extra questions

Which of the following is NOT one of the AICPA Principles of Professional Conduct? -responsibilites -reliability -objectivity -due care

reliability

What agency has the ultimate authority in defining independence for public companies?

SEC

Which of the following is not an example of an attestation engagement: -An audit engagement conducted on historical financial statements. -A compilation engagement conducted on historical financial statements. -An examination engagement conducted on a financial forecast. -An engagement to apply limited procedures identified by the client to historical financial statements.

A compilation engagement conducted on historical financial statements.

The risk that an auditor's procedures will lead to the conclusion that a material misstatement does not exist in an account balance when, in fact, such misstatement actually exists is:

detection risk.

Which of the following statements is not included in the Auditor's Responsibilities for the Audit of the Financial Statements Section of the standard (unmodified) report? -"In accordance with accounting principles generally accepted in the United States of America." -"Our objectives are to obtain reasonable assurance...and to issue an auditor's report that includes our opinion" -"...it is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement..." -"Reasonable assurance is a high level of assurance but is not absolute assurance..."

-"In accordance with accounting principles generally accepted in the United States of America."

Which of the following represents a major difference between a compilation engagement and a preparation engagement? -Accountants are required to be independent in a compilation engagement, but not a preparation engagement. -Accountants are required to perform substantive procedures in a compilation engagement, but not a preparation engagement. -Accountants are required to prepare a report in a compilation engagement, but not a preparation engagement. -Accountants express limited assurance in a compilation engagement, but not a preparation engagement.

-Accountants are required to prepare a report in a compilation engagement, but not a preparation engagement.

If control risk increases, and all other risks in the audit risk model stay constant except the one referred to below, which of the following statements is correct?

Detection risk will decrease.

Which of the following statements best describes why an auditor would use only substantive procedures to evaluate specific relevant assertions and risks?

Testing the operating effectiveness of the relevant controls would not be efficient.

In testing the existence assertion for an asset, an auditor ordinarily works from the:

accounting records to the supporting evidence.

In an audit of financial statements, an auditor's primary consideration regarding an internal control policy or activity is whether the policy or activity:

affects management's financial statement assertions.

The procedures used in a review engagement are: -physical examination, reperformance, and obtaining a management representation letter. -analytical procedures, reperformance, and obtaining a management representation letter. -analytical procedures, inquiry, and obtaining a management representation letter. -physical examination, inquiry, and obtaining a management representation letter.

analytical procedures, inquiry, and obtaining a management representation letter.

Based on Sarbanes-Oxley, who is ultimately responsible for the independence of the external auditor? a) The CPA firm's engagement partner. b) The CPA firm's quality control partner. c) The client's senior management. d) The audit committee.

audit committee

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:

completeness

In a compilation engagement, the accountant: -provides reasonable assurance that no material misstatements exist. -provides assurance that no material misstatement came to the auditors attention. -provides a list of procedures performed and results found. -does not express an opinion.

does not express an opinion.

An auditor selected items for test counts from a client's inventory listing before observing the client's physical inventory at the warehouse. The auditor then found the items selected at the warehouse and counted them. This procedure most likely obtained evidence concerning management's assertion of:

existence

An auditor most likely would inspect additions to the audit client's Property, Plant, and Equipment account to obtain evidence concerning management's assertions about:

existence or occurrence.

The risk of material misstatement differs from detection risk in that it:

exists independently of the financial statement audit.

When updating the report on prior years' financial statements presented in comparative form, the auditors' responsibility for the prior years' financial statements is

extended to the date of the updated audit report.

External auditors are responsible:

for reporting immaterial frauds to a level of management at least one level above the people involved.

Auditors would not normally issue a qualified opinion on the entity's financial statements when -an accounting principle at variance with generally accepted accounting principles is used. -the auditors lack independence with respect to the audited entity. -a scope limitation prevents the auditors from completing an important auditing procedure. -the entity has undertaken a change in accounting principle with which the auditor does not agree.

the auditors lack independence with respect to the audited entity.

During the year under audit, Forrest Corporation experienced significant losses due to a pervasive fraud scheme. Because of the lack of documentary evidence and inability to perform appropriate auditing procedures, the auditors were unable to determine the total amount of the loss. What type of report should the auditors issue? -Qualified or adverse opinion. -Disclaimer or adverse opinion. -Disclaimer of opinion or qualified opinion. -Unmodified opinion with an other-matter paragraph.

-Disclaimer of opinion or qualified opinion.

Red and Green, CPAs, are the external auditors for Blue Corporation, a publicly-held company. Blue Corporation has outsourced its internal audit function to Red and Green. Which of the following statements is true? -Doing internal audit work does not impair the independence of Red and Green. -The independence of Red and Green is impaired only if employees of Red and Green act in a management capacity or make management decisions. -The independence of Red and Green is impaired only if a member of Red and Green's engagement team is hired to manage an accounting function in Blue Corporation. -Public accounting firms cannot be both the internal and external auditors for publicly-held companies and maintain independence.

-Public accounting firms cannot be both the internal and external auditors for publicly-held companies and maintain independence.

Management determined it was probable that a pending litigation claim would result in a material loss. The loss was disclosed in the footnotes to the financial statements but was not accrued in the income statement. If the auditors believe an accrual should be made, what type of report should be issued? -Standard (unmodified) report. -Unmodified opinion with an emphasis-of-matter paragraph. -Qualified opinion based on a circumstance-imposed scope limitation. -Qualified or adverse opinion based on a departure from GAAP.

-Qualified or adverse opinion based on a departure from GAAP.

Which of the following indicates the minimum required scope in an agreed-upon procedures engagement: -The accountant must conduct a study and evaluation of internal control. -The accountant must make specific inquiries of the entity's management. -The accountant must perform limited analytical procedures and specific tests of details. -There is no minimum required scope in an agreed-upon procedures engagement.

-There is no minimum required scope in an agreed-upon procedures engagement.

When an entity will not permit inquiry of outside legal counsel, the auditors' report on the entity's financial statements will ordinarily contain a(n) -disclaimer of opinion. -qualified opinion referencing a departure from generally accepted accounting principles. -unmodified opinion with an -emphasis-of-matter paragraph. -adverse opinion.

-disclaimer of opinion.

Auditors most likely would issue a disclaimer of opinion on the entity's financial statements because of -inadequate disclosure of material information. -the omission of the Statement of Cash Flows. -a material departure from generally accepted accounting principles. -management's refusal to furnish written representations.

-management's refusal to furnish written representations.

An accountants' report includes the phrase "We are not aware". This phrase indicates: -an attestation engagement was not performed. -management had not established sufficient criteria to allow an opinion to be expressed. -the accountants are providing limited assurance. -the accountants are expressing a disclaimer of opinion.

-the accountants are providing limited assurance.

An engagement in which accountants perform procedures delineated by the entity is referred to as a(n): -Agreed-upon procedures engagement. -Attestation engagement. -Evaluation engagement. -Preparation engagement.

Agreed-upon procedures engagement.

For audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent.

As a substantive test: No; In the final review stage: Yes.

To which group can a CPA provide audit documentation without being subpoenaed and without the client's consent? -IRS -FASB -another CPA firm performing a peer review -another CPA firm considering the purchase of the auditing firm

Another CPA firm performing a peer review.

Which of the following most likely would give the most assurance concerning the valuation assertion of accounts receivable?

Assessing the allowance for uncollectible accounts for reasonableness.

Which of the following accounts tends to be most predictable for purposes of analytical procedures?

Interest expense.

Which of the following represents the level of assurance provided in a compilation engagement on a non-issuer's financial statements? -An opinion on the fairness of the financial statements. -Limited assurance on the fairness of the financial statements. -A summary of findings resulting from the compilation engagement. -No opinion or assurance on the fairness of the financial statements

No opinion or assurance on the fairness of the financial statements

Which of the following procedures should an accountant perform during an engagement to review the financial statements of a non-issuer? -Communicate reportable conditions discovered during the assessment of control risk. -Obtain a representation letter from members of management. -Send bank confirmation letters to the entity's financial institutions. -Examine cash disbursements in the subsequent period for unrecorded liabilities.

Obtain a representation letter from members of management.

Which of the following procedures would not be performed in a review of financial statements of a non-issuer? -Inquire about the accounting system and procedures. -Perform analytical procedures to identify relationships and individual items that appear to be unusual. -Obtain an attorney's letter regarding litigation and unasserted claims. -Study the financial statements for indications that they conform to generally accepted accounting principles.

Obtain an attorney's letter regarding litigation and unasserted claims.

A preparation engagement might include all of the following except: -Preparation of financial statements prior to review by another accountant. -Preparation of financial statements to be presented alongside an entity's tax return. -Preparation of financial statements solely for submission to a taxing authority. -Preparation of financial statements for presentation alongside a personal financial plan.

Preparation of financial statements solely for submission to a taxing authority.

Which of the following procedures is ordinarily performed by an accountant in a compilation engagement of a non-issuer? -Reading the financial statements to consider whether they are free of obvious mistakes in the application of accounting principles. -Obtaining written representations from management indicating that the compiled financial statements will not be used to obtain credit. -Making inquiries of management concerning actions taken at meetings of the stockholders and the board of directors. -Applying analytical procedures designed to corroborate management's assertions that are embodied in the financial statement components.

Reading the financial statements to consider whether they are free of obvious mistakes in the application of accounting principles.

Which of the following would not be communicated to users in the auditors' report on an entity's financial statements and related disclosures? -Whether the financial statements are presented in accordance with GAAP, or another applicable financial reporting framework. -Unusual aspects of the audit examination, such as the involvement of component auditors in the audit of group financial statements. -Specific details regarding the audit examination, such as the materiality threshold used to identify material misstatements. -Other matters affecting the client, such as substantial doubt about the entity's ability to continue as a going concern.

Specific details regarding the audit examination, such as the materiality threshold used to identify material misstatements.

According to the profession's ethical standards, an auditor would be considered independent in which of the following instances? -The auditor is the officially appointed stock transfer agent of a client. -The auditor's checking account that is fully insured by a federal agency is held at a client financial institution. -The client owes the auditor fees for more than two years prior to the issuance of the audit report. -The client is the only tenant in a commercial building owned by the auditor.

The auditor's checking account that is fully insured by a federal agency is held at a client financial institution.

During a review engagement, which of the following is not a required inquiry of management? -The accounting principles and practices used. -Significant transactions occurring near the end of the reporting period. -Status of uncorrected misstatements identified in previous engagements. -The changes made to internal controls during the period under review.

The changes made to internal controls during the period under review.

The accountant's standard report for a compilation engagement would not include a statement that: -a compilation service has been performed in accordance with Statements on Standards for Accounting and Review Services. -financial statement information is the representation of the owners of the business. -compilation service consists primarily of inquiries of company personnel and analytical procedures applied to financial data. -financial statements have not been audited or reviewed and the accountant does not express an opinion or any other form of assurance.

compilation service consists primarily of inquiries of company personnel and analytical procedures applied to financial data.

Cutoff tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about management's assertion of:

completeness

In auditing accrued liabilities, an auditor's procedures most likely would focus primarily on management's assertion of:

completeness

The group auditors decide not to refer to the audit of component auditors who audited a subsidiary of the group financial statements. After making inquiries about the component auditors' professional reputation and independence, the group auditor most likely would -document in the engagement letter that the group auditors assume no responsibility for the component auditors' work. -obtain written permission from the component auditors to omit the reference in the group auditors' report. -contact the component auditors' and review the audit programs and working papers pertaining to the subsidiary. add an other-matter paragraph to the group auditors' report indicating that the subsidiary's financial statements are not material to the consolidated financial statements.

contact the component auditors' and review the audit programs and working papers pertaining to the subsidiary.

Control activities intended to ensure that transactions are recorded in the right period are designed to achieve the ASB assertion of:

cutoff

When an auditor increases the planned assessed level of control risk because certain control activities were determined to be ineffective, the auditor would most likely increase the:

extent of substantive tests of details.

When the audit team increases the planned assessed level of control risk because certain control activities were determined to be ineffective, the audit team would most likely increase the:

extent of substantive tests of details.

An interpretation of the Independence Rule allows members to -hold a material indirect interest in a client. -have loans from a client that are collateralized by cash deposits -held by the client. -have home mortgages with a client even if they are on the engagement. -be a trustee of a client pension or profit sharing trust.

have loans from a client that are collateralized by cash deposits held by the client.

In an agreed-upon procedures engagement, an accountant: follows all of the fundamental principles of GAAS. may restrict the use of the report to specified users. expresses limited assurance in the report. expresses a qualified audit opinion.

may restrict the use of the report to specified users.

If the auditors obtains sufficient appropriate evidence on the entity's accounts receivable balance by alternative procedures because it is impracticable to confirm accounts receivable, the opinion on the entity's financial statements should be unmodified and would

not mention the alternative procedures.

If auditors assess control risk at the maximum level, they will tend to:

perform a great deal of substantive testing during the audit.

The independent auditors' audit design prepared prior to the start of fieldwork is appropriately considered documentation of:

planning.

In testing the completeness assertion for a liability account, an auditor ordinarily works from the:

potentially unrecorded items to the financial statements.

Compiled financial statements for a non-issuer should be accompanied by a report stating that: -the scope of the accountant's procedures has not been restricted in testing the financial information that is the representation of management. -the accountant assessed the accounting principles used and significant estimates made by management. -the accountant does not express an opinion or any other form of assurance on the financial statements. -a compilation consists primarily of inquiries of entity personnel and analytical procedures applied to financial data.

the accountant does not express an opinion or any other form of assurance on the financial statements.

Before accepting an engagement to audit a new client, a CPA is required to obtain:

the prospective client's consent to make inquiries of the predecessor, if any.

When providing limited assurance that the reviewed financial statements of a non-issuer require no material modifications to be in accordance with generally accepted accounting principles, the accountant should: -assess the risk that a material misstatement could occur in a financial statement assertion. -confirm with the entity's attorneys that material loss contingencies are disclosed. -understand the accounting principles of the industry in which the entity operates. -develop audit plans to determine whether the entity's financial statements are fairly presented.

understand the accounting principles of the industry in which the entity operates.