CPA Exam ACCTG439

21. The primary source of information to be reported about litigation, claims, and assessments is the A. Client's legal counsel. B. Court records. C. Client's management. D. Independent auditor.

A

23. Which of the following accounts most likely would assist in reducing the risks of material misstatement related to the existence or occurrence of manufacturing transactions? A. Perpetual inventory records are independently compared with goods on hand. B. Forms used for direct materials requisitions are prenumbered and accounted for. C. Finished goods are stored in locked limited-access warehouses. D. Subsidiary ledgers are periodically reconciled with inventory control accounts.

A

30. Which of the following auditing procedures most likely would provide assurance regarding a manufacturing entity's relevant assertions about inventory valuation? A. Testing the entity's computation of standard overhead rates. B. Obtaining confirmation of inventories pledged under loan agreements. C. Reviewing shipping and receiving cutoff procedures for inventories. D. Tracing test counts to the entity's inventory listing.

A

32. Which of the following combinations of procedures would an auditor most likely perform to obtain evidence about fixed asset additions? A. Inspecting documents and physically examining assets. B. Recomputing calculations and obtaining written management representations. C. Observing operating activities and comparing balances with prior-period balances. D. Confirming ownership and corroborating transactions through inquiries of client personnel.

A

33. In auditing intangible assets, an auditor most likely would review or recomputed amortization and determine whether the amortization period is reasonable in support of the relevant financial statement assertion of A. Valuation and allocation. B. Existence. C. Completeness. D. Rights and obligations.

A

36. An auditor usually obtains evidence of a company's equity transactions by reviewing its A. Minutes of board of directors meetings. B. Transfer agent's records. C. Cancelled stock certificates. D. Treasury stock certificate book.

A

40. Legal counsel's response to an auditor's inquiry about litigation, claims, and assessments may be limited to matters that are considered individually or collectively material to the client's statements. Which parties may reach an understanding on the limits of materiality for this purpose that are stated in the letter of inquiry? A. The auditor and the client's management. B. The client's audit committee and legal counsel. C. The client's management and legal counsel. D. Legal counsel and the auditor.

A

43. Which of the following procedures should an auditor ordinarily perform regarding subsequent events? A. Read the latest subsequent interim financial statements. B. Send second requests to the client's customers who failed to respond to initial accounts receivable confirmation requests. C. Communicate material weaknesses in internal control to the client's audit committee. D. Review the cutoff bank statements for several months after the year end.

A

50. Which of the following expressions most likely would be included in a representation letter by management of an issuer? A. No events have occurred subsequent to the balance sheet date that require adjustment to, or disclosure in, the financial statements. B. There are no significant deficiencies identified during the prior year's audit of which the audit committee of the board of directors is unaware. C. We do not intend to provide any information that may be construed to constitute a waiver of the attorney-client privilege. D. Certain computer files and other required evidence may exist only for a short period of time and only in computer-readable form.

A

51. To which of the following matters would materiality limits may not apply in obtaining written management representations? A. The availability of minutes of shareholders' and directors' meetings. B. Losses from purchase commitments at prices in excess of fair value. C. The disclosure of compensating balance arrangements involving related parties. D. Reductions of obsolete inventory to net realizable value.

A

52. The existence of audit risk is recognized by the statement in the auditor's standard report that the auditor A. Obtains reasonable assurance about whether the financial statements are free of material misstatement. B. Assesses the accounting principles used and also evaluates the overall financial statement presentation. C. Realizes some matters, either individually or in the aggregate, are important while other-matters are not important. D. Is responsible for expressing an opinion on the financial statements, which are the responsibility of management.

A

54. March, CPA, is engaged by Monday Corp., a client, to audit the financial statements of Wall Corp., a company that is not March's client. Monday expects to present Wall's audited financial statements with March's auditor's report to 1st Federal Bank to obtain financing in Monday's attempt to purchase Wall. In these circumstances, March's auditor's report would usually be addressed to A. Monday Corp., the client that engaged March. B. Wall Corp., the entity audited by March. C. 1st Federal Bank. D. Both Monday Corp. and 1st Federal Bank.

A

55. For a nonpublic company, which section (paragraph) of the audit report includes a statement that the auditor believes that the audit evidence obtained is sufficient? A. Introductory. B. Opinion. C. Auditor's responsibility. D. Management's responsibility.

A

56. Wilson, CPA, completed gathering sufficient appropriate audit evidence for the audit of Abco's December 31, 20X8 financial statements on March 6, 20X9. A subsequent event requiring adjustment to the 20X8 financial statements occurred on April 10, 20X9 and came to Wilson's attention on April 24, 20X9. If the adjustment is made without disclosure of the event, Wilson's report ordinarily should be dated A. March 6, 20X9. B. April 10, 20X9. C. April 24, 20X9. D. Using dual dating.

A

58. Which of the following best describes the reference to the expression "taken as a whole" in the PCAOB's fourth generally accepted auditing standard of reporting? A. It applies equally to a complete set of financial statements and to each individual financial statements. B. It applies only to a complete set of financial statements. C. It applies equally to each item in each financial statement. D. It applies equally to each material item in each financial statement.

A

60. Mead, CPA, had substantial doubt about Tech Co.'s ability to continue as a going concern when reporting on Tech's audited financial statements for the year ended June 30, 20X1. That doubt has been removed in 20X1. What is Mead's reporting responsibility if Tech is presenting its financial statements for the year ended June 30, 20X2, on a comparative basis with those of 20X2? A. The emphasis-of-matter paragraph included in the 20X2 auditor's report should not be repeated. B. The emphasis-of-matter paragraph included in the 20X2 auditor's report should be repeated in its entirety. C. A different emphasis-of-matter paragraph describing Mead's reasons for the removal of doubt should be included. D. A different emphasis-of-matter paragraph describing Tech's plans for financial recovery should be included.

A

61. Which of the following audit procedures would most likely assist an auditor in identifying conditions and events that may indicate there could be substantial doubt about an entity's ability to continue as a going concern? A. Review compliance with the terms of debt agreements. B. Confirmation of accounts receivable from principal customers. C. Reconciliation of interest expense with debt outstanding. D. Confirmation of bank balances.

A

63. Digit Co. uses the FIFO method of costing for its international subsidiary's inventory and LIFO for its domestic inventory. Under these circumstances, the auditor's report on Digit's financial statements should express an A. Unmodified opinion. B. Opinion qualified because of a lack of consistency. C. Opinion qualified because of a departure from GAAP. D. Adverse opinion.

A

67. Due to a scope limitation, an auditor disclaimed an opinion on the financial statements taken as a whole, but the auditor's report included a statement that the current asset portion of the entity's balance sheet was fairly stated. The inclusion of this statement is A. Not appropriate because it may tend to overshadow the auditor's disclaimer of opinion. B. Not appropriate because the auditor is prohibited from reporting on only one basic financial statement. C. Appropriate provided the auditor's scope paragraph adequately describes the scope limitation. D. Appropriate provided the statement is in a separate paragraph preceding the disclaimer of opinion paragraph.

A

68. In the first audit of a client, an auditor was not able to gather sufficient evidence about the consistent application of accounting principles between the current and the prior year, as well as the amounts of assets or liabilities at the beginning of the current year. This was due to the client's record retention policies. If the amounts in question could materially affect operating results, the auditor would A. Be unable to express an opinion on the current year's results of operations and cash flows. B. Express a qualified opinion on the financial statements because of a client-imposed scope limitation. C. Withdraw from the engagement and refuse to be associated with the financial statements. D. Specifically state that the financial statements are not comparable to the prior year due to an uncertainty.

A

8. Which of the following statements is correct concerning the use of negative confirmation requests? A. Unreturned negative confirmation requests rarely provide significant explicit evidence. B. Negative confirmation requests are effective when audit risk is low. C. Unreturned negative confirmation requests indicate that alternative procedures are necessary. D. Negative confirmation requests are effective when understatements of account balances are suspected.

A

1. Which of the following statements about audit evidence is true? A. To be appropriate, audit evidence should be either persuasive or relevant but need not be both. B. The sufficiency and appropriateness of audit evidence is a matter of professional judgment. C. The difficulty and expense of obtaining audit evidence about an account balance is a valid basis for omitting the test. D. A client's accounting records can be sufficient audit evidence to support the financial statements.

B

13. Which of the following sets of information does an auditor usually confirm on one form? A. Accounts payable and purchase commitments. B. Cash in bank and collateral for loans. C. Inventory on consignment and contingent liabilities. D. Accounts receivable and accrued interest receivable.

B

15. An auditor most likely would limit substantive audit tests of sales transactions when the risks of material misstatement are assessed as low for the existence and occurrence assertions concerning sales transactions and the auditor has already gathered evidence supporting A. Opening and closing inventory balances. B. Cash receipts and accounts receivable. C. Shipping and receiving activities. D. Cutoffs of sales and purchases.

B

22. To provide assurance that each voucher is submitted and paid only once, an auditor most likely would examine a sample of paid vouchers and determine whether each voucher is A. Supported by a vendor's invoice. B. Stamped "paid" by the check signer. C. Prenumbered and accounted for. D. Approved for authorized purchases.

B

26. To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. The population of documents for this test consists of all A. Payment vouchers. B. Receiving reports. C. Purchase requisitions. D. Vendors' invoices.

B

29. When performing procedures to test assertions about purchases, an auditor vouches a sample of entries in the voucher register to the supporting documents. Which relevant assertion would this procedure most likely support? A. Completeness. B. Occurrence. C. Valuation and allocation. D. Classification.

B

37. When a client's company does not maintain its own stock records, the auditor should obtain written confirmation from the transfer agent and registrar concerning A. Restrictions on the payment of dividends. B. The number of shares issued and outstanding. C. Guarantees of preferred stock liquidation value. D. The number of shares subject to agreements to repurchase.

B

41. The primary reason an auditor requests letters of inquiry be sent to a client's legal counsel is to provide the auditor with A. The probable outcome of asserted claims and pending or threatened litigation. B. Corroboration of the information furnished by management about litigation, claims, and assessments. C. Legal counsel's opinion of the client's historical experiences in recent similar litigation. D. A description and evaluation of litigation, claims, and assessments that existed at the balance sheet date.

B

42. The refusal of a client's legal counsel to provide information requested in an inquiry letter generally is considered A. Grounds for an adverse opinion. B. A limitation on the scope of the audit. C. Reason to withdraw from the engagement. D. A significant deficiency in internal control.

B

62. When management does not provide reasonable justification that a change in accounting principle is preferable and it presents comparable financial statements, the auditor should express a qualified opinion A. Only in the year of the accounting principle change. B. Each year that the financial statements initially reflecting the change are presented. C. Each year until management changes back to the accounting principle formerly used. D. Only if the change is to an accounting principle that is not generally accepted.

B

64. When an auditor expresses an adverse opinion, the opinion paragraph should include A. The principal effects of the departure from generally accepted accounting principles. B. A direct reference to a separate paragraph disclosing the basis for the opinion. C. The substantive reasons for the financial statements being misleading. D. A description of the uncertainty or scope limitation that prevents an unmodified opinion.

B

66. Park, CPA, was engaged to audit the financial statements of Tech Co., a new client, for the year ended December 31, 2009. Park obtained sufficient audit evidence for all of Tech's financial statement items except Tech's opening inventory. Due to inadequate financial records, Park could not verify Tech's January 1, 2009 inventory balances. Park's opinion on Tech's 2009 financial statements most likely will be Balance sheet Income statement A. Disclaimer Disclaimer B. Unmodified Disclaimer C. Disclaimer Adverse D. Unmodified Adverse

B

9. Which statement about audit evidence is false? A. The auditor is seldom convinced beyond all doubt with respect to all aspects of the statements being audited. B. The auditor should not perform a procedure that provides persuasive evidence rather than conclusive evidence. C. The auditor evaluates the degree of risk involved in deciding the kind of evidence to gather. D. The auditor balances the benefits of the evidence and the cost to obtain it.

B

11. Which of the following checks might indicate kiting? A. #101 and #303. B. #202 and #404. C. #101 and #404. D. #202 and #303. 12. Which of the following checks illustrate deposits or transfers in transit at December 31, Year 1? A. #101 and #202. B. #101 and #303. C. #202 and #404. D. #303 and #404.

B&B

10. Audit evidence can come in different forms with different degrees of persuasiveness. Which of the following is the least persuasive type of evidence? A. Bank statement obtained from the client. B. Test counts of inventory made by the auditor. C. Prenumbered purchase order forms. D. Correspondence from the client's attorney about litigation.

C

19. AU-C 505, External Confirmations, defines external confirmation as "a direct written response to the auditor from a third party (the confirming party), either in paper form or by electronic or other medium." The assertions for which confirmation of accounts receivable balances provides primary evidence are A. Completeness and valuation. B. Valuation and rights and obligations. C. Rights and obligations and existence. D. Existence and completeness.

C

2. The objective of tests of details of transactions performed as substantive procedures is to A. Comply with generally accepted auditing standards. B. Attain assurance about the reliability of the accounting system. C. Detect material misstatements at the relevant assertion level. D. Evaluate whether management's policies and procedures operated effectively.

C

24. Which of the following situations most likely could lead to an embezzlement scheme? A. The accounts receivable bookkeeper receives a list of payments prepared by the cashier and personally makes entries in the customers' accounts receivable subsidiary ledger. B. Each vendor invoice is matched with the related purchase order and receiving report by the vouchers payable clerk who personally approves the voucher for payment. C. Access to blank checks and signature plates is restricted to the cash disbursements bookkeeper who personally reconciles the monthly bank statement. D. Vouchers and supporting documentation are examined and then cancelled by the CFO who personally mails the checks to vendors.

C

27. Which of the following is a substantive procedure that an auditor most likely would perform to verify the existence and valuation assertions about recorded accounts payable? A. Investigating the open purchase order file to ascertain that prenumbered purchase orders are used and accounted for. B. Receiving the client's mail, unopened, for a reasonable period of time after year end to search for unrecorded vendor's invoices. C. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports. D. Confirming accounts payable balances with known suppliers who have zero balances.

C

28. Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities? A. Trace a sample of accounts payable entries recorded just before year end to the unmatched receiving report file. B. Compare a sample of purchase orders issued just after year end with the year-end accounts payable trial balance. C. Vouch a sample of cash disbursements recorded just after year end to receiving reports and vendor invoices. D. Scan the cash disbursements entries recorded just before year end for indications of unusual transactions.

C

44. An auditor should be aware of subsequent events that provide evidence concerning conditions that did not exist at year end but arose after year end. These events may be important to the auditor because they may A. Require adjustments to the financial statements as of the year end. B. Have been recorded based on preliminary accounting estimates. C. Require disclosure to keep the financial statements from being misleading. D. Have been recorded based on year-end tests for asset obsolescence.

C

47. A purpose of a management representation letter is to reduce A. Audit risk to an aggregate level of misstatement that could be considered material. B. An auditor's responsibility to detect material misstatements only to the extent that the letter is relied on. C. The possibility of a misunderstanding concerning management's responsibility for the financial statements. D. The scope of an auditor's procedures concerning related party transactions and subsequent events.

C

48. Which of the following statements ordinarily is included among the written management representations obtained by the auditor in an audit of a nonissuer? A. Management acknowledges that internal control has no material weaknesses. B. Sufficient appropriate evidence has been made available to permit the expression of an unmodified opinion. C. All transactions have been recorded in the accounting records. D. Instances of fraud involving management that exceeded the materiality limits have been acknowledged.

C

57. An auditor issued an audit report that was dual dated for a subsequent event occurring after the completion of fieldwork but before issuance of the auditor's report. The auditor's responsibility for events occurring subsequent to the completion of fieldwork was A. Extended to subsequent events occurring through the date of issuance of the report. B. Extended to include all events occurring since the completion of fieldwork. C. Limited to the specific event referenced. D. Limited to include only events occurring up to the date of the last subsequent event referenced.

C

59. Which of the following is not correct concerning information included in an audit report of financial statements issued under the requirements of the Public Company Accounting Oversight Board? A. The report should include the title "Report of Independent Registered Public Accounting Firm." B. The report should refer to the standards of the PCAOB. C. The report should include a paragraph referring to the auditor's report on compliance with laws and regulations. D. The report should contain the city and state or country of the office that issued the report.

C

6. Which of the following statements concerning audit documentation is false? A. An auditor may support an opinion by other means in addition to audit documentation. B. The form of audit documentation should be designed to meet the circumstances of a particular engagement. C. Audit documentation is the property of the client. D. Audit documentation should show that the auditor has obtained an understanding of internal control.

C

14. An auditor ordinarily sends a standard confirmation request to all banks with the client has done business during the year under audit, regardless of the year-end balance. A purpose of this procedure is to A. Provide the data necessary to prepare a proof of cash. B. Request that a cutoff bank statement and related checks be sent to the auditor. C. Detect kiting activities that may otherwise not be discovered. D. Seek information about other deposit and loan amounts that come to the attention of the institution in the process of completing the confirmation.

D

16. An auditor most likely would review an entity's periodic accounting for the numerical sequence of shipping documents and invoices to support management's financial statement assertion of A. Occurrence. B. Rights and obligations. C. Valuation and allocation. D. Completeness.

D

17. Which of the following might be detected by an auditor's review of the client's sales cutoff? A. Excessive goods returned for credit. B. Unrecorded sales discounts. C. Lapping of year-end accounts receivable. D. Inflated sales for the year.

D

18. Which of the following most likely would give the most assurance concerning the valuation assertion about accounts receivable? A. Vouching amounts in the subsidiary ledger to details on shipping documents. B. Comparing receivable turnover ratios with industry statistics for reasonableness. C. Inquiring about receivables pledged under loan agreements. D. Assessing the allowance for uncollectible accounts for reasonableness.

D

20. Which of the following procedures would an auditor most likely perform for year-end accounts receivable confirmations when the auditor did not receive replies to second requests? A. Review the cash receipts journal for the month prior to year end. B. Intensify the study of internal control concerning the revenue cycle. C. Increase the assessed level of detection risk for the existence assertion. D. Inspect the shipping records documenting the merchandise sold to the debtors

D

25. The authority to accept incoming goods in receiving should be based on a(n) A. Vendor's invoice. B. Materials requisition. C. Bill of lading. D. Approved purchase order.

D

3. An auditor decides to use the blank form of accounts receivable confirmation rather than the traditional positive form. The auditor should be aware that the blank form may be less efficient because A. Subsequent cash receipts need to be verified. B. Statistical sampling may not be used. C. A higher assessed level of audit risk is required. D. More nonresponses are likely to occur.

D

31. While observing a client's annual physical inventory, an auditor recorded test counts for several items and noticed that certain test counts were higher than the recorded quantities in the client's perpetual records. This situation could be the result of the client's failure to record A. Purchase discounts. B. Purchase returns. C. Sales. D. Sales returns.

D

34. Which of the following explanations most likely would satisfy an auditor who questions management about significant debts to accumulated depreciation accounts in the current year? A. Prior years' depreciation expenses were erroneously understated. B. Current year's depreciation expense was erroneously understated. C. The estimated remaining useful lives of plant assets were revised upward. D. Plant assets were retired during the current year.

D

35. During an audit of a company's equity accounts, the auditor determines whether restrictions have been imposed on retained earnings resulting from loans, agreements, or state law. This audit procedure most likely is intended to verify relevant assertion about A. Existence and occurrence. B. Completeness. C. Valuation and allocation. D. Classification and understandability.

D

38. A weakness in internal control over recording retirements of equipment may cause an auditor to A. Inspect certain items of equipment in the plant and trace those items to the accounting records. B. Review the subsidiary ledger to ascertain whether depreciation was taken on each item of equipment during the year. C. Trace additions to the "other assets" account to search for equipment that is still on hand but no longer being used. D. Select certain items of equipment form the accounting records and locate them in the plant.

D

39. An auditor most likely would analyze inventory turnover rates to obtain evidence concerning relevant assertions about A. Existence. B. Rights and obligations. C. Classification and understandability. D. Valuation and allocation.

D

4. The audit working paper that reflects the major components of an amount reported in the financial statements is the A. Interbank transfer schedule. B. Carryforward schedule. C. Supporting schedule. D. Lead schedule.

D

45. Wilson, CPA, obtained sufficient appropriate audit evidence on which to base the opinion on Abco's December 31, Year 1, financial statements on March 6, Year 2, the date of the auditor's report. A subsequently discovered fact requiring revision of the Year 1 financial statements occurred on April 10, Year 2, and came to Wilson's attention on April 24, Year 2. If the fact became known prior to the report release date, and the revision is made, Wilson's report ordinarily should be dated A. March 6, Year 2. B. April 10, Year 2. C. April 24, Year 2. D. Using dual-dating.

D

46. Which of the following documentation is required for an audit in accordance with generally accepted auditing standards? A. An internal control questionnaire. B. An organization chart. C. A planning memorandum or checklist. D. A management representation letter.

D

49. To which of the following matters would an auditor not apply materiality limits when obtaining specific written management representations? A. Disclosure of compensating balance arrangements involving restrictions on cash balances. B. Information concerning related party transactions and related amounts receivable or payable. C. The absence of errors and unrecorded transactions in the financial statements. D. Fraud involving employees with significant roles in internal control.

D

5. Which of the following factors would least likely affect the form, content, and extent of audit documentation? A. The risks of material misstatement. B. The extent of exceptions identified. C. The nature of the auditing procedures. D. The medium in which it is recorded and maintained.

D

53. Which of the following statements is correct concerning an auditor's responsibility for controlling the distribution by the client of a restricted-use report? A. An auditor must make clear to the client that it is illegal to distribute such a report beyond to specified parties. B. When an auditor is aware that a client has distributed a restricted-use report to inappropriate third parties, the auditor should immediately inform the client to cease and desist. C. An auditor controls distribution through insisting that the client not duplicate the restricted-use report for any purposes. D. An auditor is not responsible for controlling the distribution of such reports.

D

65. When an auditor qualifies an opinion because of inadequate disclosure, the auditor should describe the nature of the omission in a basis for qualification paragraph and modify the Introductory paragraph Auditor responsibility paragraphs Opinion paragraph A. YES NO NO B. YES YES NO C. NO YES YES D. NO NO YES

D

7. Although the quantity and content of audit documentation vary with each engagement, an auditor's permanent files most likely include A. Schedules that support the current year's adjusting entries. B. Prior year's accounts receivable confirmations that were classified as exceptions. C. Documentation indicating that the audit work was adequately planned and supervised. D. Analyses of capital stock and other owners' equity accounts.

D