Question: ENPL2-0001
The Sarbanes-Oxley Act of 2002 authorized creation of the Answers A: Auditing Standards Board. B: Public o!"any Accounting O#ersight Board. C: $inancial Accounting Standards enter. D: or"orate %o#ernance &nstitute. Answer Explanations
C: Sufficient co!"etent e#idential !atter to be obtained. D: A !ore efficient audit to be "lanned. Answer Explanations
Ans'er A is incorrect incorrect because because the Auditing Auditing Standards Standards Board has been in#ol#ed 'ith auditing standards for !any years and 'as not established by the Act. B. Ans'er B is correct in that the Act Act authorized authorized creation creation of the Public o!"any Accounting O#ersight Board. . Ans'er is incorrect incorrect in that that the Act did did not establish a $inancial Accounting Standards enter. (. Ans'er ( is incorrect because 'hile there there are se#eral )or"orate %o#ernance &nstitutes*+ none 'ere established by the Act. Act.
A. Ans'e Ans'err A is incorr incorrec ectt beca because use the o#era o#erall ll sco"e sco"e of the the audit !ust re!ain the sa!e regardless of a""oint!ent date. B. Ans'e Ans'err B is incor incorrec rectt bec becaus ausee a "ro"e "ro"err cons conside iderat ratio ion n of internal control !ay be "erfor!ed e#en 'ithout early a""oint!ent. . Ans' Ans'er er is is inco incorr rrec ectt beca becaus usee suff suffic icie ient nt co! co!"e "ete tent nt e#idential !atter !ust be obtained regardless of the a""oint!ent date. (. Ans' Ans'er er ( is is corr correc ectt beca becaus usee the the early early a""o a""oin int! t!en entt of the inde"endent auditor enables the auditor to "lan hisher 'or1 so that it !ay be done ex"editiously and to deter!ine the extent to 'hich it can be done before the balance sheet date. Such "reli!inary "reli!inary 'or1 by the the auditor auditor "er!its the audit to be be "erfor!ed in a !ore efficient efficient !anner !anner and to be co!"leted co!"leted at an early date after the year-end.
Hint
Hint
The Act increased go#ern!ental in#ol#e!ent.
Planning enhances efficiency.
Question: ENPL2-0002
Question: ENPL2-0004
,hich of the follo'ing has the lo'est authoritati#e status but !ay be useful in assisting the auditor in a""lying the SASs
,hen establishing an understanding 'ith an audit client* that understanding should be docu!ented
Answers A: State!ents on Auditing Standards. B: Auditing State!ents of Position. C: ournal of Accountancy articles. D: Auditing &nter"retations. Answer Explanations
Answers A: Through use of an engage!ent letter. B: Through a 'ritten co!!unication 'ith the client. C: /ither orally or in 'riting 'itht the client. D: &n a !anner co!"letely based on the auditors seasoned
A.
A. Ans' Ans'er er A is inc incor orre rect ct.. SASs SASs ha# ha#ee the the high highes estt le#e le#ell of authority. B. Ans' Ans'er er B is inc incor orre rect ct.. Stat State! e!en ents ts of of Posi Positi tion on ha#e ha#e the authority of inter"retati#e guidance. . Ans'er is correct. Journal of Accountancy articles ha#e no authoritati#e status but !ay be useful in a""lying SASs. (. Ans' Ans'er er ( is incor incorrec rect. t. Audi Auditin ting g &nt &nter" er"ret retat ation ionss ha# ha#ee the status of inter"reti#e guidance.
. (.
Hint
,hich of the "ublications ha#e no authoritati#e status
Ans'er A is incorrect. incorrect. ,hile an engage!ent engage!ent letter letter is fre4uently used* it is not re4uired. Ans'er B is correct. The The "rofessional "rofessional standards re4uire a 'ritten co!!unication. Ans'er is incorrect. The understandi understanding ng !ust !ust be 'ritten not oral. Ans'er ( is incorrect. The "rofessional "rofessional standards standards allo' only li!ited auditor use of "rofessional 3udg!ent here in that a 'ritten co!!unication is re4uired.
Hint
Only li!ited flexibility exists here.
Answers A: A !ore thorough exa!ination to be "erfor!ed. B: A "ro"er consideration of internal control to be "erfor!ed.
Answers A: A. B: B. C: . D: (. Answer Explanations
A.
Ans'er A is correct. correct. The "rofessional "rofessional standards standards re4uire re4uire that both the auditor5s res"onsibilities and li!itations of the audit be co!!unicated. B. Ans'er B is incorrect. 8i!itations 8i!itations of the audit audit !ust !ust be co!!unicated. . Ans'er is incorrect. The auditor5s auditor5s res"onsibilities res"onsibilities !ust !ust be co!!unicated. co!!unicated. (. Ans'er ( is incorrect. incorrect. Both the auditor5s auditor5s res"onsibilities res"onsibilities and li!itations of the audit !ust be co!!unicated.
Question: ENPL2-000
An understanding 'ith the client !ust include the ob3ecti#es of the engage!ent* !anage!ent5s res"onsibilities* and The auditor’s
,hat needs to be co!!unicated to reduce the li1elihood of !isunderstandings
The "ri!ary res"onsibility for the ade4uacy of disclosure in the financial state!ents of a "ublicly held co!"any rests 'ith the
Question: ENPL2-0003
/arly a""oint!ent of the inde"endent auditor 'ill enable
of the audit 6es 7o 6es 7o
Question: ENPL2-000!
Answer Explanations
B.
responsibilities 6es 6es 7o 7o
Hint
"rofessional "rofessional 3udg!ent. 3udg!ent. A.
A. B. . (.
Limitations
Answers A: Partner assigned to the audit engage!ent. B: 9anage!ent of the co!"any. C: Auditor in charge of the field'or1. D: Securities and /xchange o!!ission. Answer Explanations
A. Ans'e Ans'err A is inco incorre rrect ct becau because se hish hisher er res"o res"onsi nsibil bility ity is li!ited to ex"ressing an o"inion as to the fairness of the financial state!ents. B. Ans' Ans'er er B is is corr correc ectt beca becaus usee fina financ ncia iall stat state! e!en ents ts are are the re"resentations of !anage!ent* and they ha#e the res"onsibility for "roducing "ro"er financial state!ents. . Ans'e Ans'err is incorr incorrect ect becaus becausee his hisher her res"o res"onsi nsibi bilit lity y is to gather audit e#idence regarding the fairness of the financial state!ents. (. Ans' Ans'er er ( is is inco incorr rrec ectt beca becaus usee its its res" res"on onsi sibi bili lity ty for for enforcing disclosure re4uire!ents in financial state!ents of "ublicly held co!"anies co!"anies is secondary secondary to !anage!en !anage!ents ts "ri!ary
res"onsibility for the re"resentations included in the financial state!ents. Hint
,ho !a1es the re"resentations in the financial state!ents Question: ENPL2-000"
,hich of the follo'ing state!ents best describes the "hrase generally acce"ted auditing standards as it relates to an audit of a non"ublic co!"any Answers A: They identify the "olicies and "rocedures for the conduct of
the audit. B: They define the nature and extent of the auditor5s res"onsibilities. C: They "ro#ide guidance to the auditor 'ith res"ect to "lanning the audit audit and 'riting 'riting the audit audit re"ort. D: They set forth a !easure of the 4uality of the "erfor!ance of audit "rocedures.
Answer Explanations
A. Ans' Ans'er er A is corr correc ectt bec becau ause se the the eele le!e !ent ntss o off !ateriality and audit ris1 underlie the a""lication of all the standards* "articularly the standards of field'or1 and re"orting. B. Ans' Ans'er er B is is inco incorr rrec ectt beca becaus usee inte intern rnal al con contr trol ol doe doess not underlie all %AAS but rather deals s"ecifically 'ith the second field'or1 standard. . Ans'e Ans'err is incor incorrec rectt becau because se corro corrobor borat ating ing e#ide e#idence nce is re4uired to be gathered but does not underlie all %AAS. orroborating e#idence addresses the third field'or1 standard directly. (. Ans'e Ans'err ( is incorr incorrect ect becaus becausee rea reason sonabl ablee assura assuranc ncee is a basic conce"t of internal control 'hich recognizes that the cost of internal control should not exceed the benefits ex"ected to be deri#ed. Hint
Answer Explanations
Question: ENPL2-000$
,hich of the follo'ing "ublications does not 4ualify as a source of generally acce"ted accounting "rinci"les
%AAS is a !easure of "erfor!ance. Question: ENPL2-000#
,hich of the follo'ing underlies the a""lication of generally acce"ted auditing standards* "articularly the standards of field'or1 and re"orting
Answer Explanations
A.
B.
.
(.
Ans'er A is incorrect. incorrect. Any Any infor!ation infor!ation on the achie#ed achie#ed u""er "recision li!it 'ill generally be obtained after the o#erall audit strategy has been de#elo"ed. Ans'er Ans'er B is incorrect incorrect.. Any infor! infor!atio ation n on interi! interi! substanti#e tests 'ill generally be obtained after the o#erall audit strategy has been de#elo"ed. Ans'er is incorrect. Any infor!ation "ertaining "ertaining to attorneys letters 'ill generally be obtained after the o#erall audit strategy has been de#elo"ed. Ans'er ( is correct. An o#erall o#erall audit audit strategy in#ol#es in#ol#es ;?< deter!ining the sco"e of the audit* ;2< deter!ining the re"orting ob3ecti#es* and ;< considering #arious other i!"ortant factors.
Hint
The "reli!inary audit strategy occurs #ery early in the engage!ent. Question: ENPL2-0011
Answers A: Accounting inter"retations issued by the $ASB. B: A&PA once"ts State!ents. C: A&PA Practice Bulletins. D: State!ents of $inancial Standards issued by the $ASB. Answer Explanations
A. Ans'e Ans'err A is incorr incorrec ectt beca because use inter" inter"ret retati ations ons issue issued d by the $ASB $ASB are considered considered as sources of %AAP %AAP ;A= >??<. B. Ans' Ans'er er B is is corr correc ectt beca becaus usee the the A& A&PA PA has has not not issu issued ed conce"ts state!ents. The conce"ts state!ents issued by the $ASB are considered other accounting literatures and are not sources of generally acce"ted accounting "rinci"les. . Ans'e Ans'err is incor incorrec rectt bec becaus ausee Practi Practice ce Bull Bulleti etins ns are considered as sources of %AAP ;A= >??<. (. Ans' Ans'er er ( is is inco incorr rrec ectt beca becaus usee $ASB $ASB sta state te!e !ent ntss are are considered sources of %AAP ;A= >??<. Hint
The A&PA has not issued conce"ts state!ents. Question: ENPL2-0010
Answers A: The ele!ents of !ateriality and audit ris1. B: The ele!ent of internal control. C: The ele!ent of corroborating e#idence. D: The ele!ent of reasonable assurance.
litigation* clai!s* or assess!ents not disclosed in the financial state!ents. D: @e"orting ob3ecti#es of the engage!ent.
,hich of the follo'ing do not underlie the a""lication of all the standards
A. Ans' Ans'er er A is inc incor orre rect ct bec becau ause se gen gener eral ally ly acc acce" e"te ted d auditing standards gi#e only li!ited guidance as to s"ecific "olicies and and "rocedures "rocedures for the conduct conduct of the the audit. B. Ans' Ans'er er B is inc incor orre rect ct bec becau ause se gen gener eral ally ly acce acce"t "ted ed auditing standards gi#e only li!ited guidance as to the nature and extent of the auditors res"onsibilities. . Ans' Ans'er er is inc incor orre rect ct bec becau ause se itit only only rel relat ates es to to the the standard concerned 'ith "lanning the audit and 'riting the audit re"ort and not to the other standards. (. Ans' Ans'er er ( is cor corre rect ct bec becau ause se gen gener eral ally ly acce acce"t "ted ed auditing standards ;%AAS< deal 'ith !easures of the 4uality of the "erfor!ance of audit "rocedures. Auditing standards relate not only to the auditors "rofessional 4ualities but also to the 3udg!ent 3udg!ent exercised by the auditor auditor in the "erfor!ance "erfor!ance of the the audit. Hint
B: $indings fro! substanti#e tests "erfor!ed at interi! dates. C: ,hether the in4uiry of the client5s attorney identifies any
&n de#elo"ing an o#erall audit strategy* an auditor should consider Answers A: ,hether the allo'ance for sa!"ling ris1 exceeds the
achie#ed u""er "recision li!it.
&nherent ris1 and control ris1 differ fro! detection ris1 in that inherent ris1 and control ris1 are
Answers A: /le!ents of audit ris1 'hile detection ris1 is not. B: hanged at the auditor5s discretion 'hile detection ris1 is
not. C: onsidered at the indi#idual account-balance le#el 'hile detection ris1 is not. D: $unctions of the client and its en#iron!ent 'hile detection ris1 is not. Answer Explanations
A. Ans'e Ans'err A is incor incorrec rect. t. &nhere &nherent nt ris1* ris1* cont control rol ris1 ris1 and and detection ris1 are all co!"onents of audit ris1. B. Ans' Ans'er er B is is inco incorr rrec ect. t. (et (etec ecti tion on ris ris1* 1* not not inh inher eren entt ris1 and control ris1* !ay be changed at the auditors discretion. . Ans' Ans'er er is inc incor orre rect ct.. Aud Audit itor orss cons consid ider er all all of of the the co!"onent ris1s at the account le#el. (. Ans' Ans'er er ( is cor corre rect ct.. &nhe &nhere rent nt ris ris1 1 and and con contr trol ol ris1 ris1 exist inde"endently of the audit of financial state!ents as functions of the client and its en#iron!ent* 'hereas detection ris1 relates to the auditors "rocedures and can be changed at his or her discretion. Hint
An auditor !ay change the le#el of detection ris1.
Question: ENPL2-0012
As the acce"table le#el of detection ris1 decreases* the assurance directly "ro#ided fro!
Answers A: Substanti#e "rocedures should increase. B: Substanti#e "rocedures should decrease. C: Tests of controls should increase. D: Tests of controls should decrease. Answer Explanations
Ans'er A is correct. (etection ris1 is restricted by the auditors substanti#e "rocedures. As the acce"table le#el of detection ris1 decreases* assurance "ro#ided by substanti#e "rocedures !ust increase. &ncreased assurance can be obtained by !odifying the nature* ti!ing andor extent of the substanti#e "rocedures. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. . Ans'er is incorrect. The acce"table le#el of detection ris1 is based largely on the assessed le#els of control ris1 and inherent ris1. Accordingly* any tests of controls 'ill already ha#e been "erfor!ed. (. Ans'er ( is incorrect. The acce"table le#el of detection ris1 is based largely on the assessed le#els of control ris1 and inherent ris1. Accordingly* any tests of controls 'ill already ha#e been "erfor!ed.
This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. Hint
&dentify the effect of decreasing the extent of substanti#e "rocedures on audit ris1. Question: ENPL2-0014
,hich of the follo'ing audit ris1 co!"onents !ay be assessed in non4uantitati#e ter!s
A.
Hint
There is an in#erse relationshi" bet'een detection ris1 and substanti#e "rocedures. Question: ENPL2-0013
olding all other factors constant* decreasing the extent of substanti#e audit "rocedures for accounts "ayable ordinarily has 'hat effect on audit ris1
A. B. . (.
Inherent risk 6es 6es 7o 6es
Control risk 6es 7o 6es 6es
A. Ans'er A is correct because decreasing the extent of substanti#e audit "rocedures increases detection ris1* and this 'ill increase audit ris1 'hen all other factors re!ain constant. This ans'er is incorrect. @efer to the correct ans'er ex"lanation.
Detection risk 7o 6es 6es 6es
Answers A: A. B: B. C: . D: (. Answer Explanations
Audit ris1
E
Audit ris1
E E
&nherent ris1 x ontrol ris1 x (e in this "roble! .>0 x .>0 x .>0 D.>C
7ote that a 4uantitati#e a""roach such as this is largely for de!onstrati#e "ur"oses and fe' 'ould directly incor"orate it into "ractice. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. A@ E &@ x (@ x @
This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. (. Ans'er ( is correct because all of these ris1s !ay be assessed in 4uantitati#e ter!s such as "ercentages. They !ay also be assessed in non4uantitati#e ter!s such as a range fro! a !ini!u! to a !axi!u!. 7o tric1s here. Question: ENPL2-001
=se the audit ris1 !odel to calculate audit ris1 ;to the closest "ercent< in the follo'ing circu!stance: ontrol ris1 &nherent ris1 (etection ris1 Answers
This ans'er is incorrect. @efer to the correct ans'er ex"lanation. B. Ans'er B is correct. The re4uire!ent is to use the audit ris1 !odel to !athe!atically calculate audit ris1 ;to the nearest "ercent<. A= ?2 discusses the three co!"onents of the audit ris1 !odel "resented in this "roble! 'hich !ay be #ie'ed as
Hint
Hint Answers A: &ncreases. B: (ecreases. C: 7o effect. D: &ndeter!inate. Answer Explanations
A: ?C. B: DC. C: ?C. D: >0C. Answer Explanations
>0C >0C >0C
Question: ENPL2-001!
The ris1 that an auditor 'ill conclude* based on substanti#e "rocedures* that a !aterial !isstate!ent does not exist in an account balance 'hen* in fact* such error does exist is referred to as Answers A: Sa!"ling ris1. B: (etection ris1. C: 7onsa!"ling ris1. D: &nherent ris1. Answer Explanations
A. Ans'er A is incorrect. Sa!"ling ris1 arises fro! the "ossibility that* 'hen a test of controls or a substanti#e test is restricted to a sa!"le* the auditors conclusions !ay be different fro! the conclusions he or she 'ould reach if the "rocedures 'ere a""lied in the sa!e 'ay to all ite!s in the account balance or class of transactions. B. Ans'er B is correct. (etection ris1 is the ris1 that the auditor 'ill not detect a !aterial !isstate!ent that exists in an assertion. . Ans'er is incorrect. 7onsa!"ling ris1 includes only those as"ects of audit ris1 that are not due to sa!"ling.
(. Ans'er ( is incorrect. &nherent ris1 is the susce"tibility of an assertion to a !aterial !isstate!ent* assu!ing that there are no related controls. Hint
7o tric1s here. Question: ENPL2-001"
As a lo'er acce"table le#el of !ateriality is established* the auditor should "lan !ore 'or1 on indi#idual accounts to Answers A: $ind s!aller !isstate!ents. B: $ind larger !isstate!ents. C: &ncrease the tolerable !isstate!ent in the accounts. D: (ecrease the ris1 of assessing control ris1 too lo'. Answer Explanations
A. Ans'er A is correct. A decrease in acce"table le#els of !ateriality re4uires the auditor to do one or !ore of the follo'ing: ;?< select a !ore effecti#e auditing "rocedure* ;2< "erfor! auditing "rocedures closer to the balance sheet date* or ;< increase the extent of a "articular auditing "rocedure. By increasing the extent of a "rocedure concerning an indi#idual account andor selecting a !ore effecti#e "rocedure* the auditor 'ill find the s!aller !isstate!ents that in aggregate !ight exceed his "reli!inary 3udg!ents about !ateriality. The auditor* therefore* !ust "lan to find s!aller !isstate!ents as a lo'er acce"table le#el of !ateriality is established. B. Ans'er B is incorrect. 8arger !isstate!ents !ust be disco#ered in any sa!"ling "lan regardless of !ateriality le#els. . Ans'er is incorrect. A decrease in !ateriality 'ill lead to a decrease in tolerable !isstate!ent for an account* not an increase. Tolerable !isstate!ent is a "lanning conce"t and is related to the auditors "reli!inary esti!ates of !ateriality le#els in such a 'ay that tolerable !isstate!ent co!bined for the entire audit "lan* does not exceed those esti!ates. (. Ans'er ( is incorrect. 8o'er le#els of !ateriality do not re4uire a reduction in the ris1 of assessing control ris1 too lo'. The ris1 of assessing control ris1 too lo' "ertains to the "lanned reliance on s"ecific internal control "olicies and "rocedures* not 'or1 on indi#idual accounts. Hint
As the le#el of !ateriality decreases* the a!ount of e#idence needed increases. Question: ENPL2-001#
,hich of the follo'ing state!ents is not correct about !ateriality
Answers A: The conce"t of !ateriality recognizes that so!e !atters are
i!"ortant for fair "resentation of financial state!ents in confor!ity 'ith %AAP* 'hile other !atters are not i!"ortant. B: An auditor considers !ateriality for "lanning "ur"oses in ter!s of the largest aggregate le#el of !isstate!ents that could be !aterial to any one of the financial state!ents. C: 9ateriality 3udg!ents are !ade in light of surrounding circu!stances and necessarily in#ol#e both 4uantitati#e and 4ualitati#e 3udg!ents. D: An auditor5s consideration of !ateriality is influenced by the auditor5s "erce"tion of the needs of a reasonable "erson 'ho 'ill rely on the financial state!ents. Answer Explanations
A. Ans'er A is incorrect. 9ateriality does recognize that so!e !atters are i!"ortant for fair "resentation in confor!ity 'ith %AAP. B. Ans'er B is correct because the auditor considers !ateriality for "lanning "ur"oses in ter!s of the s!allest* not the largest* aggregate a!ount of !isstate!ent that could be !aterial to any one of the financial state!ents. . Ans'er is incorrect as !ateriality is a 3udg!ent assessed in 4uantitati#e and 4ualitati#e ter!s. (. Ans'er ( is incorrect because !ateriality is a function of the auditors "erce"tion of user needs. Hint
,hat is the definition of !ateriality Question: ENPL2-001$
&n considering !ateriality for "lanning "ur"oses* an auditor belie#es that !isstate!ents aggregating F?0*000 'ould ha#e a !aterial effect on an entitys inco!e state!ent* but that !isstate!ents 'ould ha#e to aggregate F20*000 to !aterially affect the balance sheet. Ordinarily* it 'ould be a""ro"riate to design auditing "rocedures that 'ould be ex"ected to detect !isstate!ents that aggregate
Answers A: F?0*000 B: F?G*000 C: F20*000 D: F0*000 Answer Explanations
A. Ans'er A is correct because it 'ill ordinarily be difficult to antici"ate during the "lanning stage of an audit 'hether all !isstate!ents 'ill affect only one financial state!ent. The auditor therefore generally is re4uired to use the lo'er financial state!ent figure for !ost "ortions of "lanning.
This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. Hint
&n the "lanning stage* the auditor ty"ically !a1es a conser#ati#e assess!ent of !ateriality. Question: ENPL2-0020
$ollo'ing the Professional Standards 'hich of the follo'ing is not one of the assertions !ade by !anage!ent for account balances Answers A: o!"leteness. B: /xistence. C: Haluation and allocation. D: @ele#ance and reliability. Answer Explanations
A.
Ans'er A is incorrect. o!"leteness is an account balance assertion. B. Ans'er B is incorrect. /xistence is an account balance assertion. . Ans'er is incorrect. Presentation and disclosure is an account balance assertion. (. Ans'er ( is correct. @ele#ance and reliability is not included in the "rofessional standards as an account balance assertion. A= 2D "resents as assertions: ;?< /xistence* ;2< @ights and obligations* ;< o!"leteness* and ;>< Haluation and allocation. Hint
7o tric1s here. Question: ENPL2-0021
,hich of the follo'ing* if !aterial* 'ould be fraud as defined in State!ents on Auditing Standards Answers A: /rrors in the a""lication of accounting "rinci"les. B: /rrors in the accounting data underlying the financial
state!ents. C: 9isinter"retation of facts that existed 'hen the financial state!ents 'ere "re"ared. D: 9isa""ro"riation of assets. Answer Explanations
A. Ans'er A is incorrect because an error in the a""lication of accounting "rinci"les is an exa!"le of errors as
defined by State!ents on Auditing Standards. An error refers to an unintentional !ista1e. B. Ans'er B is incorrect because an error in accounting data is an exa!"le of errors as defined by State!ents on Auditing Standards. An error refers to an unintentional !ista1e. . Ans'er is incorrect because a !isinter"retation of facts is an exa!"le of errors as defined by State!ents on Auditing Standards. An error refers to an unintentional !ista1e. (. Ans'er ( is correct because the ter! fraud refers to intentional distortions of financial state!ents such as deliberate !isre"resentations. Hint
$raud is an intentional distortion of the financial state!ents.
(. Ans'er ( is correct. The auditor should assess the ris1 that errors and fraud ;'hich include !ista1es* falsifications and o!issions< !ay cause the financial state!ents to contain !aterial !isstate!ents.
B: Sub3ecti#e !istrust. C: Ob3ecti#e indifference. D: Professional res"onsi#eness. Answer Explanations
Hint
A. Ans'er A is correct because the auditor should "lan and "erfor! the audit 'ith an attitude of "rofessional s1e"ticis!* recognizing that the a""lication of auditing "rocedures !ay "roduce e#idential !atter indicating the "ossibility of errors or fraud. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation.
Three of these ans'ers are incorrect because they are inco!"lete. The correct ans'er is the broadest in sco"e. Question: ENPL2-0023
,hat assurance does the auditor "ro#ide that errors* fraud* and direct effect illegal acts that are !aterial to the financial state!ents 'ill be detected
Question: ENPL2-0022
,hich of the follo'ing factors is !ost i!"ortant concerning an auditors res"onsibility to detect errors and fraud
A. B. . (.
Errors 8i!ited 8i!ited @easonable @easonable
Fraud 7egati#e 8i!ited 8i!ited @easonable
Answers A: The susce"tibility of the accounting records to intentional
!ani"ulations* alterations* and the !isa""lication of accounting "rinci"les. B: The "robability that unreasonable accounting esti!ates result fro! unintentional bias or intentional atte!"ts to !isstate the financial state!ents. C: The "ossibility that !anage!ent fraud* defalcations* and the !isa""ro"riation of assets !ay indicate the existence of illegal acts. D: The ris1 that !ista1es* falsifications* and o!issions !ay cause the financial state!ents to contain !aterial !isstate!ents. Answer Explanations
A. Ans'er A is incorrect. The susce"tibility of the accounting records to intentional !ani"ulations* alterations* and the !isa""lication of accounting "rinci"les are exa!"les of factors that !ay influence the auditors consideration of ris1 of !aterial !isstate!ent. This ans'er is incorrect because it is inco!"lete. B. Ans'er B is incorrect. The "robability that unreasonable accounting esti!ates result fro! unintentional bias or intentional atte!"ts to !isstate the financial state!ents is an exa!"le of a factor that !ay influence the auditors consideration of ris1 of !aterial !isstate!ents in the financial state!ents. This ans'er is incorrect because it is inco!"lete. . Ans'er is incorrect. The "ossibility that !anage!ent fraud* defalcations* and the !isa""ro"riation of assets indicating the existence of illegal acts is one factor the auditor can use to assess the ris1 of !anage!ent !isre"resentation in the financial state!ents. Ans'er is incorrect because it is inco!"lete.
Hint
ontrolled doubt increases the li1elihood of detecting !aterial !isstate!ents due to errors and fraud. Question: ENPL2-002
Answers A: A. B: B. C: . D: (. Answer Explanations
This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. (. Ans'er ( is correct. A= ?D re4uires the auditor to design the audit to "ro#ide reasonable assurance of detecting !aterial errors* fraud and direct effect illegal acts. Hint
(irect effect illegal acts re4uire the sa!e assurance as errors and fraud. Question: ENPL2-0024
The inde"endent auditors "lan for an exa!ination in accordance 'ith generally acce"ted auditing standards is influenced by the "ossibility of !aterial !isstate!ents. The auditor 'ill therefore conduct the exa!ination 'ith an attitude of Answers A: Professional s1e"ticis!.
,hich of the follo'ing state!ents best describes the auditors res"onsibility regarding the detection of !aterial errors and fraud Answers A: The auditor is res"onsible for the failure to detect !aterial
errors and fraud only 'hen such failure results fro! the nona""lication of generally acce"ted accounting "rinci"les. B: Auditing "rocedures !ay or !ay not need to be extended if the auditor5s analysis indicates the existence of fraud ris1 factors. C: The auditor is res"onsible for the failure to detect !aterial errors and fraud only 'hen the auditor fails to confir! recei#ables or obser#e in#entories. D: /xtended auditing "rocedures are re4uired to detect unrecorded transactions e#en if there is no e#idence that !aterial errors and fraud !ay exist. Answer Explanations
A. Ans'er A is incorrect. The auditor should design the audit to "ro#ide reasonable assurance of detecting errors and fraud that is !aterial to the financial state!ents. This res"onsibility for detection is not li!ited to circu!stances arising fro! the nona""lication of generally acce"ted accounting "rinci"les. B. Ans'er B is correct. ,hen fraud ris1 factors exist* the auditor should consider 'hether already designed "rocedures ade4uately consider the existence of fraud. ,hen they do not* audit "rocedures !ust be extended. . Ans'er is incorrect. The auditor !ay be held res"onsible for failures to detect !isstate!ents due to errors and
fraud because of inade4uate "lanning* "erfor!ance or 3udg!ent. 7ot confir!ing recei#ables or not obser#ing in#entories are only t'o of the !any "ossible situations in 'hich the auditor !ay be held res"onsible for a failure to detect associated errors and fraud. (. Ans'er ( is incorrect. The extended auditing "rocedures are necessary 'hen nor!al "rocedures indicate e#idence that !isstate!ents due to errors and fraud !ay exist* not 'hen there is no such e#idence. Hint
An existing !aterial !isstate!ent due to error or fraud suggests that other such !isstate!ents !ay exist. Question: ENPL2-002!
,hich of the follo'ing is an exa!"le of fraudulent financial re"orting
Answers A: o!"any !anage!ent i!"ro"erly records as re#enue the
A: &ts "resence indicates that the ris1 of fraud is high. B: &t has been obser#ed in circu!stances 'here frauds ha#e
A= ?D "ro#ides infor!ation on the PAs res"onsibility relating to fraud.
occurred. C: &t re4uires !odification of "lanned audit "rocedures. D: &t is also a !aterial 'ea1ness in internal control.
Hint
Answer Explanations
Question: ENPL2-002$
A. Ans'er A is incorrect because the ris1 of fraud !ay or !ay not be high 'hen a ris1 factor is "resent. B. Ans'er B is correct because A= ?D suggests that 'hile fraud ris1 factors do not necessarily indicate the existence of fraud* they often ha#e been obser#ed in circu!stances 'here frauds ha#e occurred. . Ans'er is incorrect because the current audit "rogra! !ay in !any circu!stances a""ro"riately address a fraud ris1 factor. (. Ans'er ( is incorrect because a fraud ris1 factor !ay or !ay not re"resent a !aterial 'ea1ness in internal controlI see A= 2G for infor!ation on re"ortable conditions and !aterial 'ea1nesses in internal control. Hint
"roceeds of a loan. B: The treasurer di#erts custo!er "ay!ents to his "ersonal use* concealing his actions by debiting an ex"ense account* thus o#erstating ex"enses. C: An e!"loyee steals in#entory and the shrin1age is recorded in cost of goods sold. D: An e!"loyee bills his co!"any for "roducts not recei#ed* using the na!e of a fictitious su""lier.
$raud ris1 factors are "resent in !ost audits.
Answer Explanations
state!ents should be re"orted directly to the audit co!!ittee. B: $raud that causes an i!!aterial !isstate!ent of the financial state!ents need not be re"orted to the audit co!!ittee. C: $raud 'ith a !aterial effect on the financial state!ents should be re"orted directly by the auditor to the Securities and /xchange o!!ission. D: The auditor has no res"onsibility to disclose fraud outside the entity under any circu!stances.
A. Ans'er A is correct because fraudulent financial re"orting in#ol#es intentional !isstate!ents or o!issions of a!ounts or disclosures in financial state!ents to decei#e financial state!ent users and i!"ro"erly recording the re#enue results in such !isstate!ents. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. Hint
(ifferentiate bet'een fraudulent financial re"orting and !isa""ro"riation of assets. Question: ENPL2-002"
,hich of the follo'ing is correct concerning a fraud ris1 factor Answers
Question: ENPL2-002#
,hich of the follo'ing is correct concerning re4uire!ents about auditor co!!unications about fraud Answers A: All fraud that causes a !aterial !isstate!ent of the financial
Answer Explanations
A. Ans'er A is correct because all fraud in#ol#ing senior !anage!ent and all other !aterial fraud should be re"orted directly to the audit co!!ittee. B. Ans'er B is incorrect because fraud resulting in an i!!aterial !isstate!ent of the financial state!ents 'ith 'hich !anage!ent is in#ol#ed !ust be co!!unicated to the audit co!!ittee. . Ans'er is incorrect because auditors are only re4uired to re"ort fraud to the Securities and /xchange o!!ission under "articular circu!stances. (. Ans'er ( is incorrect because under certain circu!stances auditors !ust disclose fraud outside the entity.
,hat "arty do PAs fre4uently re"ort significant !atters to
,hich of the follo'ing is not re4uired 'hen considering fraud in a financial state!ent audit Answers A: onduct a continuing assess!ent of the ris1s of !aterial
!isstat!ent due to fraud throughout the audit. B: onduct an audit tea! discussion of the ris1 of !aterial !isstat!ent due to fraud. C: onduct the audit 'ith "rofessional s1e"ticis!* 'hich includes an attitude that assu!es balances are incorrect until docu!ented by the auditor. D: &n4uire of the audit co!!ittee as to their #ie's about the ris1s of fraud and their 1no'ledge of any fraud or sus"ected fraud. Answer Explanations
A. Ans'er A is incorrect because an assess!ent of the ris1s of !aterial !isstate!ent of fraud is re4uired by A= ?D. B. Ans'er B is incorrect because such a staff discussion is re4uired by A= ?D. . Ans'er is correct because "rofessional s1e"ticis! is an attitude that includes a 4uestioning !ind and a critical assess!ent of audit e#idenceJit does not assu!e that balances are incorrect until docu!ented by the auditor. A= ?D "ro#ides guidance on considering fraud during a financial state!ent audit. (. Ans'er ( is incorrect because such in4uiries of an audit co!!ittee are re4uired by A= ?D. Hint
,hat are the !a3or re4uire!ents of SAS KK Question: ENPL2-0030
,hich of the follo'ing need not be docu!ented in relation to the auditors consideration of fraud Answers A: 7ature of co!!unications about fraud !ade to !anage!ent. B: Procedures "erfor!ed to obtain infor!ation to identify and
assess ris1s of !aterial !isstate!ent due to fraud. C: S"ecific ris1s of !aterial !isstat!ent due to fraud that 'ere identified. D: The assessed le#el of the ris1 of !anage!ent o#erride of controls. Answer Explanations
A. Ans'er A is incorrect because A= ?D re4uires such co!!unications.
B. Ans'er B is incorrect because A= ?D re4uires such co!!unications. . Ans'er is incorrect because A= ?D re4uires such co!!unications. (. Ans'er ( is correct because 'hile auditors !ust consider the ris1 of !anage!ent o#erride of controls* no such assess!ent need be !ade as "art of an audit. Hint
Thin1 about an auditors o#erall a""roach to considering fraud. Question: ENPL2-0031
,hich of the follo'ing is !ost li1ely to be an o#erall res"onse to fraud ris1s identified in an audit Answers A: Su"er#ise !e!bers of the audit tea! less closely and rely
!ore u"on 3udg!ent. B: &ncrease consideration of !anage!ents selection and a""lication of accounting "rinci"les. C: =se only accountants 'ith !ulti"le years of ex"erience on the engage!ent. D: &ncrease e!"hasis on the audit of transactions in all areas of the audit. Answer Explanations
A. Ans'er A is incorrect because closer su"er#ision* not less close su"er#ision* is !ore li1ely to be a""ro"riate. B. Ans'er B is correct because A= ?D indicates that o#erall res"onses to the ris1 of !aterial !isstate!ent due to fraud include ;?< assigning "ersonnel 'ith "articular s1ills relating to the area and considering the necessary extent of su"er#ision to the audit* ;2< increasing the consideration of !anage!ent5s selection and a""lication of accounting "rinci"les* and ;< !a1ing audit "rocedures less "redictable. . Ans'er is incorrect because no such re4uire!ent for ex"erience of all staff !e!bers exists. (. Ans'er ( is incorrect because it is unli1ely that increased e!"hasis on transactions in all areas of the audit 'ill be necessary. Hint
Thin1 about an a""roach that 'ill !a1e identifying !isstate!ents !ore li1ely.
(.
7o
Answers A: A. B: B. C: . D: (. Answer Explanations
A. Ans'er A is incorrect because "rofessional s1e"ticis! is not ordinarily necessary. B. Ans'er B is correct because A= ?D suggests that the three conditions generally "resent 'hen fraud occurs are that indi#iduals ha#e an ;?< incenti#e or "ressure* ;2< o""ortunity* and ;< ability to rationalize. . Ans'er is incorrect because an incenti#e is ordinarily necessary and "rofessional s1e"ticis! is not. (. Ans'er ( is incorrect because an incenti#e is ordinarily necessary. Hint
onsider 'hether the o"tions see! to relate to co!!itting as o""osed to detecting fraud.
7o
. Ans'er is incorrect because it states that in4uiry of !anage!ent is unnecessary. (. Ans'er ( is incorrect because it states that neither in4uiry of !anage!ent nor a consideration of fraud ris1 factors is necessary. Hint
Thin1 about #arious a""roaches to detecting fraud* none of 'hich are "erfect. Question: ENPL2-0034
Professional s1e"ticis!* 'hen exercised during the consideration of the ris1 of !isstate!ent due to fraud Answers A: Should only be exercised during the "lanning stage of the
audit. B: &s based on the notion that the client is dishonest. C: &s an attitude that includes a 4uestioning !ind. D: Ordinarily includes the use of an outside ex"ert in !ost audits. Answer Explanations
A. Ans'er A is incorrect because "rofessional s1e"ticis! is exercised during all stages of the audit. An auditor gathers infor!ation necessary to identify ris1s of B. Ans'er B is incorrect because the auditor does not !aterial !isstate!ent due to fraud by assu!e that the client is either honest or dishonest. . Ans'er is correct because A= 20 defines In!uiry of Considerin" "rofessional s1e"ticis! as an attitude that includes a mana"ement fraud risk factors 4uestioning !ind and a critical assess!ent of audit e#idence. A. 6es 6es (. Ans'er ( is incorrect because no outside ex"ert is B. 6es 7o ordinarily consulted relating to the "rofessional s1e"ticis! . 7o 6es re4uire!ent. Hint (. 7o 7o (efine "rofessional s1e"ticis!. Question: ENPL2-0033
Answers A: A. B: B. C: . D: (. Answer Explanations
A. Ans'er A is correct because* 'hen obtaining infor!ation needed to identify ris1s of !aterial !isstate!ent due to fraud* A= ?D re4uires in4uiries of !anage!ent* Question: ENPL2-0032 consideration of results of analytical "rocedures* consideration &ndi#iduals 'ho co!!it fraud are ordinarily able to rationalize of fraud ris1 factors* and consideration of certain other the act and ha#e infor!ation. &n addition* a discussion a!ong engage!ent "ersonnel regarding the ris1s of !aterial !isstate!ent due to Incentive rofessional skepticism fraud is re4uired. A. 6es 6es B. Ans'er B is incorrect because it states that a B. 6es 7o consideration of fraud ris1 factors is unnecessary. . 7o 6es
Question: ENPL2-003
,hich of the follo'ing is not a li1ely res"onse 'hen an auditor has deter!ined that a !isstate!ent is* or !ay be* the result of fraud* and has deter!ined that the effect on the financial state!ents !ay be !aterial Answers A: onsider the i!"lications for other as"ects of the audit. B: (iscuss the !atter and a""roach to further in#estigation 'ith
an a""ro"riate le#el of !anage!ent. C: Atte!"t to obtain additional e#idential !atter to deter!ine 'hether !aterial fraud has occurred or is li1ely to ha#e occurred. D: Suggest that the client contact a local la' enforce!ent authority to re"ort the "ossible fraud.
Answer Explanations
D: O#erly co!"lex organizational structure in#ol#ing nu!erous
This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. (. Ans'er ( is correct because in !ost circu!stances of fraud it is unli1ely that a PA 'ould suggest to a client that a local la' enforce!ent authority be contacted.
legal entities.
Hint
,hen considering !aterial i!"lications of fraud* 'ho! is the auditor least li1ely to suggest the client contact
Answer Explanations
A. Ans'er A is correct because the existence of large a!ounts of cash on hand !ay lead to the !isa""ro"riation of assets. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation.
Answers A: &n res"onse to a successor auditor. B: To co!"ly 'ith legal and regulatory re4uire!ents. C: &n res"onse to 4uestion raised by an analyst 'ho follo's the
stoc1 of the co!"any. D: To a funding agency in accordance 'ith re4uire!ent for audit of entities that recei#e go#ern!ental financial assistance. Answer Explanations
This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. . Ans'er is correct because an auditor 'ill not ordinarily disclose a fraudulent act in res"onse to a 4uestion raised by an analyst. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. Hint
An auditor is res"onsible to disclose infor!ation to successor auditors* legal and regulatory agencies* and funding agencies. Question: ENPL2-003"
,hich of the follo'ing is a ris1 factor relating to the !isa""ro"riation of assets Answers A: 8arge a!ounts of cash on hand. B: igh turno#er of legal counsel. C: &nability to generate "ositi#e cash flo's fro! o"erations.
Hint
(oes a sa!"le necessarily re"resent the "o"ulation as a 'hole
Hint
Thin1 in ter!s of assets on the balance sheet.
Question: ENPL2-0040
Question: ENPL2-003#
,hich of the follo'ing factors !ost li1ely 'ould heighten an auditors concern about the ris1 of fraudulent financial re"orting
Question: ENPL2-003!
&n 'hich of the follo'ing circu!stances is it least li1ely that the auditor 'ill ha#e a res"onsibility to disclose a fraudulent act to "arties other than the clients senior !anage!ent and its audit co!!ittee
This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. (. Ans'er ( is correct because A= ?D !a1es clear that 'hile fraud ris1 factors do not necessarily indicate the existence of fraud* they often ha#e been obser#ed in circu!stances 'here frauds ha#e occurred.
,hich of the follo'ing is not ty"ically a characteristic of fraud Answers A: ollusion. B: onceal!ent. C: $alsified docu!entation. D: =nintentional. Answer Explanations
This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. (. Ans'er ( is correct because fraud is intentional* not unintentional. Hint
7o tric1s here. Question: ENPL2-003$
,hich of the follo'ing state!ents is correct concerning fraud ris1 factors that an auditor considers 'hen "erfor!ing a financial state!ent audit Answers A: They can easily be ran1ed in order of i!"ortance. B: They !ust be considered indi#idually* and not in
co!bination* 'hen conducting an audit. C: They !ust be co!bined into !odels before they are effecti#e in identifying the existence of fraud. D: Their existence in an audit does not necessarily indicate the existence of fraud. Answer Explanations
Answers A: &nability to generate cash flo's fro! o"erations 'hile
re"orting substantial earnings gro'th. B: 9anage!ents lac1 of interest in increasing the entitys stoc1 trend. C: 8arge a!ounts of li4uid assets that are easily con#ertible into cash. D: &nability to borro' necessary ca"ital 'ithout granting debt co#enants. Answer Explanations
A. Ans'er A is correct because the inability to generate cash flo's fro! o"erations 'hile re"orting earnings and gro'th is ex"licitly included as a ris1 factor in A= ?DI such a situation causes one to 4uestion 'hether the earnings being re"orted are "ro"er. B. Ans'er B is incorrect because 'hile !any !anage!ents share an interest in increasing the entity5s stoc1 trend ;e.g.* increase "rice<* the lac1 of such an interest does not indicate "articularly high ris1 of fraudulent financial re"orting. . Ans'er is incorrect because large a!ounts of li4uid assets are often relati#ely easily to audit* and not indicati#e of fraudulent financial re"orting. (. Ans'er ( is incorrect because the granting of debt co#enants is often necessary and a""ro"riate 'hen obtaining debt financing. Hint
,hich see!s the !ost ris1y Question: ENPL2-0041
,hen an auditor beco!es a'are of a "ossible client illegal act* the auditor should obtain an understanding of the nature of the act to
Answers A: &ncrease the assessed le#el of control ris1. B: @eco!!end re!edial actions to the audit co!!ittee. C: /#aluate the effect on the financial state!ents. D: (eter!ine the reliability of !anage!ent5s re"resentations. Answer Explanations
A. Ans'er A is incorrect. (isco#ery of an illegal act 'ill not necessarily increase the assessed le#el of control ris1. B. Ans'er B is incorrect. ,hile the occurrence of illegal acts 'ill be co!!unicated to the audit co!!ittee* the auditor 'ill not necessarily reco!!end re!edial actions. . Ans'er is correct. ,hen an auditor beco!es a'are of infor!ation concerning a "ossible illegal act* he or she should obtain an understanding of the nature of the act* the circu!stances in 'hich it occurred* and sufficient other infor!ation to e#aluate its effect on the financial state!ents. (. Ans'er ( is incorrect. Obtaining an understanding of the nature of the act 'ill not necessarily affect the reliability of !anage!ents re"resentations. Hint
&llegal acts are co!!unicated to the audit co!!ittee after their effects are e#aluated. Question: ENPL2-0042
,hich of the follo'ing is not a "rocedure "erfor!ed "ri!arily for the "ur"ose of ex"ressing an o"inion on the financial state!ents* but !ay bring "ossible illegal acts to the auditors attention Answers A: Obtain an understanding of internal control. B: @e#ie' of "olicies concerning effecti#eness of !anage!ent
(. Ans'er ( is incorrect because tests of balances ;substanti#e tests< are "erfor!ed for the "ur"ose of ex"ressing an o"inion on the financial state!ents.
Answers A: Been forced to discontinue o"erations in a foreign country. B: Been an annual donor to a local "olitical candidate. C: $ailed to correct !aterial 'ea1nesses in internal control that
A. Ans'er A is correct. The re4uire!ent is to deter!ine the circu!stances under 'hich an auditors disco#ery of an illegal act 'ould be !ost li1ely to result in 'ithdra'al fro! the engage!ent. The auditor !ust consider the effects of illegal acts on hisher ability to rely on !anage!ents re"resentations and the "ossible effects of continuing hisher association 'ith the client. B. Ans'er B is incorrect because a !aterial illegal act need not al'ays result in resignation. . Ans'er is incorrect because according to the "rofessional standards ;A= 2L<* "ublicity is not directly related to a decision to 'ithdra'. (. Ans'er ( is incorrect because 'hile an inability to esti!ate the effect of an illegal act !ay lead to re"ort !odification* it need not lead to 'ithdra'al.
'ere re"orted after the "rior year5s audit. D: (isclosed se#eral subse4uent e#ents in#ol#ing foreign o"erations in the notes to the financial state!ents.
The $S are the re"resentations of !anage!ent. The auditor does not 'ant to be associated 'ith a client that lac1s integrity.
Hint
An auditor !ust obtain an understanding of the internal control and "erfor! substanti#e "rocedures. Question: ENPL2-0043
An auditor of a !anufacturer 'ould !ost li1ely 4uestion 'hether that client has co!!itted illegal acts if the client has
Hint
Answer Explanations
A. Ans'er A is correct because being forced to discontinue o"erations in a foreign country is consistent 'ith the existence of an illegal act* although other conditions !ay ha#e forced such discontinuance. B. Ans'er B is incorrect because such "olitical contributions !ade by co!"anies are generally not illegal. . Ans'er is incorrect because failure to correct a !aterial 'ea1ness is not necessarily indicati#e of #iolation of a la' ;e.g.* the $oreign orru"t Practices Act<. (. Ans'er ( is incorrect because disclosure of subse4uent e#ents* 'hether in#ol#ing foreign o"erations or other infor!ation* is a nor!al acce"table disclosure 'hich need not directly relate to illegal acts.
Question: ENPL2-004
a'1ins re4uested "er!ission to co!!unicate 'ith the "redecessor auditor and re#ie' certain "ortions of the "redecessor auditors 'or1ing "a"ers. The "ros"ecti#e clients refusal to "er!it this 'ill bear directly on a'1ins decision concerning the Answers A: Ade4uacy of the "re"lanned audit "rogra!. B: Ability to establish consistency in a""lication of accounting
"rinci"les bet'een years. C: A""arent sco"e li!itation. D: &ntegrity of !anage!ent.
Hint
Answer Explanations
decision !a1ing "olicies. C: Tests of transactions. D: Tests of balances.
A forced dis!issal fro! a country is often due to the co!"anys conduct.
Answer Explanations
Question: ENPL2-0044
A. Ans'er A is incorrect since such a "rogra! 'ill not exist before the "ros"ecti#e client is acce"ted. B. Ans'er B is incorrect because the a#ailability of "rior year financial state!ents and accounting records nor!ally "ro#ides sufficient e#idence concerning consistency. . Ans'er is incorrect since the "otential successor has not yet acce"ted the "ros"ecti#e client. (. Ans'er ( is correct since obtaining e#idence relati#e to the integrity of !anage!ent is one of the ob3ecti#es to be acco!"lished during such a re#ie'.
A. Ans'er A is incorrect because obtaining an understanding of internal control is "erfor!ed to lead to the ex"ression of an o"inion on the financial state!ents. B. Ans'er B is correct because the re#ie' of effecti#eness of decision !a1ing "olicies is not a "rocedure 'hen ex"ressing an o"inion on the financial state!ents. /xternal auditors are "ri!arily concerned 'ith internal controls that affect recording* "rocessing* su!!arizing* and re"orting financial data. . Ans'er is incorrect because tests of transactions ;substanti#e tests< are "erfor!ed for the "ur"ose of ex"ressing an o"inion on the financial state!ents.
An auditor 'ho finds that the client has co!!itted an illegal act 'ould be !ost li1ely to 'ithdra' fro! the engage!ent 'hen the Answers A: &llegal act affects the auditor5s ability to rely on !anage!ent
re"resentations. B: &llegal act has !aterial financial state!ent i!"lication. C: &llegal act has recei#ed 'ides"read "ublicity. D: Auditor can not reasonably esti!ate the effect of the illegal act on the financial state!ents. Answer Explanations
Hint
,hy !ight !anage!ent refuse the co!!unication Question: ENPL2-004!
,hen a PA is a""roached to "erfor! an audit for the first ti!e* the PA should !a1e in4uiries of the "redecessor auditor.
This is a necessary "rocedure because the "redecessor !ay be able to "ro#ide the successor 'ith infor!ation that 'ill assist the successor in deter!ining Answers A: ,hether the "redecessor5s 'or1 should be utilized. B: ,hether the co!"any follo's the "olicy of rotating its
auditors. C: ,hether in the "redecessor5s o"inion internal control of the co!"any has been satisfactory. D: ,hether the engage!ent should be acce"ted. Answer Explanations
A. Ans'er A is incorrect because the auditor !ay re#ie' the "redecessor auditors 'or1 "a"ers only to hel" isolate !atters of continuing accounting significance. B. Ans'er B is incorrect because the re4uire!ent that the successor auditor co!!unicate 'ith the "redecessor auditor discourages the "rocess of rotating auditors* es"ecially due to client-auditor disagree!ents about accounting "rinci"les and audit "rocedures. . Ans'er is incorrect because the "redecessors o"inion of the clients internal control is not rele#ant to the successor auditor. (. Ans'er ( is correct because the successor auditor is re4uired to co!!unicate 'ith the "redecessor auditor to obtain infor!ation concerning the client to hel" deter!ine 'hether the engage!ent should be acce"ted. Hint
Thin1 about the 4uestions as1ed by a successor auditor. Question: ENPL2-004"
,hat is the res"onsibility of a successor auditor 'ith res"ect to co!!unicating 'ith the "redecessor auditor in connection 'ith a "ros"ecti#e ne' audit client Answers A: The successor auditor has no res"onsibility to contact the
"redecessor auditor. B: The successor auditor should obtain "er!ission fro! the "ros"ecti#e client to contact the "redecessor auditor. C: The successor auditor should contact the "redecessor regardless of 'hether the "ros"ecti#e client authorizes contact. D: The successor auditor need not contact the "redecessor if the successor is a'are of all a#ailable rele#ant facts. Answer Explanations
A. Ans'er A is incorrect because the successor auditor !ust atte!"t to co!!unicate 'ith the "redecessor auditor after "er!ission fro! the "ros"ecti#e client is obtained. B. Ans'er B is correct because "er!ission !ust be obtained fro! the "ros"ecti#e client before contact 'ith the
"redecessor is atte!"ted. The successor auditor !ust atte!"t to co!!unicate 'ith the "redecessor auditor after "er!ission fro! the "ros"ecti#e client is recei#ed. . Ans'er is incorrect because the successor auditor !ust recei#e "er!ission fro! the "ros"ecti#e client before contact 'ith the "redecessor auditor is "er!itted. (. Ans'er ( is incorrect because the successor auditor !ust atte!"t to co!!unicate 'ith the "redecessor auditor after "er!ission fro! the "ros"ecti#e client is obtained.
A: /ngage financial ex"erts fa!iliar 'ith the nature of the business entity. B: Obtain a 1no'ledge of !atters that relate to the nature of the entity5s business. C: @efer a substantial "ortion of the audit to another PA 'ho 'ill act as the "rinci"al auditor. D: $irst infor! !anage!ent that an un4ualified o"inion cannot be issued.
Hint
A. Ans'er A is incorrect because audit ex"ertise rather than financial ex"ertise is re4uired. Presu!ably* the auditor 'ill be able to obtain co!"etence 'ith res"ect to the industry of the business entity. B. Ans'er B is correct because an auditor 'ho acce"ts an engage!ent and does not "ossess sufficient industry ex"ertise should atte!"t to obtain 1no'ledge of the !atters that relate to the nature of the entitys business organization and its o"erating characteristics. . Ans'er is incorrect because there is no re4uire!ent to refer a substantial "ortion of the audit to another auditor. (. Ans'er ( is incorrect because audit o"inions are not 4ualified or disclai!ed due to lac1 of ca"ability of the auditor. &f the auditor does not ha#e the co!"etence to underta1e the engage!ent* the auditor should decline the engage!ent.
The successor auditor should atte!"t to co!!unicate 'ith the "redecessor auditor. Question: ENPL2-004#
,hich of the follo'ing factors !ost li1ely 'ould lead a PA to conclude that a "otential audit engage!ent should be re3ected Answers A: The details of !ost recorded transactions are not a#ailable
after a s"ecified "eriod of ti!e. B: &nternal control acti#ities re4uiring the segregation of duties are sub3ect to !anage!ent o#erride. C: &t is unli1ely that sufficient co!"etent e#idence is a#ailable to su""ort an o"inion on the financial state!ents. D: 9anage!ent has a re"utation for consulting 'ith se#eral accounting fir!s about significant accounting issues. Answer Explanations
A. Ans'er A is incorrect because an auditor !ay be able to !odify the ti!ing of "erfor!ance of audit "rocedures to 'hen such details of recorded transactions are a#ailable. B. Ans'er B is incorrect because in !any circu!stances controls are sub3ect to !anage!ent o#erride and an auditor !ay still be able to for! an o"inion on the financial state!ents. . Ans'er is correct because the ob3ecti#e of an audit of financial state!ents is the ex"ression of an o"inion on the financial state!entsI accordingly* 'hen sufficient co!"etent e#idence is not a#ailable it is unli1ely that an audit 'ill be "erfor!ed. (. Ans'er ( is incorrect because such )sho""ing for "rinci"les+ 'ill not necessarily lead to re3ection of a "otential audit engage!entI see A= D2G for infor!ation on re4uire!ents for re"orting on the a""lication of accounting "rinci"les.
Answer Explanations
Hint
&!"ortant to an effecti#e audit is an understanding of the infor!ation being audited. Question: ENPL2-000
,hich of the follo'ing "rocedures 'ould an auditor !ost li1ely include in the initial "lanning of a financial state!ent audit Answers A: Obtaining a 'ritten re"resentation letter fro! the client5s
!anage!ent. B: /xa!ining docu!ents to detect illegal acts ha#ing a !aterial effect on the financial state!ents. C: onsidering 'hether the client5s accounting esti!ates are reasonable in the circu!stances. D: (eter!ining the extent of in#ol#e!ent of the client5s internal auditors.
Hint
Answer Explanations
,hat is the ob3ecti#e of an audit
A. Ans'er A is incorrect because auditors obtain a 'ritten re"resentation letter near the conclusion of an audit. B. Ans'er B is incorrect because exa!ination of docu!ents related to illegal acts* if a#ailable at all* 'ill occur subse4uent to the "lanning of the audit. . Ans'er is incorrect because considering the reasonableness of accounting esti!ates 'ill also occur subse4uent to the "lanning of the audit.
Question: ENPL2-004$
An auditor 'ho acce"ts an audit engage!ent and does not "ossess the industry ex"ertise of the business entity should Answers
(. Ans'er ( is correct because SAS ?0L* 'hich lists #arious "lanning "rocedures* includes deter!ining the extent of in#ol#e!ent of the clients internal auditors. Hint
The auditor 'ould use such infor!ation in designing the nature* extent* and ti!ing of later testing. Question: ENPL2-001
The ele!ent of the audit "lanning "rocess !ost li1ely to be agreed u"on 'ith the client before i!"le!entation of the audit strategy is the deter!ination of the
A.
Ans'er A is incorrect. A successor auditor should atte!"t co!!unication 'ith the "redecessor auditor 'hile obtaining an understanding of the client. B. Ans'er B is incorrect. Analytical "rocedures !ust be "erfor!ed 'hile obtaining an understanding of the client. . Ans'er is correct. onfir!ation of cash balances is a substanti#e audit "rocedure 'hich 'ill be "erfor!ed during the audit. (. Ans'er ( is incorrect because a tentati#e audit "rogra! 'ill be designed 'hile obtaining an understanding of the client. Hint
Answers A: Ti!ing of in#entory obser#ation "rocedures to be "erfor!ed. B: /#idence to be gathered to "ro#ide a sufficient basis for the
&dentify the least li1ely "rocedure to be "erfor!ed #ery early during the audit.
auditor5s o"inion. C: Procedures to be underta1en to disco#er litigation* clai!s* and assess!ents. D: Pending legal !atters to be included in the in4uiry of the client5s attorney.
Question: ENPL2-003
&f* during an audit* the successor auditor beco!es a'are of infor!ation that !ay indicate that financial state!ents re"orted on by the "redecessor auditor !ay re4uire re#ision* the successor auditor should
Answer Explanations
A. Ans'er A is correct because the auditor 'ill nor!ally 'ish to obser#e the counting of in#entory and there is therefore a need for coordination of ti!ing bet'een the auditor and the client. B. Ans'er B is incorrect because the client 'ill not deter!ine the e#idence to be gathered to "ro#ide a sufficient basis for the auditors o"inion. . Ans'er is incorrect because "rocedures relating to disco#ery of litigation* clai!s* and assess!ents 'ill be deter!ined subse4uent to i!"le!entation of the audit strategy. (. Ans'er ( is incorrect because "rocedures relating to the disco#ery of "ending legal !atters 'ill be deter!ined subse4uent to i!"le!entation of the audit strategy. Hint
An auditor !ust coordinate client assistance "rior to the audit. Question: ENPL2-002
,hich of the follo'ing "rocedures is least li1ely to be "erfor!ed as a "art of obtaining an understanding during an audit engage!ent of a ne' audit client "re#iously audited by another PA Answers A: o!!unication 'ith the "redecessor auditor. B: Perfor!ing analytical "rocedures. C: Obtaining confir!ation of cash balances. D: onsidering internal control. Answer Explanations
Answers A: As1 the client to arrange a !eeting a!ong the three "arties to
discuss the infor!ation and atte!"t to resol#e the !atter. B: 7otify the client and the "redecessor auditor of the !atter and as1 the! to atte!"t to resol#e it. C: 7otify the "redecessor auditor 'ho !ay be re4uired to re#ise the "re#iously issued financial state!ents and auditor5s re"ort. D: As1 the "redecessor auditor to arrange a !eeting 'ith the client to discuss and resol#e the !atter.
A: 9ust atte!"t co!!unication 'ith a successor auditor "rior
to acce"ting the engage!ent. B: 9ust atte!"t co!!unication 'ith a successor auditor after the engage!ent has been acce"ted. C: 9ust atte!"t co!!unication 'ith a successor auditor "rior to acce"tance of the engage!ent and !ay choose to atte!"t co!!unication after the engage!ent has been acce"ted. D: &s not re4uired to atte!"t co!!unication 'ith a successor since this is the successor5s res"onsibility. Answer Explanations
A. Ans'er A is incorrect because the successor auditor !ust atte!"t co!!unication 'ith a "redecessor "rior to acce"ting the engage!ent. B. Ans'er B is incorrect because no co!!unication is re4uired after the engage!ent has been acce"ted. . Ans'er is incorrect because no co!!unication is re4uired after the engage!ent has been acce"ted. (. Ans'er ( is correct because the successor auditor !ust atte!"t co!!unication 'ith the "redecessor auditor either "rior to acce"ting the engage!ent* or after the engage!ent has been acce"ted* or both. &t is the successors res"onsibility* not the "redecessor auditors res"onsibility. Hint
(eter!ine 'ho !ust atte!"t co!!unication bet'een the "redecessor and successor auditors. Question: ENPL2-00
The audit 'or1 "erfor!ed by each assistant should be re#ie'ed to deter!ine 'hether it 'as ade4uately "erfor!ed and to e#aluate 'hether the
Answer Explanations
A. Ans'er A is correct because the auditor should not contact the "redecessor auditor directly due to the confidential relationshi" 'ith the client. B. Ans'er B is incorrect because the auditor should not contact the "redecessor auditor 'ithout the clients "er!ission. . Ans'er is incorrect because this co!!unication should not occur 'ithout the clients "er!ission. (. Ans'er ( is incorrect because the auditor should not co!!unicate 'ith the "redecessor auditor 'ithout the clients "er!ission.
Answers A: Audit has been "erfor!ed by "ersons ha#ing ade4uate
Hint
A. Ans'er A is incorrect because 'hile deter!ining that the audit has been "erfor!ed by "ersons ha#ing ade4uate technical training and "roficiency as auditors is i!"ortant* this is acco!"lished by nu!erous "rocedures in addition to re#ie'ing audit 'or1. B. Ans'er B is incorrect because PA fir!s* not indi#idual auditors 'ithin the fir!s* ha#e syste!s of 4uality control.
A confidential relationshi" exists bet'een a client and auditor. Question: ENPL2-004
A "redecessor auditor Answers
technical training and "roficiency as auditors. B: Auditor5s syste! of 4uality control has been !aintained at a high le#el. C: @esults are consistent 'ith the conclusions to be "resented in the auditor5s re"ort. D: Audit "rocedures "erfor!ed are a""ro#ed in the "rofessional standards. Answer Explanations
. Ans'er is correct because A= ?? suggests that the 'or1 "erfor!ed by each assistant should be re#ie'ed to deter!ine 'hether it 'as ade4uately "erfor!ed and to e#aluate 'hether the results are consistent 'ith the conclusions to be "resented in the auditors re"ort. (. Ans'er ( is incorrect because the "rofessional standards do not in general a""ro#e certain audit "rocedures. Hint
(ifferences of o"inion a!ong audit "ersonnel !ust be resol#ed "rior to the issuance of an o"inion. Question: ENPL2-00!
,ith res"ect to "lanning of a year-end audit* 'hich of the follo'ing state!ents is al'ays true Answers A: An engage!ent should not be acce"ted after the fiscal year-
end. B: An in#entory count !ust be obser#ed at the balance sheet date. C: The client5s audit co!!ittee should not be told of the s"ecific audit "rocedures 'hich 'ill be "erfor!ed. D: &t is an acce"table "ractice to carry out substantial "arts of the exa!ination at interi! dates.
,hich of the follo'ing is least li1ely to be included in the auditor5s ris1 assess!ent "rocess to identify and assess the ris1s of !aterial !isstate!ent Answers A: &dentify ris1s. B: @elate ris1s to 'hat can go 'rong at the rele#ant assertion
le#el. C: onsider 'hether ris1s are of a !agnitude that could result in a !isstate!ent that could be !aterial. D: onsider the li1elihood that ris1s could result in !isstate!ents of an a!ount 'hich is less than !aterial. Answer Explanations
A. B. .
(.
Ans'er A is incorrect. The ris1 assess!ent includes identification of ris1s. Ans'er B is incorrect. An auditor should relate ris1s to 'hat can go 'rong at the rele#ant assertion le#el. Ans'er is incorrect. An auditor should consider 'hether ris1s are of a !agnitude that could cause a !aterial !isstate!ent. Ans'er ( is correct. An auditor !ust consider the li1elihood of ris1s of !aterial !isstate!ents* not !isstate!ents less than !aterial.
Hint
$ind an inconsistency in the re"lies.
Answer Explanations
A. Ans'er A is incorrect because an audit !ay be acce"ted after the fiscal year-end. o'e#er* the auditor should ascertain 'hether circu!stances are li1ely to "er!it an ade4uate audit and ex"ression of an un4ualified o"inion. B. Ans'er B is incorrect because the in#entory count need not be obser#ed if it is i!"racticableI ho'e#er* the auditor !ust bear in !ind that she has the burden of 3ustifying the use of alternate "rocedures. &t is also incorrect because the auditors obser#ation "rocedures !ay be "erfor!ed either during or after the end of the "eriod under audit in cases of 'ell-1e"t "er"etual in#entory records. . Ans'er is incorrect because in certain circu!stances the audit co!!ittee !ay be told of s"ecific audit "rocedures. (. Ans'er ( is correct because it is an acce"table "ractice for the auditor to carry out substantial "arts of the exa!ination at interi! dates. Hint
To lessen an auditors seasonal 'or1load* "rocedures !ay be "erfor!ed before the balance sheet date. Question: ENPL2-00"
Question: ENPL2-00#
,hich of the follo'ing is !ost li1ely to be considered a )further audit "rocedure+ Answers A: o!!unication 'ith the "redecessor auditor. B: Pre"aration of an engage!ent letter. C: Pre"aration of a flo'chart of the sales function. D: Perfor!ance of tests of controls. Answer Explanations
A.
Ans'er A is incorrect. The co!!unication 'ith the "redecessor auditor occurs 'hile establishing an understanding 'ith the client* 'hich is "rior to the "erfor!ance of further audit "rocedures. B. Ans'er B is incorrect. The "re"aration of an engage!ent letter occurs during audit "lanning* 'hich is "rior to the "erfor!ance of further audit "rocedures. . Ans'er is incorrect. The "re"aration of a flo'chart of the sales function relates !ost directly to obtaining an understanding of the client* 'hich is "rior to the "erfor!ance of further audit "rocedures. (. Ans'er ( is correct. Tests of controls and substanti#e "rocedures are further audit "rocedures. Hint
$urther audit "rocedures are "erfor!ed after ris1 assess!ent.
Question: ENPL2-00$
&n 'hich circu!stance is the confir!ation of recei#ables on October ? !ost li1ely for a client 'ith a (ece!ber ? yearend Answers A: Tests of controls ha#e re#ealed that the disburse!ents cycle
is o"erating effecti#ely. B: The recei#ables balance is !aterial. C: Accounts 'ere confir!ed as of (ece!ber ? for the "receding year5s audit. D: A""ro"riate audit tests indicate that control ris1 for recei#ables is lo'. Answer Explanations
A. Ans'er A is incorrect because auditors 'ill ordinarily only confir! recei#ables "rior to year-end in circu!stances 'here internal control o#er recei#ables* not disburse!ents* is o"erating effecti#ely. B. Ans'er B is incorrect because confir!ation "rior to year-end !ay be "erfor!ed 'hen balances are !aterial or i!!aterial. . Ans'er is incorrect because ha#ing confir!ed recei#ables at year-end the "receding year need not affect this years decision. (. Ans'er ( is correct because 'hen control ris1 for recei#ables is lo' the auditor !ay be !ore li1ely to confir! recei#ables at an interi! date. Hint
&dentify the circu!stance in 'hich the confir!ation is !ost li1ely "rior to year-end. Question: ENPL2-00!0
A PA is re4uired to co!"ly 'ith the "ro#isions of State!ents on Standards for Accounting and @e#ie' Ser#ices 'hen
A. B. . (.
Answers A: A. B: B. C: .
rocessin" financial data for clients of other CA firms 6es 6es 7o 7o
Consultin accounti matter 6es 7o 6es 7o
D: (. Answer Explanations
This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. (. Ans'er ( is correct because the SSA@S re4uire!ents do not a""ly to either the "rocessing of financial data for clients of other PA fir!s or to consulting on accounting !atters. See A@ ?00 for these and additional ser#ices to 'hich the SSA@S do not a""ly. Hint
7o tric1s here. Question: ENPL2-00!1
State!ents on Standards for Accounting and @e#ie' Ser#ices establish standards and "rocedures for 'hich of the follo'ing engage!ents Answers A: Assisting in ad3usting the boo1s of account for a "artnershi". B: @e#ie'ing interi! financial data re4uired to be filed 'ith the
S/. C: Processing financial data for clients of other accounting fir!s. D: o!"iling an indi#idual5s "ersonal financial state!ent to be used to obtain a !ortgage. Answer Explanations
A. Ans'er A is incorrect. The SSA@S do not a""ly 'hen the PA is assisting in ad3usting the boo1s of account for a "artnershi" or other organization. B. Ans'er B is incorrect. The SSA@S only a""ly to non"ublic entities. . Ans'er is incorrect. The SSA@S do not a""ly 'hen "rocessing the financial data for clients of other accounting fir!s. (. Ans'er ( is correct. The SSA@S a""ly 'hen a PA either co!"iles or re#ie's the financial state!ents of a non"ublic entity. Hint
SSA@S a""ly to non"ublic entities. Question: ENPL2-00!2
Blue o.* a "ri#ately held entity* as1ed its tax accountant* oo1* a PA in "ublic "ractice* to re"roduce Blues internally "re"ared interi! financial state!ents on oo1s !icroco!"uter 'hen oo1 "re"ared Blues 4uarterly tax return. oo1 should not
sub!it these financial state!ents to Blue unless* as a !ini!u!* oo1 co!"lies 'ith the "ro#isions of
(. Ans'er ( is incorrect. Attestation standards re"resent "rocedures and res"onsibilities in excess of the !ini!u! "ro#isions necessary.
Answers A: State!ents on @es"onsibilities in Tax Practice. B: State!ents on Standards for Accounting and @e#ie'
Hint
Ser#ices. C: State!ents on @es"onsibilities in =naudited $inancial Ser#ices. D: State!ents on Standards for Attestation /ngage!ents.
Question: ENPL2-00!4
Answer Explanations
Answers A: o!"ilation re"ort on historical financial state!ents. B: o!"ilation re"ort on "ros"ecti#e financial state!ents. C: S"ecial re"ort on co!"liance 'ith contractual agree!ents. D: @e"ort on consulting ser#ices. Answer Explanations
A. Ans'er A is incorrect because State!ents on @es"onsibilities in Tax Practice do not re"resent enforceable standards in this situation and also because they do not directly address such interi! financial state!ents ;TM ?02<. B. Ans'er B is correct because State!ents on Standards for Accounting and @e#ie' Ser#ices a""ly ;A@ ?00< and re4uire that the PA 'ho 'ishes to sub!it such financial state!ents to a client !ust* at a !ini!u!* !eet the co!"ilation re4uire!ents. . Ans'er is incorrect because there are no state!ents referred to as State!ents on @es"onsibilities in =naudited $inancial Ser#ices. (. Ans'er ( is incorrect because no attest engage!ent is in#ol#ed in this situation. Hint
,hat is the !ini!u! PA ser#ice for financial state!ents Question: ENPL2-00!3
A PA should not sub!it unaudited financial state!ents of a non"ublic co!"any to a client or others unless* as a !ini!u!* the PA co!"lies 'ith the "ro#isions a""licable to Answers A: o!"ilation engage!ents. B: @e#ie' engage!ents. C: State!ents on auditing standards. D: Attestation standards. Answer Explanations
A. Ans'er A is correct. An accountant should not sub!it such infor!ation unless he has* at a !ini!u!* co!"lied 'ith the "ro#isions a""licable to a co!"ilation engage!ent. B. Ans'er B is incorrect. @e#ie's re"resent attestation ser#ices 'ith "rocedures and res"onsibilities in excess of the !ini!u! "ro#isions necessary. . Ans'er is incorrect. State!ents on Auditing Standards relate "ri!arily to audits and re"resent "rocedures and res"onsibilities in excess of the !ini!u! "ro#isions necessary.
,hich of the ans'ers results in no assurance
An accountant 'ho is not inde"endent of a client is "recluded fro! issuing a
A. Ans'er A is incorrect. o!"ilations are considered accounting ser#ices* not attestation ser#ices and therefore do not "reclude an accountant 'ho is not inde"endent fro! issuing this ty"e of re"ort. B. Ans'er B is incorrect. o!"ilations are considered accounting ser#ices* not attestation ser#ices and therefore do not "reclude an accountant 'ho is not inde"endent fro! issuing this ty"e of re"ort. . Ans'er is correct because "ro#iding s"ecial re"orts is an attestation ser#ice and therefore re4uires the accountant to be inde"endent. (. Ans'er ( is incorrect because 'hile ob3ecti#ity is re4uired 'hen "erfor!ing consulting ser#ices* inde"endence is not re4uired. Hint
An attestation ser#ice includes s"ecial re"orts. Question: ENPL2-00!
,hich of the follo'ing re"lies does not include a "ortion of the S"ecial o!!ittee on Assurance Ser#ices definition of assurance ser#ices Answers A: A consulting ser#ice. B: &!"ro#e the 4uality of infor!ation. C: &!"ro#e the context of infor!ation. D: $or decision !a1ers. Answer Explanations
A. Ans'er A is correct because the S"ecial o!!ittee on Assurance Ser#ices* also referred to as the /lliott o!!ittee* defined assurance ser#ices as inde"endent "rofessional ser#ices Jnot a consulting ser#iceJthat i!"ro#e the 4uality of infor!ation* or its context* for decision !a1ers.
This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. Hint
@ecall the broadness of the o!!ittees definition. Question: ENPL2-00!!
&n connection 'ith the ele!ent of ins"ection* a PA fir!s syste! of 4uality control should ordinarily "ro#ide for the !aintenance of
A. Ans'er A is incorrect. &nde"endence* integrity* and ob3ecti#ity are ele!ents of 4uality control. B. Ans'er B is incorrect. Acce"tance and continuance of clients and engage!ents is an ele!ent of 4uality control. . Ans'er is correct. /ngage!ent su"er#ision is not an ele!ent of 4uality control. The fi#e ele!ents of 4uality control are ;?< inde"endence* integrity* and ob3ecti#ity* ;2< "ersonnel !anage!ent* ;< acce"tance and continuance of clients and engage!ents* ;>< engage!ent "erfor!ance* and ;G< !onitoring. (. Ans'er ( is incorrect because State!ents on Nuality ontrol Standards "ro#ide guidance for PA fir!s in !eeting their res"onsibility to "ro#ide "rofessional ser#ices that confor! 'ith "rofessional standards.
Answers A: A file of !inutes of staff !eetings. B: ="dated "ersonnel files. C: (ocu!entation to de!onstrate co!"liance 'ith its "olicies
Hint
and "rocedures. D: (ocu!entation to de!onstrate co!"liance 'ith "eer re#ie' directi#es.
As guidance for !easuring the 4uality of the "erfor!ance of an auditor* the auditor should refer to
Answer Explanations
Answers A: State!ents of the $inancial Accounting Standards Board. B: %enerally acce"ted auditing standards. C: &nter"retations of the State!ents on Auditing Standards. D: State!ents on Nuality ontrol Standards. Answer Explanations
This ans'er is incorrect. @efer to the correct ans'er ex"lanation. This ans'er is incorrect. @efer to the correct ans'er ex"lanation. . Ans'er is correct. The re4uire!ent is to deter!ine 'hat ins"ection* an ele!ent of 4uality control* should include. Ans'er is the !ost accurate because it "ro#ides for !aintenance of docu!entation of the #arious 4uality control "olicies and "rocedures. Thus* it is all enco!"assing. Ans'ers A* B* and (* 'hile desirable* relate to !ore s"ecific areas and are thus less co!"lete than . This ans'er is incorrect. @efer to the correct ans'er ex"lanation. Hint
One ans'er is !ore co!"lete than the others. Question: ENPL2-00!"
,hich of the follo'ing is not an ele!ent of 4uality control for a PA fir! Answers A: &nde"endence* integrity and ob3ecti#ity. B: Acce"tance and continuance of clients and engage!ents. C: /ngage!ent su"er#ision. D: 9onitoring. Answer Explanations
@ecall the 4uality control standards. Question: ENPL2-00!#
A. Ans'er A is incorrect because State!ents of the $inancial Accounting Standards Board deal 'ith %AAP 'hich are used to "re"are financial state!ents* but do not address the auditors exa!ination of the state!ents. B. Ans'er B is correct because auditors are res"onsible for co!"liance 'ith generally acce"ted auditing standards and co!"arison of their "erfor!ance against these standards is a""ro"riate. . Ans'er is incorrect because 'hile &nter"retations of the State!ents on Auditing Standards "ro#ide ti!ely guidance on the a""lication of certain "ronounce!ents of the Auditing Standards Board* their co#erage is less co!"lete than the standards. (. Ans'er ( is incorrect because State!ents on Nuality ontrol Standards "ro#ide guidance for PA fir!s in !eeting their res"onsibility to "ro#ide "rofessional ser#ices that confor! 'ith "rofessional standards. Hint
,hich standards go#ern the 'or1 of an auditor Question: ENPL2-00!$
A basic ob3ecti#e of a PA fir! is to "ro#ide "rofessional ser#ices to confor! 'ith "rofessional standards. @easonable assurance of achie#ing this basic ob3ecti#e is "ro#ided through Answers A: ontinuing "rofessional education. B: A syste! of 4uality control. C: o!"liance 'ith generally acce"ted re"orting standards. D: A syste! of "eer re#ie'. Answer Explanations
A. Ans'er A is incorrect because a syste! of 4uality control is necessary to "ro#ide the PA fir! 'ith reasonable assurance that it is confor!ing to "rofessional standards. ontinuing "rofessional education is only a "art of a fir!s syste! of 4uality control. B. Ans'er B is correct because a syste! of 4uality control is necessary to "ro#ide a PA fir! 'ith reasonable assurance that it is confor!ing to generally acce"ted auditing standards. . Ans'er is incorrect because it relates only to re"orting standards. (. Ans'er ( is incorrect because a syste! of 4uality control is necessary to "ro#ide the PA fir! 'ith reasonable assurance that it is confor!ing to "rofessional standards. A syste! of "eer re#ie' is only a "art of a fir!s syste! of 4uality control. Hint
,hich of the ans'er choices has the broadest focus Question: ENPL2-00"0
,hich of the follo'ing ty"es of ser#ices is !ost directly designed to i!"ro#e the 4uality of infor!ation* or its context* for decision !a1ers Answers A: Assurance ser#ices B: Attestation ser#ices C: Audit ser#ices D: onsulting ser#ices Answer Explanations
A. Ans'er A is correct because the S"ecial o!!ittee on Assurance Ser#ices ;the /lliott o!!ittee<* defined assurance ser#ices as inde"endent "rofessional ser#ices that i!"ro#e 4uality of infor!ation* or its context* for decision !a1ers. B. Ans'er B is incorrect because attestation ser#ices are defined as 'ritten conclusions about the reliability of the 'ritten assertions of another "arty.
. Ans'er is incorrect because audit ser#ices are defined as exa!inations of financial state!ents that result in an o"inion of those financial state!ents. (. Ans'er ( is incorrect because consulting ser#ices are defined as reco!!endations based on the ob3ecti#es of the engage!ent. Hint
@ecall the /lliott o!!ittee.
B. Ans'er B is correct because a re"ort on co!"liance 'ith statutory re4uire!ents !ight be structured as an attest engage!ent in 'hich the re4uired 'ritten assertion relates to such co!"liance. . Ans'er is incorrect because tax returns "re"arations are not considered attest engage!ents. (. Ans'er ( is incorrect because co!"ilations are considered nonattest engage!ents. Hint
Question: ENPL2-00"1
An attest engage!ent re4uires a 'ritten assertion.
&n "erfor!ing an attestation engage!ent* a PA ty"ically Question: ENPL2-00"3 Answers A: Su""lies litigation su""ort ser#ices. B: Assesses control ris1 at a lo' le#el. C: /x"resses a conclusion about the assertion on the sub3ect
The technical standards that a""ly to consulting ser#ices engage!ents re4uire the "ractitioner to do all of the follo'ing exce"t
!atter. D: Pro#ides !anage!ent consulting ad#ice.
Answers A: 9aintain inde"endence fro! the client. B: %i#e su""ort for and clearly identify as esti!ates any
Answer Explanations
A. Ans'er A is incorrect because !ost litigation su""ort ser#ices are not attest engage!ents. B. Ans'er B is incorrect because control ris1 need not generally be assessed at a lo' le#el on attestation engage!entsI also* control !ay not be of !a3or i!"ortance on so!e attest engage!ents. . Ans'er is correct because* 'hen "erfor!ing an attest engage!ent* a PA ex"resses a conclusion about the assertion on the sub3ect !atter. (. Ans'er ( is incorrect because !ost !anage!ent consulting engage!ents are not attestation engage!ents.
4uantifiable results that are based on esti!ates. C: Obtain an understanding concerning the nature* sco"e* and li!itations of the consulting ad#isory ser#ices engage!ent to be "erfor!ed. D: Ta1e no "osition 'hich !ight i!"air the "ractitioner5s ob3ecti#ity. Answer Explanations
Question: ENPL2-00"2
A. Ans'er A is correct because inde"endence is not re4uired. B. Ans'er B is incorrect because esti!ates are to be su""orted and clearly identified. . Ans'er is incorrect because an understanding of the nature of the engage!ent !ust be obtained. (. Ans'er ( is incorrect because an accountant is to !aintain ob3ecti#ity.
,hich of the follo'ing "rofessional ser#ices 'ould be considered an attest engage!ent
Hint
This differs fro! audit engage!ents.
Answers A: A !anage!ent consulting engage!ent to "ro#ide
Question: ENPL2-00"4
Hint
@ecall the definition of an attestation engage!ent.
co!"uterized ad#ice to a client. B: An engage!ent to re"ort on co!"liance 'ith statutory re4uire!ents. C: An inco!e tax engage!ent to "re"are federal and state tax returns. D: The co!"ilation of financial state!ents fro! a client5s accounting records. Answer Explanations
A. Ans'er A is incorrect because !anage!ent consulting engage!ents are not considered attest engage!ents.
A PA fir!s "ersonnel "artner "eriodically studies the PA fir!s "ersonnel ad#ance!ent ex"erience to ascertain 'hether indi#iduals increased degrees of res"onsibility. This is e#idence of the PA fir!s adherence to "rescribed standards of Answers A: Nuality control. B: (ue "rofessional care. C: Su"er#ision and re#ie'. D: $ield'or1. Answer Explanations
A. Ans'er A is correct because the se#enth 4uality control standard re4uires that a fir! establish "olicies and "rocedures "ertaining to "ersonnel ad#ance!ent. B. Ans'er B is incorrect because due "rofessional care* the third general standard* "ertains to the "erfor!ance of the exa!ination and the "re"aration of the re"ort. . Ans'er is incorrect because "ro"er su"er#ision and re#ie' "ertains to the first standard of field'or1 'hich also focuses on the "erfor!ance of audits. (. Ans'er ( is incorrect because the three field'or1 standards "ertain to "lanning and su"er#ision ;A= ?0<* the auditors study and e#aluation of internal control ;A= ?K<* and the collection of e#idential !atter ;A= 2D<. Hint
There is a standard 'hich re4uires established "olicies and "rocedures "ertaining to "ersonnel ad#ance!ent. Question: ENPL2-00"
The ob3ecti#e of 4uality control !andates that a "ublic accounting fir! should establish "olicies and "rocedures for "rofessional de#elo"!ent 'hich "ro#ide reasonable assurance that all entry-le#el "ersonnel Answers A: Pre"are 'or1ing "a"ers 'hich are standardized in for! and
content. B: a#e the 1no'ledge re4uired to enable the! to fulfill res"onsibilities assigned. C: ,ill ad#ance 'ithin the organization. D: (e#elo" s"ecialties in s"ecific areas of "ublic accounting. Answer Explanations
A. Ans'er A is incorrect because "re"aring 'or1ing "a"ers 'hich are standardized in for! and content is an ob3ecti#e 'hich is !ore s"ecific than those that are conte!"lated in the ele!ents of 4uality control. B. Ans'er B is correct because one of the 4uality control considerations for a fir! of inde"endent auditors is that the "olicies and "rocedures for "rofessional de#elo"!ent should be established to "ro#ide reasonable assurance that "ersonnel ha#e the 1no'ledge re4uired to enable the! to fulfill res"onsibilities assigned. . Ans'er is incorrect because it is an ob3ecti#e 'hich is !ore s"ecific than those that are conte!"lated in the ele!ents of 4uality control. (. Ans'er ( is incorrect because it is an ob3ecti#e 'hich is !ore s"ecific than those that are conte!"lated in the ele!ents of 4uality control. Hint
,hich of the ans'er choices 'ould !ost directly affect the 4uality of the auditors 'or1
Question: ENPL2-00"!
A PA establishes 4uality control "olicies and "rocedures for deciding 'hether to acce"t a ne' client or continue to "erfor! ser#ices for a current client. The "ri!ary "ur"ose for establishing such "olicies and "rocedures is Answers A: To enable the auditor to attest to the integrity or reliability of
a client. B: To co!"ly 'ith the 4uality control standards established by regulatory bodies. C: To !ini!ize the li1elihood of association 'ith clients 'hose !anage!ent lac1s integrity. D: To lessen the ex"osure to litigation resulting fro! failure to detect irregularities in client financial state!ents.
A. Ans'er A is incorrect because 4uality control standards a""ly to all auditing* accounting* and re#ie' ser#ices* not only auditing. B. Ans'er B is incorrect because 'hile "erfor!ing res"onsibilities 'ith due "rofessional care is essential* "ersonnel !anage!ent "olicies relate !ore directly to "ersonnel hiring* assign!ent* "rofessional de#elo"!ent* and ad#ance!ent acti#ities. . Ans'er is correct the 4uality control standards relate to a fir!s accounting and auditing "ractice. (. Ans'er ( is incorrect because the e!"hasis of such education is not "ri!arily on obtaining "eer re#ie' s1ills. Hint
ontinuing "rofessional education benefits both the indi#idual and the PA fir!. Question: ENPL2-00"#
A. Ans'er A is incorrect because auditors attest to the fairness of financial state!ents* not the integrity or reliability of a client. B. Ans'er B is incorrect because 'hile 4uality control "olicies for acce"tance of ne' clients are re4uired by 4uality control standards* the "ri!ary "ur"ose is to a#oid clients 'hose !anage!ent lac1s integrity. . Ans'er is correct because "olicies and "rocedures should be established for deciding 'hether to acce"t or continue a client in order to !ini!ize the li1elihood of association 'ith clients 'hose !anage!ent lac1s integrity. (. Ans'er ( is incorrect because the "ri!ary and i!!ediate "ur"ose of 4uality control "olicies o#er acce"ting ne' clients is to a#oid clients 'ho lac1 integrity* 'hich !ay indirectly lessen ex"osure to litigation.
A PA in "ublic "ractice !ust be inde"endent in fact and a""earance 'hen "ro#iding 'hich of the follo'ing ser#ices
Auditors !ust rely on the re"resentations of client !anage!ent. Question: ENPL2-00""
,ithin the context of 4uality control* a "ri!ary "ur"ose of "ersonnel !anage!ent acti#ities is to enable a PA fir! to "ro#ide "ersonnel 'ithin the fir! 'ith Answers A: Technical training that assures "roficiency as an auditor. B: Professional education that is re4uired in order to "erfor!
'ith due "rofessional care. C: no'ledge re4uired to fulfill assigned res"onsibilities for consulting engage!ents. D: no'ledge re4uired in order to "erfor! a "eer re#ie'. Answer Explanations
&nde"endence is re4uired for audits and re#ie's. Question: ENPL2-00"$
The first general standard re4uires that the exa!ination of financial state!ents is to be "erfor!ed by a "erson or "ersons ha#ing ade4uate technical training and Answers A: &nde"endence 'ith res"ect to the financial state!ents and
su""le!entary disclosures. B: /xercising "rofessional care as 3udged by "eer re#ie'ers. C: Proficiency as an auditor 'hich li1ely has been ac4uired fro! "re#ious ex"erience. D: Ob3ecti#ity as an auditor as #erified by "ro"er su"er#ision. Answer Explanations
Answer Explanations
Hint
Hint
A. B. . (.
reparation of a ta# return 6es 7o 7o 7o
Compilation of a financial forecast 7o 6es 7o 7o
A. Ans'er A is incorrect because inde"endence "ertains to the second general standard. B. Ans'er B is incorrect because "eer re#ie'ers are not the "ri!ary 3udges of 'hether "rofessional care is being exercised. . Ans'er is correct because the first general standard re4uires that the exa!ination be "erfor!ed by a "erson or "ersons ha#ing ade4uate technical training and "roficiency as an auditor 'hich has been achie#ed by for!al education and by "re#ious ex"erience. (. Ans'er ( is incorrect because ob3ecti#ity relates !ore directly to the inde"endence standard. Hint
7o tric1s here. Answers A: A. B: B. C: . D: (. Answer Explanations
A. Ans'er A is incorrect. Pre"aring tax returns is not considered an attestation ser#ice* therefore the PA need not be inde"endent B. Ans'er B is incorrect. o!"iling forecasts is not considered an attestation ser#ice* therefore the PA need not be inde"endent. . Ans'er is incorrect. o!"iling financial state!ents is not considered an attestation ser#ice* therefore the PA need not be inde"endent. (. Ans'er ( is correct. An auditor need only be inde"endent 'hen "ro#iding attestation ser#ices. Pre"aring tax returns and co!"iling forecasts or financial state!ents are not considered attestation ser#ices* therefore the PA need not be inde"endent.
Question: ENPL2-00#0
@ogers o.* PAs* "olicies re4uire that all !e!bers of the audit staff sub!it 'ee1ly ti!e re"orts to the audit !anager* 'ho then "re"ares a 'ee1ly su!!ary 'or1 re"ort regarding #ariance fro! budget for @ogers re#ie'. This "ro#ides 'ritten e#idence of @ogers o.s "rofessional concern regarding co!"liance 'ith 'hich of the follo'ing generally acce"ted auditing standards Answers A: Nuality control. B: (ue "rofessional care. C: Ade4uate re#ie'. D: Ade4uate "lanning. Answer Explanations
A. Ans'er A is incorrect because 4uality control is not an ex"licit "art of generally acce"ted auditing standards.
B. Ans'er B is incorrect because due "rofessional care* 'hile certainly rele#ant to the situation described is less co!"lete than ade4uate "lanning. . Ans'er is incorrect because ade4uate re#ie' is not an ex"licit "art of the generally acce"ted auditing standards. (. Ans'er ( is correct because the 'ee1ly ti!e re"orts are being used to !eet the first standard of field'or1. The 'or1 is to be ade4uately "lanned* and assistants* if any* are to be "ro"erly su"er#ised. Thus* the budget is "re"ared during the "lanning stage of the audit and the analysis of #ariances fro! budget is used as a "art of the su"er#ision "rocess.
B: ritically re#ie' the 3udg!ent exercised at e#ery le#el of
Question: ENPL2-00#4
su"er#ision. C: @educe control ris1 belo' the !axi!u!. D: Attain the "ro"er balance of "rofessional ex"erience and for!al education.
&f re4uested to "erfor! a re#ie' engage!ent for a non"ublic entity in 'hich an accountant has an i!!aterial direct financial interest* the accountant is
Answer Explanations
Answers A: &nde"endent because the financial interest is i!!aterial and*
The third general standard states that due care is to be exercised in the "erfor!ance of the exa!ination. This standard !eans that a PA 'ho underta1es an engage!ent assu!es a duty to "erfor! each audit
A. Ans'er A is incorrect because auditors generally sa!"le fro! the a#ailable corroborating e#idence and do not exa!ine all a#ailable corroborating e#idence. B. Ans'er B is correct because the exercise of due "rofessional care ;the third general standard< re4uires critical re#ie' at e#ery le#el of su"er#ision of the 'or1 done and the 3udg!ent exercised by those assisting in the audit. . Ans'er is incorrect because control ris1 !ay be assessed at the !axi!u! le#el. (. Ans'er ( is incorrect because a "ro"er balance of "rofessional ex"erience and for!al education relates !ore directly to the first general standard concerning technical training and "roficiency as an auditor.
Answers A: As a "rofessional "ossessing the degree of s1ill co!!only
A critical re#ie' is re4uired in the exercise of due "rofessional care.
Hint
The budget is "re"ared during the "lanning stage of the audit. Question: ENPL2-00#1
"ossessed by others in the field. B: &n confor!ity 'ith generally acce"ted accounting "rinci"les. C: ,ith reasonable diligence and 'ithout fault or error. D: To the satisfaction of go#ern!ental agencies and in#estors 'ho rely u"on the audit. Answer Explanations
A. Ans'er A is correct because the le#el of s1ill necessary is that co!!only "ossessed by other "rofessionals in the sa!e e!"loy!ent. B. Ans'er B is incorrect because an audit is "erfor!ed in confor!ity 'ith generally acce"ted auditing standards* not generally acce"ted accounting "rinci"les. . Ans'er is incorrect because no "rofessional can guarantee "erfor!ance 'ithout fault or error. (. Ans'er ( is incorrect because 'hile #arious go#ern!ental and user grou"s should be satisfied 'ith the nature of audits* the PA is to "ossess the re4uisite s1ills. Hint
There is a re4uired le#el of s1ill under the third general standard. Question: ENPL2-00#2
The exercise of due "rofessional care re4uires that an auditor Answers A: /xa!ine all a#ailable corroborating e#idence.
Hint
Question: ENPL2-00#3
,hen an accountant is not inde"endent* the accountant is "recluded fro! issuing a Answers A: o!"ilation re"ort. B: @e#ie' re"ort. C: 9anage!ent ad#isory re"ort. D: Tax "lanning re"ort. Answer Explanations
A. Ans'er A is incorrect because A@ ?00 states that an accountant 'ho is not inde"endent !ay issue a co!"ilation re"ort. B. Ans'er B is correct because A@ ?00 re4uires the accountant 'ho "erfor!s a re#ie' to be inde"endent ;because it is an attestation ser#ice<. . Ans'er is incorrect because Article &H of the ode of Professional onduct states that the a""earance of inde"endence is not re4uired in the case of !anage!ent ad#isory ser#ices. (. Ans'er ( is incorrect because Article &H of the ode of Professional onduct states that the a""earance of inde"endence is not re4uired in the case of tax "ractice. Hint
An accountant !ust be inde"endent for attestation ser#ices.
therefore* !ay issue a re#ie' re"ort. B: 7ot inde"endent and* therefore* !ay not be associated 'ith the financial state!ents. C: 7ot inde"endent and* therefore* !ay not issue a re#ie' re"ort. D: 7ot inde"endent and* therefore* !ay issue a re#ie' re"ort* but !ay not issue an auditor5s o"inion. Answer Explanations
A. Ans'er A is incorrect because such a financial interest does i!"air inde"endence. B. Ans'er B is incorrect because inde"endence is not re4uired for co!"ilation ser#ices* and therefore* an accountant !ay be so associated 'ith the financial state!ents. . Ans'er is correct. @e#ie's are a for! of attestation ser#ice* and an accountant !ay not !aintain inde"endence 'hen an i!!aterial direct financial interest is held in a client 'hen "erfor!ing attestation ser#ices. (. Ans'er ( is incorrect because neither a re#ie' re"ort nor an auditors o"inion !ay be issued. Hint
@ecall inde"endence re4uire!ents of ode of Professional onduct. Question: ENPL2-00#
The conce"t of !ateriality 'ould be least i!"ortant to an auditor 'hen considering the Answers A: /ffects of a direct financial interest in the client u"on the
PA5s inde"endenc e. B: (ecision 'hether to use "ositi#e or negati#e confir!ations of accounts recei#able. C: Ade4uacy of disclosure of a client5s illegal act. D: (isco#ery of 'ea1nesses in a client5s internal control structure. Answer Explanations
A. Ans'er A is correct because the auditor !ay not ha#e any direct financial interest in a client* regardless of !ateriality. B. Ans'er B is incorrect because auditors generally consider the size ;!ateriality< of account balances 'hen choosing bet'een the use of "ositi#e or negati#e confir!ation.
. Ans'er is incorrect because !ateriality is considered 'hen e#aluating the ade4uacy of disclosures of illegal acts. (. Ans'er ( is incorrect because the !ateriality of internal control 'ea1nesses should be considered by the auditor.
C: An audit of the financial state!ents and an audit of controls
Hint
A.
o#er co!"liance 'ith the Sarbanes-Oxley Act. D: An audit of the financial state!ents and an audit of internal control o#er financial re"orting.
B. Question: ENPL2-00#!
,hich of the follo'ing is correct concerning PAOB guidance that uses the ter! )!ust+
.
Answers A: The auditor !ust fulfill the res"onsibilities. B: The auditor !ust co!"ly 'ith re4uire!ents unless she
(.
Answer Explanations
A.
B.
.
(.
Ans'er A is correct because ter!s such as )!ust*+ )shall*+ and )is re4uired to+ are used to indicate that the auditor !ust fulfill the res"onsibilities. Ans'er B is incorrect because the ter! )should+ !eans that the auditor !ust co!"ly 'ith the re4uire!ents unless he or she can de!onstrate that alternati#e actions 'ere sufficient to achie#e the ob3ecti#es of the standards. Ans'er is incorrect because ter!s such as )!ay*+ )!ight+ and )could+ are used 'hen the auditor should consider "erfor!ing the audit "rocedure. Ans'er ( is incorrect because no "articular ter!s are used for the situation in 'hich the auditor has co!"lete discretion 'hether to "erfor! the "rocedure.
Ans'er A is incorrect because the la' calls for an audit of the financial state!ents and an audit of internal control o#er financial re"orting. Ans'er B is incorrect because the la' calls for an audit of the financial state!ents and an audit of internal control o#er financial re"orting. Ans'er is incorrect because the la' calls for an audit of the financial state!ents and an audit of internal control o#er financial re"orting. Ans'er ( is correct because the la' calls for an audit of the financial state!ents and an audit of internal control o#er financial re"orting.
Hint
,hich of the follo'ing state!ents is correct concerning an auditor5s res"onsibility to re"ort fraud
co!!ittee all !inor fraudulent acts "er"etrated by lo'-le#el e!"loyees* e#en if the a!ounts in#ol#ed are inconse4uential. B: The disclosure of !aterial !anage!ent fraud to "rinci"al stoc1holders is re4uired 'hen both senior !anage!ent and the board of directors fail to ac1no'ledge the fraudulent acti#ities. C: $raudulent acti#ities in#ol#ing senior !anage!ent of 'hich the auditor beco!es a'are should be re"orted directly to the S/. D: The disclosure of fraudulent acti#ities to "arties other than the clients senior !anage!ent and its audit co!!ittee is not ordinarily "art of the auditors res"onsibility. A.
control o#er financial re"orting. B: An audit of the financial state!ents and an audit of co!"liance 'ith the Sarbanes-Oxley Act and PAOB standards.
,hich of the follo'ing "rocedures 'ould least li1ely result in the disco#ery of "ossible illegal acts Answers A: @eading the !inutes of the board of directors !eetings. B: 9a1ing in4uiries of the clients !anage!ent. C: Perfor!ing tests of details of transactions. D: @e#ie'ing an internal control 4uestionnaire. Answer Explanations
A. B.
.
Answers A: The auditor is re4uired to co!!unicate to the clients audit
Answer Explanations
Answers A: An audit of the financial state!ents and a re#ie' of internal
Question: ENPL2-00#$
Question: ENPL2-00##
Hint
An integrated audit under the Sarbanes-Oxley Act of 2002 and PAOB standards includes
Auditors generally cannot re"ort !atters to outsiders.
Sarbanes-Oxley deals 'ith the reliability of financial re"orting.
7o tric1 here. Question: ENPL2-00#"
Hint
Answer Explanations
,hich of these is an area 'ith an absolute re4uire!ent
de!onstrates that alternati#e actions 'ere sufficient to achie#e the ob3ecti#es of the standards. C: The auditor should consider the guidanceI 'hether the auditor follo's de"ends on exercise of "rofessional 3udg!ent in the circu!stances. D: The auditor has co!"lete discretion as to 'hether to "erfor! the "rocedure.
and the audit co!!ittee. See A= ?D for infor!ation on an auditor5s res"onsibility relating to fraud.
Ans'er A is incorrect. Only !inor fraudulent acts in#ol#ing !anage!ent need be disclosed to the audit co!!ittee. See A= ?D for infor!ation on an auditor5s res"onsibility relating to fraud. B. Ans'er B is incorrect. Auditors do not in general co!!unicate directly 'ith stoc1holders. See A= ?D for infor!ation on an auditor5s res"onsibility relating to fraud. . Ans'er is incorrect. $raudulent acti#ities in#ol#ing senior !anage!ent are re"orted to the audit co!!ittee* not ordinarily the S/. See A= ?D for infor!ation on an auditor5s res"onsibility relating to fraud. (. Ans'er ( is correct. &n !ost circu!stances the auditor is not re4uired to co!!unicate the !atter beyond !anage!ent
(.
Ans'er A is incorrect. &t !ay lead to disco#ery of illegal acts. See A= ?Q for infor!ation on illegal acts. Ans'er B is incorrect. &t !ight lead to the disco#ery of illegal acts in that a 4uestion to !anage!ent about the existence of the acts !ay be ans'ered 'ith an ac1no'ledge!ent that such acts ha#e occurred. See A= ?Q for infor!ation on illegal acts. Ans'er is incorrect. &t !ay lead to disco#ery of "ossible illegal acts 'hen the auditor analyzes the details of the transactions and finds e#idence of illegal acts. See A= ?Q for infor!ation on illegal acts. Ans'er ( is correct. ,hile the internal control 4uestionnaire !ay re#eal 'ea1nesses in the design of internal control* it 'ill ha#e little or no infor!ation on 'hether an illegal act has occurred. See A= ?Q for infor!ation on illegal acts.
Hint
7o tric1 here. Question: ENPL2-00$0
,hich of the follo'ing circu!stances !ost li1ely 'ould cause an auditor to sus"ect that there are !aterial !isstate!ents in an entity5s financial state!ents Answers A: Senior financial !anage!ent "artici"ates in the selection of
accounting "rinci"les and the deter!ination of significant esti!ates. B: Su""orting accounting records and files that should be readily a#ailable are not "roduced "ro!"tly 'hen re4uested. C: @elated-"arty transactions ta1e "lace in the ordinary course of business 'ith an entity that is audited by another PA fir!. D: Senior !anage!ent has an excessi#e interest in u"grading the entitys infor!ation technology ca"abilities. Answer Explanations
A.
Ans'er A is incorrect. Senior financial !anage!ent !ight be ex"ected to select accounting "rinci"les and deter!ine significant esti!ates. B. Ans'er B is correct. =na#ailability of records 'hen re4uested !ight indicate fraudulent entries lac1ing "ro"er su""ort. . Ans'er is incorrect. @elated-"arty transactions often do ta1e "lace in the ordinary course of businessI significant related-"arty transactions not in the ordinary course of business !ay be an indicator of !aterial !isstate!ents. (. Ans'er ( is incorrect. An excessi#e interest in u"grading the entity5s infor!ation technology ca"abilities has not in the "ast been found to be indicati#e of fraud.
D: 9ateriality !atters that could !odify the auditors "reli!inary assess!ent of fraud ris1.
Question: ENPL2-00$1
A.
B.
.
(.
Ans'er A is correct. SAS ?0L states that infor!ation on !anage!ent5s res"onsibility to "ro#ide certain 'ritten re"resentations is ordinarily included in the understanding an auditor obtains 'ith !anage!ent through inclusion in an engage!ent letter. Ans'er B is incorrect. &t includes infor!ation not ordinarily included in an engage!ent letter* "resenting detailed infor!ation beyond 'hat is ordinarily included. Ans'er is incorrect. &t includes infor!ation not ordinarily included in an engage!ent letter* "resenting detailed infor!ation beyond 'hat is ordinarily included. Ans'er ( is incorrect. &t includes infor!ation not ordinarily included in an engage!ent letter* "resenting detailed infor!ation beyond 'hat is ordinarily included.
Hint
The "ri!ary "ur"ose of establishing 4uality control "olicies and "rocedures for deciding 'hether to acce"t ne' clients is to
7o tric1 here.
Answers A: 9ini!ize the li1elihood of association 'ith clients 'hose
Question: ENPL2-00$3
!anage!ent lac1s integrity. B: 9onitor significant deficiencies in the design and o"eration of the clients internal control. C: &dentify nonco!"liance 'ith as"ects of contractual agree!ents that affect the financial state!ents. D: Pro#ide reasonable assurance that "ersonnel 'ill be ade4uately trained to fulfill their assigned res"onsibilities. Answer Explanations
A.
Ans'er A is correct. The 4uality control standards ;see N 20< indicate that the "ri!ary "ur"ose is to !ini!ize the li1elihood of association 'ith clients 'hose !anage!ent lac1s integrity. 7ull 7ull 7ull
A successor auditor should !a1e s"ecific and reasonable in4uiries of the "redecessor auditor regarding the "redecessor5s Answers A: =nderstanding of the reasons for the change in auditors. B: 9ethodology used in a""lying sa!"ling techni4ues. C: O"inion on subse4uent e#ents that ha#e occurred since the
balance sheet date. D: Perce"tion of the co!"etency and reliance on the clients internal audit function. Answer Explanations
A.
Hint
7o tric1 here. Question: ENPL2-00$2
An auditor5s engage!ent letter !ost li1ely 'ould include a state!ent regarding Answers A: 9anage!ents res"onsibility to "ro#ide certain 'ritten
re"resentations to the auditor. B: onditions under 'hich the auditor !ay !odify the "reli!inary 3udg!ent abut !ateriality. C: &nternal control acti#ities that 'ould reduce the auditors assess!ent of control ris1.
,hich in4uiry relates to client acce"tance
Answer Explanations
Hint
7o tric1 here.
Hint
B.
.
(.
Ans'er A is correct. &n4uiries ordinarily include 4uestions on integrity of !anage!ent* disagree!ents 'ith !anage!ent* and co!!unications 'ith the audit co!!ittee regarding fraud* illegal act* and internal control related !atters. See A= ?G for infor!ation on the co!!unications bet'een "redecessor and successor auditors. Ans'er B is incorrect. &t re"resents infor!ation !uch less fre4uently obtained. See A= ?G for infor!ation on the co!!unications bet'een "redecessor and successor auditors. Ans'er is incorrect. &t re"resents infor!ation !uch less fre4uently obtained. See A= ?G for infor!ation on the co!!unications bet'een "redecessor and successor auditors. Ans'er ( is incorrect. &t re"resents infor!ation !uch less fre4uently obtained. See A= ?G for infor!ation on the co!!unications bet'een "redecessor and successor auditors.
Question: ENPL2-00$4
,hich of the follo'ing acti#ities 'ould !ost li1ely be considered an attestation engage!ent Answers A: onsulting 'ith !anage!ent re"resentati#es of a fir! to
"ro#ide ad#ice. B: &ssuing a re"ort about a fir!s co!"liance 'ith la's and regulations. C: Ad#ocating a clients "osition on tax !atters that are being re#ie'ed by the &@S. D: Pre"aring a clients tax returns Answer Explanations
A. B.
. (.
Ans'er A is incorrect. &t re"resents a consulting engage!ent. Ans'er B is correct. The attest standards "ro#ide for issuance of a re"ort about a fir!5s co!"liance 'ith la's and regulationsJsee AT D0?. Ans'er is incorrect. &t re"resents a tax engage!ent. Ans'er ( is incorrect. &t re"resents a tax engage!ent.
Hint
Attestation in#ol#es "ro#iding assurance about so!e !atter. Question: ENPL2-00$
An auditor re#ie's a client5s accounting "olicies and "rocedures 'hen considering 'hich of the follo'ing "lanning !atters Answers A: 9ethod of sa!"ling to be used. B: Preli!inary 3udg!ents about !ateriality le#els. C: 7ature of re"orts to be rendered. D: =nderstanding of the clients o"erations and business. Answer Explanations
A.
Ans'er A is incorrect. The general nature of the "olicies and "rocedures is unli1ely to "ro#ide ade4uate infor!ation for sa!"ling or !ateriality le#els. B. Ans'er B is incorrect. The general nature of the "olicies and "rocedures is unli1ely to "ro#ide ade4uate infor!ation for sa!"ling or !ateriality le#els. . Ans'er is incorrect. The accounting "olicies and "rocedures 'ill not "ro#ide ade4uate infor!ation to deter!ine the nature of re"orts to be rendered. (. Ans'er ( is correct. Such infor!ation "ro#ides o#erall guidance to hel" an auditor understand the client5s o"erations and business. Hint
7o tric1 here.
Question: ENPL2-00$!
An auditor confir!ed accounts recei#able as of an interi! date* and all confir!ations 'ere returned and a""eared reasonable. ,hich of the follo'ing additional "rocedures !ost li1ely should be "erfor!ed at year-end Answers A: Send confir!ations for all ne' custo!er balances incurred
fro! the interi! date to year-end. B: @esend confir!ations for any significant custo!er balances re!aining at year-end. C: @e#ie' su""orting docu!ents for ne' large balances occurring after the interi! date* and e#aluate any significant changes in balances at year-end. D: @e#ie' cash collections subse4uent to the interi! date and the year-end. Answer Explanations
A. Ans'er A is incorrect. &t is unli1ely that confir!ations 'ill be sent again* "articularly gi#en the "ositi#e results obtained. Also* one ordinarily confir!s accounts recei#able at an interi! date so as to a#oid confir!ing accounts at year-end. See A= 0 for infor!ation on the confir!ation "rocess. B. Ans'er B is incorrect. &t is unli1ely that confir!ations 'ill be sent again* "articularly gi#en the "ositi#e results obtained. Also* one ordinarily confir!s accounts recei#able at an interi! date so as to a#oid confir!ing accounts at year-end. See A= 0 for infor!ation on the confir!ation "rocess. . Ans'er is correct. An auditor 'ill re#ie' significant changes in balances. See A= 0 for infor!ation on the confir!ation "rocess. (. Ans'er ( is incorrect. &t is less co!"lete than re"ly . See A= 0 for infor!ation on the confir!ation "rocess. Hint
The auditor !ust "erfor! tests on inter#ening transactions. Question: ENPL2-00$"
A successor auditor is re4uired to atte!"t co!!unication 'ith the "redecessor auditor "rior to Answers A: Perfor!ing test of controls. B: Testing beginning balances for the current year. C: 9a1ing a "ro"osal for the audit engage!ent. D: Acce"ting the engage!ent. Answer Explanations
A. Ans'er A is incorrect because no such co!!unication is re4uired "rior to "erfor!ing tests of controls. B. Ans'er B is incorrect because* 'hile the successor !ay co!!unicate 'ith the "redecessor to obtain infor!ation on beginning balances* this is not re4uired. . Ans'er is incorrect because a "ro"osal !ay be !ade "rior to co!!unicating 'ith the "redecessor auditorJ
ho'e#er* final acce"tance of the client is not a""ro"riate "rior to atte!"ting such co!!unication. See A= ?G for infor!ation on a successor5s res"onsibilities. (. Ans'er ( is correct. The re4uire!ent is to deter!ine 'hen a successor auditor is re4uired to atte!"t co!!unication 'ith a "redecessor auditor. Ans'er ( is correct because "rior to acce"ting an engage!ent the successor should atte!"t such co!!unication. Hint
The co!!unication is "erfor!ed in "art to hel" the successor to learn about the integrity of !anage!ent.
the follo'ing details do !anage!ent and the auditor usually agree u"on at this ti!e Answers A: The s"ecific !atters to be included in the co!!unication
'ith the audit co!!ittee. B: The !ini!u! a!ount of !isstate!ents that !ay be considered to be significant deficiencies. C: The schedules and analyses that the clients staff should "re"are. D: The effects that inade4uate controls !ay ha#e o#er the safeguarding of assets. Answer Explanations
Question: ENPL2-00$#
,hich of the follo'ing factors !ost li1ely 'ould lead a PA to conclude that a "otential audit engage!ent should not be acce"ted Answers A: There are significant related-"arty transactions that
!anage!ent clai!s occurred in the ordinary course of business. B: &nternal control acti#ities re4uiring the segregation of duties are sub3ect to !anage!ent o#erride. C: 9anage!ent continues to e!"loy an inefficient syste! of infor!ation technology to record financial transactions. D: &t is unli1ely that sufficient a""ro"riate e#idence is a#ailable to su""ort an o"inion on the financial state!ents. Answer Explanations
A. Ans'er A is incorrect because the si!"le existence of related-"arty transactions* 'hile often indicating a high-ris1 situation* is less li1ely to result in nonacce"tance of an engage!ent. B. Ans'er B is incorrect because #irtually all controls are sub3ect to !anage!ent o#erride. . Ans'er is incorrect because inefficient infor!ation technology !ay still be technology that lends itself to auditing and the for!ing of an o"inion on the co!"any5s financial state!ents. (. Ans'er ( is correct. The re4uire!ent is to identify the factor that is !ost li1ely to lead a PA to conclude that a "otential audit engage!ent should not be acce"ted. Ans'er ( is correct because the lac1 of sufficient a""ro"riate e#idence ordinarily negates the "ur"ose of an audit* 'hich is to ha#e the PA for! an o"inion on the financial state!ents. Hint
The ob3ecti#e of an audit is the ex"ression of an o"inion. Question: ENPL2-00$$
Prior to co!!encing field'or1* an auditor usually discusses the general audit strategy 'ith the client5s !anage!ent. ,hich of
A. Ans'er A is incorrect because the infor!ation on s"ecific !atters to be included in the co!!unication 'ith the audit co!!ittee is beyond the sco"e of the general audit strategyI related* the auditor 'ill not at this early "oint be a'are of so!e of the infor!ation that 'ill be co!!unicated ;e.g.* s"ecific deficiencies in internal control<. B. Ans'er B is incorrect since the discussion 'ill ordinarily not include co!!ents on a !ini!u! a!ount of !isstate!ents that re"resent a significant deficiency. . Ans'er is correct. The re4uire!ent is to identify the !atter on 'hich !anage!ent and the auditor 'ould ordinarily agree 'hile discussing the general audit strategy "rior to the auditor co!!encing field'or1. Ans'er is correct because at this early "oint in the audit "rocess the auditor 'ill discuss client assistance in the audit* including schedules and analyses to be "re"ared by the client5s staff. (. Ans'er ( is incorrect because any discussion on inade4uate controls ordinarily 'ill occur later in the audit. Hint
One of these is a res"onsibility the client !ay assu!e relating to the audit. Question: ENPL2-0100
An auditor is re4uired to establish an understanding 'ith a client regarding the ser#ices to be "erfor!ed for each engage!ent. This understanding generally includes Answers A: The auditors res"onsibility for deter!ining the "reli!inary
3udg!ents about !ateriality and audit ris1 factors. B: 9anage!ents res"onsibility for identifying !itigating factors 'hen the auditor has doubt about the entitys ability to continue as a going concern. C: The auditors res"onsibility for ensuring that the audit co!!ittee is a'are of any significant deficiencies that co!e to the auditors attention. D: 9anage!ents res"onsibility for "ro#iding the auditor 'ith an assess!ent of the ris1 of !aterial !isstate!ent due to fraud. Answer Explanations
A. Ans'er A is incorrect because the understanding does not ordinarily in#ol#e "reli!inary 3udg!ents about !ateriality and audit ris1 factors. B. Ans'er B is incorrect because* 'hile !anage!ent !ay identify !itigating factors 'hen a 4uestion concerning going concern status exists* this is not ordinarily discussed 'hile obtaining an understanding 'ith a client. . Ans'er is correct. The re4uire!ent is to identify the infor!ation ordinarily included in an auditor5s understanding 'ith a client regarding the ser#ices to be "erfor!ed. Ans'er is correct because the auditor !ust re"ort to the audit co!!ittee significant deficiencies* and accordingly* the auditor 'ill include such infor!ation 'hile establishing an understanding 'ith a client. (. Ans'er ( is incorrect because* 'hile !anage!ent !ust "ro#ide auditors 'ith certain infor!ation related to fraud* it is the auditor5s* not !anage!ent5s* res"onsibility to assess the ris1 of !aterial !isstate!ent due to fraudJsee A= ?D.
D: 9anage!ent is interested in !aintaining the entitys earnings
C: /xternal "olicies established by "arties outside the entity
trend by using aggressi#e accounting "ractices.
affect accounting "olicies. D: The audit co!!ittee is acti#e in o#erseeing the entitys financial re"orting "olicies.
Answer Explanations
A. Ans'er A is incorrect because !anage!ent5s "urchase of additional shares in the entity is not ordinarily a ris1 factor. B. Ans'er B is incorrect since board of director !e! bers selling shares of stoc1 !ay 'ell be an ordinary occurrence. . Ans'er is incorrect because "redicting conser#ati#e o"erating results is #ery different fro! fraudulent financial re"orting. See A= ?D for infor!ation on the auditor5s consideration of fraud in a financial state!ent audit. See the a""endix to A= ?D for exa!"les of fraud ris1 factors. (. Ans'er ( is correct. The re4uire!ent is to identify the circu!stance an auditor !ost li1ely 'ould consider a ris1 factor relating to !isstate!ents arising fro! fraudulent financial re"orting. Ans'er ( is correct because aggressi#e accounting "ractices used to !aintain an earnings trend re"resent such a ris1 factor.
Hint
An auditor !ust disclose certain infor!ation.
Hint
Question: ENPL2-0101
One of these see!s !uch !ore ris1y in ter!s of fraudulent financial reportin" than the others.
,hich of the follo'ing circu!stances 'ould an auditor !ost li1ely consider a ris1 factor relating to !isstate!ents arising fro! fraudulent financial re"orting Answers A: Se#eral !e!bers of !anage!ent ha#e recently "urchased
additional shares of the entitys stoc1. B: Se#eral !e!bers of the board of directors ha#e recently sold shares of the entitys stoc1. C: The entity distributes financial forecasts to financial analysts that "redict conser#ati#e o"erating results.
Question: ENPL2-0102
9anage!ent5s e!"hasis on !eeting "ro3ected "rofit goals !ost li1ely 'ould significantly influence an entity5s control en#iron!ent 'hen Answers A: &nternal auditors ha#e direct access to the entitys board of
directors. B: A significant "ortion of !anage!ent co!"ensation is re"resented by stoc1 o"tions.
Answer Explanations
A. Ans'er A is incorrect because 'hen internal auditors ha#e direct access to the entity5s board of directors* this !ay decrease the li1elihood of o#erly aggressi#e accounting to !eet "ro3ected "rofit goals and is less li1ely to affect the control en#iron!ent. B. Ans'er B is correct. The re4uire!ent is to identify the situation in 'hich !anage!ent5s e!"hasis on !eeting "ro3ected "rofit goals 'ould be !ost li1ely to significantly influence an entity5s control en#iron!ent. Ans'er B is correct because 'hen a significant "ortion of !anage!ent5s co!"ensation is re"resented by stoc1 o"tions* ris1 !ay be in#ol#ed in that !anage!ent is under great "ressure to re"ort earnings that !eet "ro3ected "rofit goalsI this 'ill ordinarily increase !anage!ent co!"ensation significantly and* under so!e circu!stances* create a "ressure to re"ort o#erstated earnings to !eet those "ro3ections. . Ans'er is incorrect because such external "olicies are ordinarily beyond !anage!ent5s control and 'ould ha#e a li!ited effect on the control en#iron!ent. (. Ans'er ( is incorrect because an acti#e audit co!!ittee is li1ely to control !anage!ent5s aggressi#e re"orting* and thereby is less li1ely to affect the entity5s control en#iron!ent. Hint
&!"licit here is that one of the re"lies in#ol#es an increase in the ris1 of !aterial !isstate!ent.
