Module One - Practice CPA Questions

An auditor has determined a $10 million materiality level for a client's balance sheet and a $3 million materiality level for the client's income statement. As a result, the auditor will consider items in the audit to be material if they individually or collectively could result in a misstatement of

$3 million or more

According to Title III of the Sarbanes-Oxley Act of 2002, the CEO and CFO of a public company must explicitly certify in each annual or quarterly report they have

Reviewed the report.

When evaluating the sufficiency and appropriateness of audit evidence, the auditor should consider all of the following except:

The extent to which the auditor was involved in maintaining the client's accounting records and preparing the financial statements.

Regarding pension obligations and their associated auditing issues,

The findings of a specialist, such as an actuary, constitute audit evidence to be evaluated by the auditor.

Regarding threats to independence:

The management participation threat involves a risk of the auditor essentially reviewing the reports indicating the results of decisions that the auditor participated in when serving in an attest client management role.

Which of the following items would be the least persuasive type of audit evidence?

A letter of representation signed by the client's president and chief executive officer.

Which of the following items would be the most persuasive type of audit evidence?

A schedule comparing an estimate of interest expense, prepared by the auditor, to the amount reported on the client's trial balance.

Audits of which of the following organizations are subject to the Sarbanes-Oxley Act?

All public companies.

Regarding confidentiality,

An auditor may allow other accountants and the PCAOB to see confidential information in connection with a valid program of peer review.

Under the ethical requirements of the profession, a certified public accountant may

Audit a bank where the accountant obtained a current, fully secured 20-year mortgage under the same terms offered to the general public prior to the audit.

When developing audit programs, the auditor will apply tests of details to accomplish which of the following?

Detecting material misstatements affecting the financial statements.

When using a specialist to obtain evidence in an audit, the auditor will consider the specialist's competence and objectivity. Which of the following would the auditor do when evaluating the specialist's objectivity?

Make inquiries regarding the specialist's relationships.

In an audit of a company's financial statements, which of the following is not considered a disclosure in regards to which the auditor is specifically required to provide positive assurance?

Management Discussion & Analysis (MD&A)

The Sarbanes-Oxley Act of 2002

Mandates integrated audits for public companies

Which of the following would be considered corroborative evidence?

Minutes from meetings of the board of directors.

Which of the following is a true statement about the Public Company Accounting Oversight Board (PCAOB):

Public accounting firms must register with the PCAOB before performing audits of public companies.

Watt & Foster LLC is a CPA firm that wants to ensure that it only associates with clients whose management has integrity. To achieve this, Watt & Foster need not:

Refuse to accept a client who has been issued an adverse opinion sometime during the last three years.

According to the AICPA Code of Professional Conduct, which of the following nonaudit services is a CPA prohibited from performing for an audit client?

Tax Advocacy - Prohibited Bookkeeping - Allowed

As specified in Title II of the Sarbanes Oxley Act (SOX), which of the following non-audit services to audit clients are not prohibited from being performed by a registered public accounting firm if the preapproved by the audit committee and disclosed to the SEC?

Tax services.

According to professional standards, which of the following circumstances will impair a CPA's independence?

The CPA's nondependent stepchild has a material indirect financial interest in the client.

As specified in Title I of the Sarbanes-Oxley Act of 2002, which organization has oversight and enforcement authority over the Public Company Accounting Board (PCAOB) and its decisions?

The SEC

In deciding whether to accept a prospective audit client, which of the following would have the biggest impact on the auditor's decision?

The client's predecessor auditor indicated that the client's management lacks integrity.

To obtain assurance that the accounting records accurately reflect only transactions that actually occurred, supporting management's occurrence assertion, the auditor would most likely examine a sample of general ledger postings and

Trace them back to the supporting source documentation.

Weller, CPA is conducting an audit of Wadd, LLC. Weller wishes to independently perform procedures to validate assumptions inherent in certain reserve accounts on Wadd's balance sheet. The CEO of Wadd asks if Weller could rely primarily on Wadd's own internal support for the accounts, citing a pressing need to provide audited financial statements to prospective investors as soon as possible, and as a sign of Wadd's gratitude, presents Weller with valuable tickets to a sporting event. What category of threat to independence is Weller being subjected to?

Undue influence threat.

Which of the following relates to the sufficiency of audit evidence?

When no exceptions were discovered in a preliminary sample, the auditor decided that no further testing was necessary.