CPA Exam Review Test I

Question 1

A change in accounting principle that is inseparable from a change in estimate should be accounted for as a:

Answer 1

Change in estimate, not a change in principle.

Question 2

Before a predecessor auditor reissues the prior year’s audit report on the financial statements of a former client for inclusion with the successor auditor’s report on comparative financial statements, the predecessor auditor should:

Answer 2

a. The predecessor should obtain the current comparative financial statements and compare the current period to the prior period.
b. Obtain a representation letter from the successor auditor.

Question 3

Failure to return client records upon request, negligence in preparing client records, and failure to file a personal tax return on a timely basis are all considered to be:

Answer 3

Acts discreditable to the profession

Question 4

The AICPA code of professional conduct governs any service that a member of the AICPA performs, including:

Answer 4

Compilations and Reviews

Question 5

The auditor may not issue a qualified opinion when:

Answer 5

The auditor is not independent with respect to the audited entity

Question 6

In designing written audit programs, an auditor should establish specific audit objectives that are based on:

Answer 6

Financial Statement Assertions

Question 7

When assessing the competence of an entity’s internal auditor, an independent CPA should obtain information about the internal auditor’s:

Answer 7

1. Educational level and professional experience
2. Professional certification
3. Quality of his or her audit documentation

Question 8

Analytical review procedures are not an element of:

Answer 8

A firms Quality Control Procedures

Question 9

Assigning personnel to engagements and providing for professional development are part of the:

Answer 9

Human resources element of quality control

Question 10

Failure to make the minutes available is:

Answer 10

A scope limitation sufficient to preclude an unmodified opinion

Question 11

The organizational status of the internal auditor is used to evaluate:

Answer 11

Objectivity

Question 12

A report on management’s assertion on the effectiveness of internal control is not:

Answer 12

Arestricted use report

Question 13

A report on management’s assertion on the effectiveness of internal control would include:

Answer 13

1. A statement that the examination was made in accordance with AICPA standards, and that the examination provides a reasonable basis for the opinion.
2. A statement on the inherent limitations of internal control.
3. An opinion paragraph addressing the fairness of the management assertion in all material respects based on stated criteria.

Question 14

The accountant must be independent, and should not provide an opinion or any other form of assurance on the sufficiency of the procedures applied. The specified party (often the client) is responsible for the sufficiency of the procedures.

Answer 14

An agreed-upon procedures engagement

Question 15

The standard compilation report on the financial statements of a nonissuer that omit substantially all disclosures should:

Answer 15

I. Include a paragraph disclosing such omissions.

II. Include a disclaimer of opinion.

III. State that if the omitted disclosures were included, they might influence the user’s conclusions.

Question 16

If an accountant performing a review of financial statements becomes aware of a material departure from generally accepted accounting principles. What is the proper next course of action for the accountant to take?

Answer 16

The accountant should:

I. Recommend that the financial statements be revised to conform to generally accepted accounting principles.

II. If the financial statements are not revised, then the accountant might consider modifying the report.

III. If modification of the report is inadequate, the accountant should consider withdrawing from the engagement.

Question 17

The International Code of Ethics for assurance engagements includes the following fundamental principles of professional ethics:

Answer 17

Integrity, objectivity, professional competence and due care, confidentiality, and professional behavior.

Question 18

GAAP requires that property, plant, and equipment be stated at:

Answer 18

Cost less accumulated depreciation

Question 19

An unjustified change in accounting principle leads to:

Answer 19

A qualified or adverse opinion

Question 20

Only a justified change in accounting principle would result in:

Answer 20

An unmodified opinion with an emphasis-of-matter paragraph

Question 21

A change in estimate does not require:

Answer 21

An emphasis-of-matter paragraph

Question 22

A duty to disclose information generally not disclosed to outside parties (for ex: after discussion with legal counsel, the auditor may wish to disclose information about irregularities or noncompliance with laws and regulations to outside parties) may exist when:

Answer 22

a. There is a change of auditor (reported to the SEC on Form 8-K)
b. In response to a subpoena
c. In response to a successor auditor’s inquiries (with client permission)

Question 23

Audit objectives should be developed based on:

Answer 23

Financial Statement Assertions

Question 24

Audit objectives are developed first, then:

Answer 24

Procedures to meet the objectives are designed (including the appropriate timing of such procedures)

Question 25

All reports on prospective financial statements require a statement indicating that:

Answer 25

The prospective results may not be achieved.

Question 26

TIPPY-PASSER

Answer 26

Training
Independence
Performance/due professional care in planning and performance
Professional adequate knowledge of subject matter
Your belief that the subject matter is capable of evaluation against critique that are suitable to available users.

Planning and Supervision
Appropriate sufficient evidence 
Subject matter (identify)
Significant reservations (Disclose) 
Express conclusions about the subject matter
Restrict use of the report

Question 27

Restrictions on the scope of a review engagement that prevent necessary procedures from being performed result in:

Answer 27

The practitioners withdrawal from the engagement

Question 28

Restrictions on the scope of an examination engagement may result in:

Answer 28

A qualified or disclaimer of opinion, or in the practitioners withdrawal from the engagement