Audit Section 1

Question 1

Provides the most authoritative guidance for the auditor of a nonissuer?

Answer 1

General guidance provided by a Statement on Auditing Standards

Question 2

AICPA audit and accounting guides and SAS (Statement Auditing Standards) interpretations are

Answer 2

are interpretive publications that provide guidance regarding how SASs should be applied in specific situations. They are not as authoritative as SASs

Question 3

In certain audit engagements, the auditor may be required to comply with auditing requirements in addition to GAAS. The auditor may conduct the audit in accordance with

Answer 3

Both GAAS and government auditing standards (GAGAS)

Question 4

What identifies a requirement for audit evidence?

Answer 4

The term Appropriate. Because The auditor must obtain sufficient appropriate audit evidence to afford a reasonable basis for the opinion.

Question 5

Auditing standards do not use the word in ______ describing the requirements for audit evidence; the term is _____ appropriate audit evidence

Answer 5

1) adequate
2) sufficient

Question 6

Auditing standards use the word reasonable to describe

Answer 6

the type of assurance gained by the auditor as the basis for the opinion, and not to describe a specific requirement for audit evidence.

Question 7

Auditing standards do not use the word disconfirming in describing

Answer 7

the requirements for audit
evidence.

Question 8

Best describes what is meant by the term generally accepted auditing standards?

Answer 8

Measures of the quality of the auditor’s performance

Question 9

To obtain reasonable assurance, an auditor should

Answer 9

plan the work and properly supervise assistants, as well as determine and apply appropriate materiality levels, identify and assess risks of material misstatement

Question 10

Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of

Answer 10

professional skepticism

Question 11

Which term used in Statements on Auditing Standards indicates a presumptively mandatory requirement?

Answer 11

The term “Should” it indicates a presumptively mandatory requirement, which must be followed in all cases in which the requirement is relevant,

Question 12

The term must indicates

Answer 12

an unconditional requirement, which must be followed in all cases in which the requirement is relevant.

Question 13

The term could would indicate

Answer 13

explanatory material that does not impose a professional requirement for performance.

Question 14

The phrase “U.S. generally accepted accounting principles” is an accounting term that

Answer 14

Encompasses the conventions, rules, and procedures necessary to define U.S. accepted accounting practice at a particular time

Question 15

statements correctly defines the term reasonable assurance?

Answer 15

A high, but not absolute, level of assurance to allow an auditor to detect a material misstatement.

Question 16

An auditor of a nonissuer exercising professional skepticism with respect to the risks of material misstatement due to fraud will most appropriately:

Answer 16

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

Question 17

Which of the following best describes what is meant by the term generally accepted auditing standards?

Answer 17

Measures of the quality of the auditor’s performance.

Question 18

Before accepting an audit engagement, a CPA should evaluate whether conditions exist that raise questions as to the integrity of management. Which of the following conditions most likely would raise such questions?

Answer 18

The CPA will not be permitted to have access to sensitive information regarding the salaries of senior management.

Question 19

A successor auditor most likely would make specific inquiries of the predecessor auditor regarding:

Answer 19

Disagreements with management as to auditing procedures.

Question 20

The primary objective of an auditor when considering the acceptance of an initial audit engagement of a nonissuer is to:

Answer 20

Establish whether the preconditions for an audit are present.

Question 21

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

Answer 21

The prospective client’s consent to make inquiries of the predecessor auditor.

Question 22

A successor auditor should request the new client to authorize the predecessor auditor to allow a review of the predecessor’s:

Answer 22

1) Engagement Letter: NO
2) Working Papers: YES

Question 22

In connection with an audit of a nonissuer, the auditor would ordinarily use an engagement letter to:

Answer 22

Specify any arrangements concerning the involvement of the company’s internal auditors on the audit.

Question 23

Which of the following is an element of a CPA firm’s quality control system that should be considered in establishing its quality control policies and procedures?

Answer 23

Assigning personnel to engagements.

Question 24

Compliance with laws and regulations falls under

Answer 24

the Code of Professional Conduct.

Question 25

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

Answer 25

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

Question 26

The nature and extent of a CPA firm’s quality control policies and procedures depend on:

Answer 26

1) CPA Firm Size
2) Nature of the CPA Firms Practice
3) Cost Benefit Considerations

Question 27

One of a CPA firm’s basic objectives is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through:

Answer 27

A system of quality control establishes policies and procedures that provide reasonable assurance of conforming with professional standards.

Question 28

An auditor is required to establish an understanding with a client regarding the services to be performed for each engagement.
This understanding generally includes:

Answer 28

The auditor’s responsibility for ensuring that those charged with governance are aware of any significant deficiencies in internal control that come to the auditor’s attention.

Question 29

Quality control standards

Answer 29

1) They apply to attestation engagements as well as to audit engagements.
2) A CPA firm is required to adopt a system of quality control.
3) Quality control standards relate to the firm’s practice as a whole.

Question 30

The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to:

Answer 30

Minimize the likelihood of association with clients whose management lacks integrity.

Question 31

Relationship between quality control standards and professional standards such as
GAAS

Answer 31

1) A firm that has not adopted an appropriate system of quality control may still be in compliance with professional standards with respect to individual engagements.
2) The adoption of quality control standards increases the likelihood of compliance with professional standards on individual engagements.
3) Quality control standards relate to the conduct of a firm’s entire practice, whereas professional standards such as GAAS relate to the conduct of an individual engagement.

Question 32

Auditor’s documentation of the risk assessment during an audit of a nonissuer

Answer 32

The form and extent of the documentation should be influenced by the nature, size, and complexity of the entity and its internal control.

Question 33

Audit documentation requirements

Answer 33

The auditor should document findings that could result in a modification of the auditor’s report.

Question 34

Required documentation in an audit in accordance with generally accepted auditing standards?

Answer 34

1) The auditor’s assessment of the risk of material misstatement.
2) An engagement letter.
3) A written audit program describing audit procedures to be performed.

Question 35

What is the maximum number of days in which a nonissuer’s auditor should complete the assembly of the final audit file following the report release date?

Answer 35

60 days

Question 36

Audit documentation should be prepared in enough detail so that:

Answer 36

An experienced auditor who has no previous connection with the audit can understand the procedures performed and the evidence obtained.

Question 37

Working papers should include

Answer 37

the procedures that are applied and the conclusions reached in an audit engagement.

Question 38

The management representation letter is where

Answer 38

the client asserts that all material matters have been adequately disclosed to the auditor.

Question 39

Sufficient and appropriate documentation

Answer 39

Sufficient and appropriate documentation should include evidence that the audit working papers have been reviewed.

Question 40

The audit documentation that makes up the current file most likely would include

Answer 40

a copy of the bank reconciliation as it is applicable to the current period under audit.

Question 41

Permanent File Includes

Answer 41

1) Pension Plan Contract
2) Articles of Incorporation
3) Flowchart of the Internal Control

Question 42

Which best describes the documentation completion date?

Answer 42

Forty-five days from the report release date, based on PCAOB standards.

Question 43

Documentation completion date is

Answer 43

Sixty days following the report release date.

Question 44

Retention period under PCAOB standards.

Answer 44

Seven Years

Question 45

Retention period under SAS rules for the auditors of nonissuers.

Answer 45

Five years

Question 46

What kind of organizations are most likely to require a SOC 1

Answer 46

Service organizations that may impact their entities internal controls over financial reporting

Question 47

Service organizations that have cyber security concerns need a

Answer 47

SOC 2 report which focuses on organizations non financial reporting controls as they relate to security, availability, processing, integrity, confidentiality, and privacy system

Question 48

What procedure might an auditor perform to determine the extent to which they can use the work of an IT auditor

Answer 48

reviewing the IT auditors professional qualifications and experience

Question 49

When testing authorization of disbursements the appropriate population to sample is

Answer 49

purchase orders because they should be authorized before purchase is made

Question 50

When performing analytical procedures near the end of the audit engagement this is an attempt to

Answer 50

confirm their understanding of entity’s business and industry and assess overall consistency of financial statements

Question 51

When testing companies controls over cash disbursements and you expect a high rate of control deviations the most suitable sampling method is

Answer 51

Attribute Sampling because it is suitable to estimate the rate of control deviations even with a high rate

Question 52

Auditor notes R&D costs have decreased significantly even though the company have launched new projects this suggests

Answer 52

R&D costs decreasing despite new projects suggests potential underreporting of the costs

Question 53

Three main objectives of COSO

Answer 53

Financial Reliability, Risk Management, Compliance with laws and regulations

Question 54

Auditor finds material weakness in internal controls over FINANCIAL REPORTING is a

Answer 54

Adverse Opinion

Question 55

Which organizations rules extend certain provisions to the sponsor of single employer plan?

Answer 55

Both DOL and AICPA extend certain provisions

Question 56

While testing interest expense in financial statements of substantial bank loan you notice interest expense decreased despite an increase in loan balance you should

Answer 56

check the terms and conditions of the loan agreements

Question 57

On an auditors report the page includes the names of CEO and CFO as well as chart of income for last fifteen years this is

Answer 57

other information which is information that is presented in financials that is voluntarily presented

Question 58

The page presents income statements, the statement of cash flow, and the statement of retained earnings that is required by SEC but not GAAP this is

Answer 58

basic financial statements

Question 59

Quarterly results that is required by SEC but not GAAP is

Answer 59

Required Supplementary information which is not part of the basic financial statements however a designated accounting standards setter deems it necessary

Question 60

Types of audit opinions

Answer 60

Unqualified Opinion= Clean Public Opinion
Unmodified Opinion= Clean Private Opinion
Qualified Opinion= Material misstatement but not pervasive
Adverse Opinion= Material GAAP Misstatement that is pervasive
Disclaimer of Opinion= Material GAAS Misstatement that is pervasive

Question 61

Adverse Interest Threat

Answer 61

Threat where a member will not act with objectivity because the members interest are opposed to the clients interest

Question 62

Advocacy Threat

Answer 62

member promotes clients interest to an extent that members objectivity or independence is compromised

Question 63

Familiarity Threat

Answer 63

excessively accepting clients work or products and becoming overly sympathetic to clients interests

Question 64

Management Participation Threat

Answer 64

member takes on the role of client management or assumes management responsibilities

Question 65

Self Interest Threat

Answer 65

auditor could benefit financially

Question 66

Self Review Threat

Answer 66

member is required to evaluate the results of a previous judgment made or service performed by them or supervised by them

Question 67

Undue Influence Threat

Answer 67

members judgment is subordinated or compromised due to external pressures or influences

Question 68

Ratio scale

Answer 68

establish the order of values and equality of intervals between values and calculation of mean, median and mode