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Question 1

Auditing prepaid insurance. Auditor discovers original policy not available for inspection. The absence most likely indicates

Answer 1

There is a lien on the property. The original is in possession of the lien holder.

Question 2

Determining proper amounts of depreciation are expensed provides assurance about managements assertion of

Answer 2

Valuation, allocation, accuracy

Question 3

What characteristic would be an advantage of using classical variables sampling rather than PPS

Answer 3

Selection of zero balances requires no special design considerations

Question 4

If reporting system provides adequate reports but the reports are not analyzed and acted upon

Answer 4

Control has been implemented but is not operating effectively

Question 5

When unaudited financial statements are presented in comparative with audited FS in a document filed with the SEC such statements should be

Answer 5

Marked as unaudited, Referred to in auditor’s report

Question 6

Auditor determines whether there are restrictions on retained earnings resulting from loans, agreements or state law. This audit procedure is intended to verify

Answer 6

Understandability of presentation and classification

Question 7

For effective internal control, monthly bank statements should be received directly from the bank and reviewed by

Answer 7

Internal Auditor

Question 8

Auditor is unable to complete a procedure during an audit. What opinion is least likely to be rendered?

Answer 8

An adverse opinion. Adverse opinion is a departure from GAAP.

Question 9

What procedure would an auditor most likely perform when auditing statement of cash flows?

Answer 9

Reconcile the amounts included in statement of cash flows to other financial statements.

Question 10

Management has decided not to account for a material transaction in accordance with GAAP. Management demonstrated that due to unusual circumstances the FS according to GAAP would be misleading. What opinion

Answer 10

Unmodified and include an emphasis of matter paragraph.

Question 11

Compilation audit of an entity that received federal funds. Client does not have adequate documentation to support operating expenses from federal program funds.

Answer 11

Conclusion is the operating costs have been identified.

Question 12

What procedure would the auditor most likely perform to determine that an interest rate swap contract is properly stated at fair value on the BS

Answer 12

Test the data used to arrive at the fair value.

Question 13

According to the SEC, members of an issuers audit committee may not

Answer 13

Accept any consulting, advisory, or other compensatory fee from the registrant for services other than as a member of the board.

Question 14

In a preparation engagement, if unable to include a statement that “no assurance is provided” the auditor should

Answer 14

Either Issue a disclaimer to make it clear no assurance is provided, perform a compilation audit, or withdraw from the engagement.

Question 15

To examine long term debt, steps required

Answer 15

Examine bond trust indentures. Check that client was not in violation of any covenants.

Question 16

When auditor does not receive replies to positive requests for year end AR

Answer 16

Increase the assessed level of detection risk for the valuation assertion

Question 17

Auditor of nonissuer exercising professional skepticism with respect to the risks of material misstatement due to fraud will

Answer 17

Consider the reliability of information to be used as audit evidence.

Question 18

Service organization provides initiation, execution, processing or reporting of a users company transactions, those services are

Answer 18

Considered to be part of the company’s information system.

Question 19

Practitioner examined a client’s compliance with debt covenants associated with a bank loan and is ready to issue a report. Which standards apply?

Answer 19

Compliance attestation standards

Question 20

Auditor identifies unrecorded AP of 50,000. How should the auditor record this amount on the summary of possible misstatements

Answer 20

Dr Income before Tax

Cr Liabilities

Question 21

Auditor is supplied with a photocopy of vendor invoices rather than originals. Client states the originals have been misplaced. Auditor response?

Answer 21

Reevaluate risk of fraud and design alternative tests for the related transactions

Question 22

What would an auditor most likely use in determining preliminary judgement about materiality?

Answer 22

PY Financials

Question 23

When compiling a nonissuers FS, an accountant would be least likely to

Answer 23

Perform analytical procedures

Question 24

In an integrated audit of a nonissuer, what is the responsibility of an auditor with regard to testing controls at a company with multiple business units?

Answer 24

Test controls over specific risks at business units that are material to the company’s consolidated FS.

Question 25

An accountant is required to follow SSARS when the accountant has

Answer 25

Used information in a general ledger to prepare FS outside of an accounting software.

SSARS apply when accountant prepares, compiles, or reviews FS.

Question 26

What is not included in the PCAOB auditing standards as one that should influence the nature and extent of necessary planning activities?

Answer 26

The size of the auditing firm and the number of auditors assigned to the audit.

Question 27

PCAOB standards state that the relevance of audit evidence depends on

Answer 27

Whether the audit procedure is designed to directly test an assertion
Timing of the audit procedure
Whether the audit procedure is designed to test for an understatement or overstatement

The auditors risk assessment affects the NET but does not determine the relevance.

Question 28

What standards are applicable for a compilation of a nonissuer?

Answer 28

Statements on Standards for Accounting and Review Services SSARS

Question 29

Audit materiality is set at 500,000. You have over 3 mil in proposed adjustments. What is your conclusion?

Answer 29

The balance is materially misstated and requires adjustment.

Question 30

In regards to a scope limitation or material weakness in internal control. What would be the opinion rendered.

Answer 30

Scope limitation - Disclaim or withdraw

Material weakness in internal control - adverse opinion.