discussion with the client regarding the proper proper presentation of gross cash flows for investment purchases.

b.

An engagement letter.

c.

A memo to the CFO about a potentially significant fraud revealed during compilation procedures.

d.

A review review of the segregation of duties in the cash disbursement process.

Explanation




25. CPA-

If requested to perform a compilation engagement for a nonissuer in which an accountant has an immaterial direct financial interest, the accountant is: a. Independent because the the financial interest in the nonissuer is immaterial. b.

Not independent and, therefore, may no t be associated with the fina ncial statements.

c.

Not independent and, therefore, may no t issue a compilation report.

d.

Not independent and, therefore, may issue a compilation report, but may no t issue a review report.

Explanation




AICPA QUESTIONS RATED HARD DIFFICULTY DIFFICULTY 26. CPA-

When there has been a ch ange in accounting principles, but the effect of the change on the comparability of the financial statements is no t material, the auditor should: a.

Not refer to the change in the auditor's auditor's report. report.

b.

Refer to the note in the financial financial statements that discusses the change.

c.

Refer to the change in an emphasis-of-matter paragraph.

d.

Explicitly state whether whether the change change conforms with GAAP.

Explanation




27. CPA-

An entity prepares its its financial statements on its income tax basis. A description of how that basis differs from GAAP should be included in the: a.

Notes to the financial statements.

b.

Auditor's engagement letter.

c.

Management representation letter.

d.

Introductory paragraph of the auditor's report.

Explanation




28. CPA-

When an accountant compiles projected financial s tatements, the accountant's report should include a separate paragraph that: a.

Disclaims any form of assurance on the historical financial statements.

b.

Expresses limited assurance that the results will be within the projected range.

c.

Describes the limitations on the usefulness of the the projection.

d.

Evaluates the hypothetical hypothetical assumptions assumptions used to prepare prepare the projection.

Explanation




29. CPA-

Which of the following would be considered an analytical procedure? a.

Testing purchasing, shipping, and receiving cutoff activities.

b.

Comparing inventory balances to recent sales activities.

c.

Projecting the deviation rate of a statistical sample to the population.

d.

Reconciling physical counts to perpetual perpetual records records and general ledger balances.

Explanation




30. CPA-

Which of the following statements should be i ncluded in a practitioner's report on t he application of agreed-upon procedures? a.

A statement statement that the practitioner performed an examination of prospective financial statements.

b.

A statement statement of of scope limitation that will qualify the practitioner's practitioner's opinion.

c.

A statement referring to standards standards established established by the AICPA. AICPA.

d.

A statement of negative assurance based based on procedures performed.

Explanation




31. CPA-

Which of the following documents the procedures that are applied and the conclusions reached in an audit engagement? a.

Management representation letter.

b.

Audit guide.

c.

Auditor's report.

d.

Working papers.

Explanation




32. CPA-

When reviewing the financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services , an accountant's procedures should include: a.

Obtaining an understanding of internal control.

b.

Assessing fraud risk.

c.

Applying substantive tests of transactions.

d. Inquiring into actions taken taken at meetings of the Board Board of Directors.

Explanation




33. CPA-

Which of the following rules of the AICPA Code of Professional Conduct must be observed even by a member who is no t in public practice? a. Independence in Fact and Appearance. b.

Integrity and Objectivity.

c.

Professional Competence.

d.

Compliance with Standards.

Explanation




34. CPA-

A practitioner is engaged to express express an opinion on management's assertion assertion that the square footage footage of a warehouse offered for sale is 150,000 square feet. The practitioner should refer to which of the following sources for professional guidance? a.

Statements on Auditing Standards.

b.

Statements on Standards for Attestation Engagements.

c.

Statements on Standards Standards for Accounting and Review Review Services. Services.

d.

Statements on Standards for Consulting Services.

Explanation




35. CPA-

Which of the following would a successor auditor ask the predecessor auditor to provide after accepting an audit engagement? a. Disagreements between the predecessor auditor and management as as to significant accounting policies and principles. b.

The predecessor predecessor auditor's understanding of the reasons reasons for the change of auditors.

c.

Facts known to the predecessor auditor that might bear on the integrity of management.

d.

Matters that may facilitate the evaluation of financial reporting consistency between the current and prior years.

Explanation




36. CPA-

Which of the following procedures should a user auditor include in the audit plan to create the most efficient audit when an audit client uses a service organization for several processes? a.

Review the service auditor's report on controls placed in operation.

b.

Review the service auditor's report and outline the accounting accounting system in a memo to the the working papers.

c.

Audit the service organization's controls, controls, assess risk, and and prepare the audit plan.

d.

Audit the service organization’s controls to test the work of the service service auditor.

Explanation




37. CPA-

Which of the following is a management assertion regarding account balances at the period end? a. Transactions and events that have been recorded have occurred and pertain to the entity. b.

Transactions and and events have been recorded in the proper accounts.

c.

The entity holds or controls controls the rights to assets, and liabilities are obligations of the entity.

d.

Amounts and and other data related to transactions transactions and events have been recorded appropriately.

Explanation




38. CPA-

While performing interim audit procedures of accounts receivable, numerous unexpected errors are found resulting in a change of risk assessment. Which of the following audit responses would be most appropriate? a.

Move detailed analytical procedures from year year end to interim.

b.

Increase the dollar threshold threshold of vouching customer invoices.

c.

Send negative accounts receivable receivable confirmations instead of positive accounts accounts receivable receivable confirmations.

d.

Use more experienced audit team members members to perform year-end year-end testing.

Explanation




39. CPA-

Which of the following types of risk increases when an auditor performs substantive analytical audit procedures for financial statement accounts at an interim date? a. Inherent. b. Control. c.

Detection.

d. Sampling.

Explanation




40. CPA-

Which of the following matters relating to an entity's operations would an auditor m ost likely consider as an inherent risk factor in planning an audit? a.

The entity's fiscal year year ends on June 30.

b.

The entity enters into derivative derivative transactions as hedges.

c.

The entity's entity's financial statements are are generated generated at an outside service center.

d. The entity's entity's financial data are available only in computer-readable form.

Explanation




41. CPA-

Which of the following is a factor in the control environment? a.

Segregation of duties.

b. Information processing. c.

Performance reviews.

d. Management's philosophy and operating style.

Explanation




42. CPA-

Which of the following statements about audit sampling risks is correct for a nonissuer? a.

Nonsampling risk arises from the possibility that, when when a substantive test test is restricted to a sample, conclusions might be different than if the auditor had tested each item in the population.

b.

Nonsampling risk risk can arise because because an auditor failed to recognize misstatements.

c.

Sampling risk is derived from the uncertainty in applying audit procedures procedures to specific risks.

d.

Sampling risk risk includes the possibility of selecting audit procedures procedures that are no t appropriate to achieve the specific objective.

Explanation




43. CPA-

An auditor of a nonissuer should design tests of details to ensure ensure that sufficient audit evidence supports which of the following? a.

The planned level of control risk.

b. Management's assertions that internal controls exist and are operating efficiently. efficiently. c.

The effectiveness of internal controls.

d.

The planned planned level of assurance at the the relevant assertion level.

Explanation




44. CPA-

Providing more supervision during an audit of a nonissuer in response to assessed risks of material misstatement at the financial statement level is an exa mple of: a.

A substantive response.

b.

Further audit procedures.

c.

Tests of controls.

d.

An overall response.

Explanation




45. CPA-

The Public Company Accounting Oversight Board was established by which of the following? a.

The Financial Accounting Standards Board.

b.

The American Institute of Certified Certified Public Accountants.

c.

The Sarbanes-Oxley Act of 2002.

d. The International Accounting Standards Board.

Explanation




46. CPA-

Which of the following applies to an accountant conducting a review of i nterim financial information? a. The accountant must indicate in the report report those circumstances in which which generally accepted accounting principles have no t been consistently observed in the current period in relation to the preceding period. b. The accountant must express an opinion on the financial statements taken as a whole. whole. c.

The accountant must maintain independence in mental mental attitude in all matters matters relating to the engagement.

d. The accountant must obtain sufficient appropriate appropriate evidence by performing procedures procedures to afford a reasonable basis for an opinion.

Explanation




47. CPA-

Which of the following circumstances would be inappropriate for the auditor to communicate to those charged with governance? a.

A material material misstatement was noted by the auditor and corrected corrected by management.

b. No significant deficiencies in internal control exist that would affect the financial statements. c.

The auditor is requesting representations regarding regarding the financial statements from management. management.

d. Management has has consulted with with other accountants about accounting and auditing matters during the period under audit.

Explanation




48. CPA-

An auditor may provide an issuer client any of the following non-audit services without impairing independence and without obtaining the preapproval of the audit committee, except : a.

Non-audit services with revenues in aggregate aggregate of less than 5% of the total revenues paid by the issuer to the auditor during the fiscal year in which the non-audit services are provided.

b. Non-audit services that were promptly promptly brought to the attention of, of, and approved by, the audit committee prior to the completion of the audit. c.

Non-audit services to perform perform financial financial information systems design design and implementation.

d.

Services that the issuer did not recognize as non-audit services at the time of the engagement.

Explanation




49. CPA-

An accountant compiles the the financial statements of a nonissuer nonissuer and issues the standard compilation compilation report. Although no t specifically stated in this report, it is implied that: a.

The accountant has no t audited or reviewed the financial statements.

b.

Substantially all disclosures required by GAAP are included in the financial statements. statements.

c.

The financial statements should not be used to obtain credit.

d. The compilation is limited to presenting information that is the representation of management.

Explanation




50. CPA-

According to the Sarbanes-Oxley Sarbanes-Oxley Act of 2002, what what is the maximum number number of years an audit partner partner can perform audit services for an issuer before the auditor rotation is required? a.

2 years.

b.

3 years.

c.

4 years.

d.

5 years.

Explanation



2013 AICPA released AUD MCQs

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