Audit

Which of the following is a required component of the independent auditor's report expressing an unmodified opinion?

A basis for opinion section including a reference to generally accepted auditing standards

An auditor provides positive assurance in all of the following reports EXCEPT

A report on compliance with contractual or regulatory requirements related to audited financial statements Negative assurance is provided on compliance with contractual or regulatory requirements related to audited financial statements

Management's written representation to the auditor in connection with a governmental audit would most likely include:

A statement that management has disclosed any communications from grantors concerning possible noncompliance

Which of the following impairs independence

A threatened and likely lawsuit and credit card balance in excess of $10,000 impair independence, but overdue audit fees only impair independence if they are overdue by more than one year

Which of the following best describes a difference between an audit and a review of a nonpublic entity's annual financial statements

An audit required an understanding of internal control, whereas a review does not

Which of the following statements is correct with respect to the testing of controls in an audit of an issuer's financial statements?

An auditor must obtain evidence that controls are operating effectively during the entire period of reliance if the auditor plans to assess control risk at less than the maximum

Which of the following is least likely to be included in an examination report related to a financial projection

An indication that had the accountants performed additional procedures, other matters might have come to their attention that would have been reported This would be included in an agreed-upon procedures report, not an examination report

Which of the following is true

An integrated audit may be performed for a nonissuer, but it is not required. If the client is an issuer, then the auditor must perform an integrated audit of the client's financial statements and internal controls over financial reporting. Integrated audits may also be performed for nonissuers, but are not required.

In an audit of an issuer's financial statements, the auditor determined there was substantial doubt about the issuer's ability to continue as a going concern for a reasonable period of time. If there were no other significant audit findings, which of the following indicates the proper form of the audit report that should be issued?

An unqualified opinion with an explanatory paragraph

A nonissuer changes from an accounting principle not in accordance with the applicable reporting framework to an accounting principle in accordance with the applicable reporting framework. How should the auditor characterize such a change?

As a correction of a misstatement

Before applying principal substantive tests to an entity's accounts receivable at an interim date, an auditor should:

Assess the difficulty in controlling the incremental audit risk

What is the primary objective of the fraud brainstorming session?

Assess the potential for material misstatement due to fraud

Which of the following statements is true about required procedures in a review of annual financial statements?

Assessment of fraud risk is not required, but obtaining a representation letter from management is required.

An auditor was testing whether shipments were made only to credit-worthy customers. The client informed the auditor that the information technology system would not print bills of lading for customer that were on credit hold. The auditor would most likely next perform which of the following?

Attempt to print a bill of lading for one customer on credit hold and verify with the information technology department that this control cannot be overridden without approval

Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle

Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash

A report on a nonissuer's internal control based on an audit of internal control should include a statement indicating that:

Because there are inherent limitations in internal control, misstatements may occur and not be detected Projections of the evaluation of internal control to future periods are subject to the risk that the internal control may become inadequate.

The accountant may report on agreed-upon procedures applied to specified elements, accounts, or items of financial statements:

But must be independent of the client company and give no opinion or any other form of assurance on the sufficiency of the agreed-upon procedures applied

Who do conflict of interest provisions of SOX Title II apply to?

CEO, CFO, Controller, or Chief Accounting Officer, not an internal auditor

Which of the following parties should request inquiry of a client's lawyer

Client Management

If an auditor is reporting on financial statements of a nonissuer prepared in according with a financial reporting framework generally accepted in a country other than the united states and the auditor uses the other country's report form and content for use only outside the united states, then the auditor should

Comply with the reporting standards of the other country and identify the other country in the report

During an engagement to review the financial statements of a nonissuer, an accountant becomes aware of several leases that should be capitalized, but are not capitalized. The accountant considers these leases to be material to the financial statements. The accountant decides to modify the standard report because management will not capitalize the leases. Under these circumstances, the accountant should:

Disclose the departure from GAAP in a separate paragraph of the accountants report

A limitation on the scope of an audit sufficient to preclude an unmodified opinion is most likely to result when the client

Does not make the minutes of the board of directors meetings available to the auditor

Which of the following controls most likely would be effective in offsetting the tendency of sales personnel to maximize sales volume at the expense of high bad debt write-offs?

Employees involved in the credit-granting function are separated from the sales function Sales personnel will have a tendency to maximize sales volume by selling to customers that may not be creditworthy, thereby resulting in high bad debt write offs. To prevent sales to customers that may not be creditworthy, employees involved in the credit granting function are separated from the sales function.

Entities that ______ more than $750,000 in federal financial assistance are required to receive an audit that complies with the provisions of the Single Audit Act

Expend

An auditor's responsibility for a client entity's compliance with laws and regulations impacting the entity is to:

Identify material misstatements in the entity's financial statements due to noncompliance with applicable laws and regulations

In planning an audit, the auditor's knowledge about the design of relevant internal control activities should be used to

Identify the types of potential misstatements that could occur

If an auditor includes an emphasis of matter paragraph to draw users attention to a matter relevant to the users' understanding of the financial statements of a nonissuer, then the auditor should

Include the paragraph immediately after the opinion paragraph in the audit report

An auditor is in the process of identifying any pending litigation claims against the client that might require disclosure in the audited financial statements. Which of the following steps should the auditor take first to acquire information regarding litigation?

Inquire about and discuss any potential litigation with management

Which of the following procedures would most likely help an auditor identify events after the date of the financial statements that should be disclosed?

Inquire about changes in capital stock that was issued or repurchased

Which of the following procedures generally would not be performed in a review of a public entity's interim financial statements?

Inquire of the client's attorney

During an engagement to prepare financial statements, an accountant was precluded by management from including a statement on each page of the financial statements indicating that no assurance is provided. Which of the following actions would be appropriate?

Issue a disclaimer of opinion making clear that no assurance is provided

If an accountant compiles financial statements for an entity and a member of the engagement team has a direct financial interest in the entity, then the accountant should:

Issue the accountant's lack of independence in the final paragraph of the compilation report

To obtain assurance that all inventory items in a client's inventory listing are valid, an auditor most likely would trace

Items in the inventory listing to inventory tags and the auditor's recorded count sheets

Dante, CPA, is auditing the financial statements of crest computing. During the previous year, Kratzke and Kratzke, CPAs, audited Crest's financial statements. Crest has decided to present comparative financial statements for the current year. Which statement is true about Kratzke and Kratzkes report?

Kratzke and Kratzke should perform limited procedures, such as reading the current statements, comparing the current and prior statements, and obtaining representation letters from Crest's management and from Dante.

Which of the following accounts would an auditor most likely test prior to the balance sheet date?

Maintenance and repairs expense

Under the AICPA Code of Professional Conduct, which of the following tax compliance services performed for an attest client relating to the preparation of a tax return would impair a CPA's independence?

Making tax payments from a client's restricted account over which the CPA has signing authority and control

Materiality is information that is likely to be viewed by a reasonable investor as altering the mix of available information

Materiality definition

Robbins company uses an outside service organization called payroll plus to process its payroll. Matthews, CPA is the auditor or Payroll Plus, and Stevens, CPA is Robbins' auditor. Stevens' assessment of the risk of material misstatement may be based on the effective operation of controls surrounding payroll if:

Matthews provides a report on controls placed in operation and tests of operating effectiveness. Stevens may assume controls are operating effectively if Matthews provides a report on controls placed in operation and tests of operating effectiveness, and if this report supports a reduction in the assessed level of control risk. A SOC 1 type 2 report provides the user auditor with assurance about the design, implementation, and operating effectiveness of the service organization's internal controls

Min, CPA, is unable to perform necessary procedures in a review of the financial statements of a nonissuer. What will be the effect on Mins review report?

Min should not issue a review report bc the review is incomplete Accountants must be able to perform whatever procedures they deem necessary and if those procedures are not accomplished, the review is incomplete. A review that is incomplete will prevent the issuance of a review report.

An entity prepares its financial statements on its income tax basis. The accompanying notes include a summary of significant accounting policies that discusses the basis of presentation and describes how that basis differs from GAAP. The dollar amount of the effects of the different between the income tax basis and GAAP

Needs not be quantified and included in either the notes to the financial statements or the auditor's report.

A CPA has been requested by a former audit client to reissue the auditor's report for the prior period. Before reissuing the report, the CPA should

Obtain a letter of representation from the former client's management

Prior to commencing the compilation of financial statements of a nonissuer, an accountant is required to

Obtain an understanding of any specialized financial reporting frameworks and practices used in the entity;s industry

Which of the following auditing procedures would provide the best audit evidence in testing the existence of the accounts receivable balance?

Obtaining confirmation of receivables directly from customer

A treasury department overstated its company's cash position by neglecting to account for a $200,000 wire transfer. Which of the following internal controls could have detected the error?

Performing monthly reconciliations of all bank accounts

A registered public accounting firm is conducting an audit of an issuer. Which of the following services may the auditor provide to the client while maintaining independence?

Preparing an organizational chart of the accounting department

Which of the following services require the accountant to comply with Statements on Standards for Accounting and Review Services (SSARS)

Preparing financial statements prior to audit or review by another accountant Preparation of financial statements prior to audit or review by another accountant is an engagement that should be conducted in accordance with SSARS

A CPA is required to comply with the provisions of Statements on Standards for Attestation Engagements (SSAES) when engaged to:

Provide assurance on investment performance statistics prepared by an investment company on established criteria (SSAE provide guidance on engagements other than reporting on historical financial statements)

Which of the following procedures are required for a compilation engagement?

Read the financial statements Obtain an understanding of the client's business and the accounting principles used

In an audit of a nonissuer defined benefit pension plan, which of the following procedures most effectively tests that benefit payments to plan participants are paid in accordance with the plan document?

Recalculating benefits for selected participants based on the plan provisions using relevant service and salary history to support the recorded benefits paid to the participants

If an audit firm determines that a quality control review is required, but it has not been performed, what should an audit engagement partner do?

Refrain from issuing the audit report until after the quality control review has been completed

In an integrated audit of a nonissuer, in order to obtain evidence to form an opinion on the effectiveness of internal control over financial reporting, an auditor will perform each of the following procedures, EXCEPT:

Reviewing matters related to the entity's capital structure

Which of the following procedures would least likely help the auditor to discover a subsequent event at the conclusion of the audit

Reviewing the audit working papers

An auditor determined materiality for planning purposes before year end based on a nonissuer entity;s prior year financial statements. During the audit, the auditor learns that the actual financial results are significantly different from those of the prior year because of a merger. The auditors most appropriate response would be to

Revise materiality for the financial statements as a whole

Which of the following events most likely would indicate the existence of related party transactions?

Selling real estate at a price that differs significantly from its appraised value

Which of the following items would be included in the engagement letter prepared by an auditor?

Services to be provided in addition to the audit

Term used in the statement of auditing standards that indicates a presumptively mandatory requirement

Should

If a U.S. auditor is reporting on financial statements of a nonissuer prepared in accordance with a financial reporting framework generally accepted in another country and intended for use only outside the U.S., then the auditor

Should report using either a U.S. form of report or the report form and content of the other country as long as the requirements for that report have been met

Standards that a CPA should apply in a review of MD&A

Statement on standards for attestation engagements (SSAE)

Relationship between the PCAOB and the SEC

The PCAOB is subject to oversight by the SEC, and only accounting firms registered with the PCAOB may prepare audit reports for SEC issuers

An accountants standard report issued after compiling the financial statements of a nonissuer should state that:

The accountant was not required to perform any procedures to verify the accuracy or completeness of the information provided by management

For an engagement to prepare financial statements, which of the following items should be identified in the engagement letter as management's responsibility?

The accuracy of significant judgements to be used in the preparation of the financial statements

In an examination of an entity's compliance with specified requirements, the practitioner must document:

The assessed risk of material noncompliance, responses to the risk assessment, the basis for rationale for materiality levels, and compliance with supplemental requirements in an examination

Which of the following statements is correct regarding the auditor's responsibility to detect errors and fraud?

The auditor should design the audit to provide reasonable assurance of detecting errors and fraud that are material to the financial statements

Which of the following factors would most likely raise substantial doubt about a nonissuer's ability to continue as a going concern?

The bankruptcy of the nonissuer's primary supplier as a result of declining margins and performance in the industry

Which of the following, discovered during an audit, most likely would raise a question concerning possible illegal acts?

The entity prepared several large checks payable to cash during the year

Which of the following characteristics most likely would heighten an auditor's concern about the risk of material misstatements arising from fraudulent financial reporting?

The entity's industry is experiencing declining customer demand

in which of the following circumstances is a registered public accounting firm's independence impaired with respect to an issuer?

The firm recommends a human resources software system to the issuer and receives a commission from the software vendor

With regard to the performance of audit sampling during the audit of a nonissuer client, which of the following statements is correct?

The level of sampling risk that the auditor is willing to accept affects the sample size

An auditors evaluation of uncorrected misstatements for an audit of an issuer should include evaluation of the effects of uncorrected misstatements detected in

The prior years and misstatements detected in the current year that relate to prior years

Which of the following is a primary purpose of audit documentation?

To support that the audit was performed in accordance with GAAS

Which of the following is usually considered a monitoring activity?

Using information from customer complaints Monitoring is the process that assesses the quality of internal control performance over time. Monitoring may include, among other things, the evaluation of communications from external parties such as customers, regulatory agencies, and external auditors.

Which of the following statements is correct with regard to the consideration of materiality when an auditor is planning and performing a financial statement audit of an issuer?

When determining a tolerable misstatement threshold, an auditor should take into account the amount of misstatements that were accumulated in prior periods.

In which of the following circumstances can an auditor rely on an internal auditors work?

When the auditor can make a positive assessment of the internal audit departments objectivity and competence

A financial forecast (based on expected results) and a financial projection (based on the hypothetical release of a new product) are both _______________

appropriate for limited use

Under the DOL's independence guidelines, any direct financial interest in the plan impairs _____

independence

From which of the following populations most likely would a sample be drawn by an auditor who is confirming accounts receivable as of june 30

the accounts receivable detail listing as of june 30