A2 FR

Which of the following is true about the assurance provided by special reports? A list of procedures and findings (but no assurance) is provided in some special reports. All special reports result in positive assurance. All special reports result in negative assurance. A positive opinion may be rendered in some types of special reports.

A positive opinion may be rendered in some types of special reports.

An auditor provides positive assurance in all of the following reports except: A report on a financial presentation to comply with contractual agreements or regulatory requirements. A report on other comprehensive basis of accounting financial statements. A report on a specified account in a financial statement. A report on compliance with contractual or regulatory requirements related to audited financial statements.

A report on compliance with contractual or regulatory requirements related to audited financial statements.

In an audit of a nonissuer's financial statements, projected misstatement is: An auditor's best estimate, before performing audit procedures, of misstatements that the auditor expects to find during the audit. The only amount that the auditor considers in evaluating materiality and fairness of the financial statements. The likely amount of misstatement in the subsequent-period's financial statements if a control is not properly implemented. An auditor's best estimate of misstatements in a population extrapolated from misstatements identified in an audit sample.

An auditor's best estimate of misstatements in a population extrapolated from misstatements identified in an audit sample.

Which of the following questions would most likely be included in an internal control questionnaire concerning the completeness assertion for purchases? Are purchase requisitions prenumbered and independently matched with vendor invoices? Is the unpaid voucher file periodically reconciled with inventory records by an employee who does not have access to purchase requisitions? Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for? Is an authorized purchase order required before the receiving department can accept a shipment or the vouchers payable department can record a voucher?

Are purchase orders, receiving reports, and vouchers prenumbered and periodically accounted for?

The primary reason an auditor requests that letters of inquiry be sent to a client's attorney is to provide the auditor with: An estimate of the amount or range of potential loss. An evaluation of the likelihood of an unfavorable outcome. A description and evaluation of litigation, claims, and assessments that existed at the balance sheet date. Corroboration of information furnished by management about litigation, claims, and assessments.

Corroboration of information furnished by management about litigation, claims, and assessments.

When auditing a client's related party transactions (relationships), certain audit objectives should be met. Which of the following does not represent a primary audit objective pertaining to related party transactions? Obtain sufficient audit evidence that the client's related party transactions have been identified and disclosed. Determine which of the client's related party transactions were not completed on an arm's length transactions basis. Recognize fraud risk factors arising from the client's related party transactions. Determine whether the client's financial statements achieve fair presentation of all related party transactions and relationships.

Determine which of the client's related party transactions were not completed on an arm's length transactions basis.

Audit evidence is obtained by the auditor when performing all of the following, except when: Reviewing the previous audit. Determining the sample size. Performing substantive procedures. Completing a risk assessment.

Determining the sample size.

A written client representation letter most likely would be an auditor's best source of corroborative information of a client's plans to: Discontinue a line of business. Settle an outstanding lawsuit for an amount less than the accrued loss contingency. Make a public offering of its common stock. Terminate an employee pension plan.

Discontinue a line of business.

Which of the following most likely would be an advantage in using classical variables sampling rather than probability-proportional-to-size (PPS) sampling? An estimate of the standard deviation of the population's recorded amounts is not required. Any amount that is individually significant is automatically identified and selected. Inclusion of zero and negative balances generally does not require special design considerations. The auditor rarely needs the assistance of a computer program to design an efficient sample.

Inclusion of zero and negative balances generally does not require special design considerations.

In planning an audit of a new client, an auditor most likely would consider the methods used to process accounting information because such methods: Determine the auditor's acceptable level of audit risk. Influence the design of internal control. Assist in evaluating the planned audit objectives. Affect the auditor's preliminary judgment about materiality levels.

Influence the design of internal control.

A CPA is engaged to audit the financial statements of a nonissuer. After the audit begins, the client's management questions the extent of procedures and objects to the confirmation of certain contracts. The client asks the accountant to change the scope of the engagement from an audit to a review. Under these circumstances, the accountant should do each of the following, except: Consider the additional audit effort and cost required to complete the audit. Consider the reason given for the client's request and assess whether the request is reasonable. Issue an accountant's review report with a separate paragraph discussing the change in engagement scope. Evaluate the possibility that financial statement information affected by the limitation on work to be performed may be incorrect or incomplete.

Issue an accountant's review report with a separate paragraph discussing the change in engagement scope.

Which of the following items would most likely require an adjustment to the financial statements for the year ended December 31, Year 1? Uninsured loss of inventories purchased in Year 1 as a result of a flood in Year 2. Loss on an uncollectible trade receivable recorded in Year 1 from a customer that declared bankruptcy in Year 2. Settlement of litigation in Year 2 over an event that occurred in Year 2. Proceeds from a capital stock issuance in Year 2 which was being approved by the board of directors in Year 1.

Loss on an uncollectible trade receivable recorded in Year 1 from a customer that declared bankruptcy in Year 2.

Management philosophy and operating style most likely would have a significant influence on an entity's control environment when: The internal auditor reports directly to management. Accurate management job descriptions delineate specific duties. Management is dominated by one individual. Those charged with governance actively oversee the financial reporting process.

Management is dominated by one individual.

An auditor wishes to perform tests of controls on a client's cash disbursements procedures. If the control activities leave no audit trail of documentary evidence, the auditor most likely will test the procedures by: Inquiry and analytical procedures. Observation and inquiry. Analytical procedures and confirmation. Confirmation and observation.

Observation and inquiry.

Which of the following procedures would an auditor most likely perform to identify unusual sales transactions? Examining duplicate sales invoices for credit approval by the credit manager. Performing a trend analysis of quarterly sales. Tracing credits in the accounts receivable ledger to source documentation. Tracing cash receipt entries to the bank statement deposit for amount and date.

Performing a trend analysis of quarterly sales.

Which of the following entity-level controls is specifically identified in the professional standards as a control of importance that should be evaluated? Centralized processing controls Monitoring of controls Period-end financial reporting controls Risk-management policies

Period-end financial reporting controls

All of the following are effective ways to prevent and/or detect lapping, except for: Comparing the dollar amounts and dates on the bank deposit slips with customer remittance credits entered into the accounts receivable ledger. Preparing a bank transfer schedule. Requiring that customers send their payments directly to a lock box. Independently comparing the recorded cash receipts with funds actually deposited in the bank.

Preparing a bank transfer schedule.

All of the following would be associated with fraud risk in the revenue cycle, except for: Failure to record sales (product) returns by customers on a timely basis. Materially understating the allowance for uncollectible accounts. Holding the company's books open past the close of the accounting period. Recording revenue on "trial sales" after the consignment period to the customer expires.

Recording revenue on "trial sales" after the consignment period to the customer expires.

An auditor usually determines whether dividend income from publicly-held investments is reasonable by computing the amounts that should have been received by referring to: Dividend records on file with the SEC. Stock ledgers maintained by independent registrars. Records produced by investment services. Annual audited financial statements of investee companies.

Records produced by investment services.

An analysis of which of the following accounts would best aid in verifying that all fixed assets have been capitalized? Repairs and maintenance. Depreciation expense. Cash. Property tax expense.

Repairs and maintenance.

A letter issued on significant deficiencies relating to an entity's internal control observed during an audit of the financial statements of a nonissuer should include a: Restriction on the use of the report. Description of tests performed to search for material weaknesses. Paragraph describing management's evaluation of the effectiveness of internal control. Statement of compliance with applicable laws and regulations.

Restriction on the use of the report.

Which correctly describes the 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. The PCAOB is a subsidiary of the SEC, tasked with registering public accounting firms, establishing rules relating to the preparation of audit reports, and conducting inspections, investigations, and disciplinary proceedings. The SEC is subject to the oversight of the PCAOB with respect to the registration of public accounting firms that prepare audit reports for issuers. The SEC is subject to the oversight of the PCAOB with respect to conducting inspections, investigations, and disciplinary proceedings.

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

Which of the following could be difficult to determine because electronic evidence may not be retrievable after a specific period? The assessed level of inherent risk. The acceptance level of detection risk. The timing of control and substantive tests. Whether to adopt substantive or reliance test strategies.

The timing of control and substantive tests.

Which of the following circumstances most likely would cause an auditor to suspect an employee payroll fraud scheme? Employee time cards are approved by individual departmental supervisors. Payroll checks are disbursed by the same employee each payday. There are significant unexplained variances between standard and actual labor cost. A separate payroll bank account is maintained on an imprest basis.

There are significant unexplained variances between standard and actual labor cost.

Proper authorization of write-offs of uncollectible accounts should be approved in which of the following departments? Credit. Accounts receivable. Treasurer. Accounts payable.

Treasurer.