Flashcards 5

Question 1

Comparative financial statements include the prior year’s statements that were audited by a predecessor auditor whose report is not presented. If the predecessor’s report was unmodified, the successor should:

Answer 1

Indicate in an other-matter paragraph that the predecessor auditor expressed an unmodified opinion on the prior year financial statement.

Question 2

When a group engagement partner decides to make reference to a component auditor’s examination under U.S. GAAS, the group engagement partner’s report should state “We did not audit the financial statements of X Company…” in which paragraph of the audit report?

Answer 2

Auditor’s responsibility paragraph

Question 3

What factor most likely would lead a CPA to conclude that a potential audit engagement should not be accepted?

Answer 3

It is unlikely that sufficient appropriate audit evidence is available to support an opinion on the financial statements.
(Aka there wouldn’t be enough evidence to support an opinion)

Question 4

If specific information comes to an auditor’s attention that implies the existence of possible acts of noncompliance with laws and regulations that could have a material, but indirect effect on the financial statements, the auditor should next:

Answer 4

Apply audit procedures specifically directed to ascertaining whether an act of noncompliance with laws and regulations has occurred.

Question 5

An auditor is determining if internal control relative to the revenue cycle of wholesaling entity is operating effectively in minimizing the failure to prepare sales invoices. The auditor most likely would select a sample of transactions from the population represented by the:

Answer 5

Shipping document file.
It would provide evidence that a sale occurred, and tracing from shipping documents to sales invoices might identify instances in which a sale occurred but invoice not prepared.

Question 6

An accountant’s report on a review of pro forma financial information should include a:

Answer 6

Reference to the financial statements from which the historical financial information is derived

Question 7

When a service organization provides services that affect the initiation, execution, processing, or reporting of a user company’s transactions, those services are:

Answer 7

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

Question 8

Which of the following procedures would a CPA most likely perform when reviewing the financial statements of a non-issuer in accordance with Statements on Standards for Accounting and Review Services?

Answer 8

Make inquiries about actions taken at the board of director’s meetings

Question 9

An accountant has compiled the financial statements of a non-issuer but declines to issue a compilation report. This is an example of:

Answer 9

An inappropriate reporting decision, because SSARS require that a report be issued when an accountant has compiled financial statements.

Question 10

According to the AICPA Statements on Standards for Attestation Engagements, a public accounting firm should establish quality control policies to provide assurance about which of the following matters related to agreed-upon procedures engagements?

Answer 10

The practitioner is independent from the client and other specified parties.

Question 11

Each page of the financial statements in a preparation engagement should include:

Answer 11

A statement indicating that no assurance is provided

Question 12

According to the standards of the profession, which of the following activities may be required in exercising due care?

Answer 12

Consulting with experts - Yes

Obtaining specialty accreditation - No

Question 13

A CPA is engaged to examine an entity’s financial forecast. The CPA believes that several significant assumptions do not provide a reasonable basis for the forecast. Under these circumstances, the CPA should issue:

Answer 13

An Adverse opinion.

Question 14

An auditor is engaged to report on selected financial data that are included in a client-prepared document containing audited financial statements. Under these circumstances the report on the selected data should:

Answer 14

Be limited to data derived from the entity’s audited financial statements.

Question 15

An examination of prospective financial statements involves:

Answer 15

• evaluating the preparation of the prospective financial statements.
• evaluating the support underlying the assumptions
• evaluating the presentation of the prospective financial statements for conformity with AICPA presentations guidelines
• issuing an examination report

Question 16

An internal auditor’s work would most likely affect the nature, timing, and extent of the independent CPA’s auditing procedures when the internal auditor’s work relates to assertions about the:

Answer 16

Existence of fixed asset additions

(Fixed assets represents a class of assets and transactions that would have the least degree of subjectivity involved in the evaluation of the audit evidence gathered in support of the assertions)

Question 17

A CPA is engaged to examine an entity’s financial forecast. The CPA believes that several significant assumptions do not provide a reasonable basis for the forecast. Under these circumstances, the CPA should issue:

Answer 17

An Adverse opinion.

Question 18

Which of the following strategies most likely could improve the response rate of the confirmations of accounts receivable?

Answer 18

Include a list of items or invoices that constitute the customers’ account balances

Question 19

An examination of prospective financial statements involves:

Answer 19

• evaluating the preparation of the prospective financial statements.
• evaluating the support underlying the assumptions
• evaluating the presentation of the prospective financial statements for conformity with AICPA presentations guidelines
• issuing an examination report

Question 20

An internal auditor’s work would most likely affect the nature, timing, and extent of the independent CPA’s auditing procedures when the internal auditor’s work relates to assertions about the:

Answer 20

Existence of fixed asset additions

(Fixed assets represents a class of assets and transactions that would have the least degree of subjectivity involved in the evaluation of the audit evidence gathered in support of the assertions)

Question 21

The sampling unit in a test of controls pertaining to the existence of payroll transactions ordinarily is:

Answer 21

a payroll register entry

Question 22

Which of the following strategies most likely could improve the response rate of the confirmations of accounts receivable?

Answer 22

Include a list of items or invoices that constitute the customers’ account balances

Question 23

Which of the following types of engagements is not permitted under the professional standards for reporting on an entity’s compliance?

Answer 23

Reviewing compliance with specified requirements

AT-C 315 states that a practitioner should not perform a review of an entity’s compliance with requirements of specified laws, regulations, rules, contracts, or grants.

Question 24

Which of the following statements is correct concerning an auditor’s required communication with those charged with governance?

Answer 24

This communication should include management changes in the application of significant accounting policies.