AICPA AICPA Certifications CPA-TEST Questions & Answers

• Question 1041:

  When assessing an internal auditor's competence, a CPA ordinarily obtains information about all of the following, except:

  A. Quality of audit documentation.

  B. Educational level and professional experience.

  C. The audit plan and audit procedures.

  D. Access to information about related parties.

  Correct Answer: D

  Explanation: Choice "d" is correct. The degree of access the independent auditor has to information about related parties provides no information regarding an internal auditor's competence. Choice "a" is incorrect. In evaluating the work of internal auditors, the independent auditor should examine, on a test basis, documentary evidence of the work performed by internal auditors and should consider such factors as whether the scope of the work is appropriate, the audit plan is adequate, audit documentation adequately documents work performed, conclusions reached are appropriate in the circumstances, and any reports prepared are consistent with the results of the work performed. Choice "b" is incorrect. When considering the competence of internal auditors, the independent auditor should inquire about the qualifications of the internal audit staff, including for example, consideration of the client's practices for hiring, training, and supervising internal audit staff. This includes inquiries as to the internal auditor's educational level and professional experience. Choice "c" is incorrect. In evaluating the work of internal auditors, the independent auditor should examine, on a test basis, documentary evidence of the work performed by internal auditors and should consider such factors as whether the scope of the work is appropriate, the audit plan is adequate, audit documentation adequately documents work performed, conclusions reached are appropriate in the circumstances, and any reports prepared are consistent with the results of the work performed.

• Question 1042:

  Which of the following procedures would an auditor least likely perform in planning a financial statement audit?

  A. Coordinating the assistance of entity personnel in data preparation.

  B. Discussing matters that may affect the audit with firm personnel responsible for non-audit services to the entity.

  C. Selecting a sample of vendors' invoices for comparison to receiving reports.

  D. Reading the current year's interim financial statements.

  Correct Answer: C

  Explanation:

  Choice "c" is correct. Selecting a sample of vendors' invoices for comparison to receiving reports is

  performed during fieldwork. This is not part of the planning phase.

  Choice "a" is incorrect. Coordinating the assistance of entity personnel in data preparation is usually

  performed during the planning phase.

  Choice "b" is incorrect. During the planning phase, matters that may affect the audit should be discussed

  with firm personnel responsible for non-audit services to the entity.

  Choice "d" is incorrect. During the planning phase, the auditor generally would read the current year's

  interim financial statements.

• Question 1043:

  For which of the following judgments may an independent auditor share responsibility with an entity's internal auditor who is assessed to be both competent and objective?

  

  A. Option A

  B. Option B

  C. Option C

  D. Option D

  Correct Answer: C

  Explanation:

  Choice "c" is correct. Because the auditor has the ultimate responsibility to express an opinion on the

  financial statements, judgments about assessments of risk, the materiality of misstatements, the

  sufficiency of tests performed, the evaluation of significant accounting estimates, and other matters

  affecting the auditor's report should always be those of the auditor.

  Choices "a", "b", and "d" are incorrect, based on the above explanation.

• Question 1044:

  Analytical procedures used in planning an audit should focus on:

  A. Evaluating the adequacy of evidence gathered concerning unusual balances.

  B. Testing individual account balances that depend on accounting estimates.

  C. Enhancing the auditor's understanding of the client's business.

  D. Identifying material weaknesses in internal control.

  Correct Answer: C

  Explanation: Choice "c" is correct. The purpose of applying analytical procedures in planning the audit is to assist in planning the nature, timing, and extent of auditing procedures that will be used to obtain audit evidence for specific account balances or classes of transactions. To accomplish this, the analytical procedures used in planning the audit should focus on (a) enhancing the auditor's understanding of the client's business and the transactions and events that have occurred since the last audit date, and (b) identifying areas that may represent specific risks relevant to the audit. Choice "a" is incorrect. Analytical procedures to assess the adequacy of evidence would be used in the final review stage. Choice "b" is incorrect. Testing individual account balances that depend on accounting estimates would be a substantive application of analytical procedures and would not be used in the planning stages of an audit. Choice "d" is incorrect. Analytical procedures are generally not useful in detecting material weaknesses in the client's internal control.

• Question 1045:

  In considering materiality for planning purposes, an auditor believes that misstatements aggregating $10,000 would have a material effect on an entity's income statement, but that misstatements would have to aggregate $20,000 to materially affect the balance sheet. Ordinarily, it would be appropriate to design auditing procedures that would be expected to detect misstatements that aggregate:

  A. $10,000

  B. $15,000

  C. $20,000

  D. $30,000

  Correct Answer: A

  Explanation:

  Choice "a" is correct. Because the statements are interrelated, the auditor ordinarily considers materiality

  for planning purposes in terms of the smallest aggregate level of misstatement that could be considered

  material to any one of the financial statements.

  Choices "b", "c", and "d" are incorrect, based on the above explanation.

• Question 1046:

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

  A. Make inquiries of the predecessor auditor after obtaining the consent of the prospective client.

  B. Obtain an understanding of the entity and its environment, including its internal control.

  C. Prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan.

  D. Discuss the management representation letter with the prospective client's audit committee.

  Correct Answer: A

  Explanation: Choice "a" is correct. Prior to acceptance of a new engagement, an auditor must attempt to communicate with the predecessor auditor. Inquiry is important because the predecessor auditor may provide information critical to the acceptance decision. Under the Rules of the Code of Professional Conduct, the auditor must first request the client's permission. Choice "b" is incorrect. Although the auditor is required to obtain an understanding of the entity and its environment, including its internal control, this typically happens after the engagement is accepted, not before. Choice "c" is incorrect. A planning memo setting forth staff requirements and documenting the preliminary audit plan is usually prepared after accepting an engagement. Choice "d" is incorrect. A management representation letter is usually obtained at the conclusion of the audit and is dated as of the date of auditor's report.

• Question 1047:

  The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion about the results of an auditing procedure. If the assistant believes it is necessary to be disassociated from the matter's resolution, the CPA firm's procedures should enable the assistant to:

  A. Refer the disagreement to the AICPA's Quality Review Committee.

  B. Document the details of the disagreement with the conclusion reached.

  C. Discuss the disagreement with the entity's management or its audit committee.

  D. Report the disagreement to an impartial peer review monitoring team.

  Correct Answer: B

  Explanation: Choice "b" is correct. Each assistant has a professional responsibility to bring to the attention of appropriate individuals in the firm, disagreements or concerns the assistant might have with respect to accounting and auditing issues that he or she believes are of significance to the financial statements or auditor's report. In addition, each assistant should have a right to document his or her disagreement if he or she believes it is necessary to be disassociated from the resolution of the matter. Choice "a" is incorrect. Quality control committees are primarily concerned with determining whether quality control policies and procedures are being effectively applied. Generally, they would not get involved with disagreements related to specific engagements. Choice "c" is incorrect. Disagreements among an audit firm's staff would generally be handled internally. Discussion of such matters with the client would be inappropriate. Choice "d" is incorrect. Impartial peer review teams are primarily concerned with determining whether quality control policies and procedures are being effectively applied. Generally, they would not get involved with disagreements related to specific engagements.

• Question 1048:

  In using the work of a specialist, an auditor referred to the specialist's findings in the auditor's report. This would be an appropriate reporting practice if the:

  A. Client is not familiar with the professional certification, personal reputation, or particular competence of the specialist.

  B. Auditor, as a result of the specialist's findings, adds an explanatory paragraph emphasizing a matter regarding the financial statements.

  C. Auditor understands the form and content of the specialist's findings in relation to the representations in the financial statements.

  D. Auditor, as a result of the specialist's findings, decides to indicate a division of responsibility with the specialist.

  Correct Answer: B

  Explanation:

  Choice "b" is correct. When expressing an unqualified opinion, the auditor generally will not refer to the

  work or findings of a specialist. The auditor may, however, make reference to a specialist in an explanatory

  paragraph if such a reference will facilitate understanding of the explanatory paragraph or of the departure

  from an unqualified opinion.

  Choice "a" is incorrect. Lack of client familiarity with the specialist does not affect the auditor's report. Also,

  it is the auditor (not the client) who must be satisfied regarding the specialist's qualifications.

  Choice "c" is incorrect. The auditor must understand the form and content of the specialist's findings in

  relation to the representations in the financial statements to be able to review the specialist's work.

  However, this does not affect whether or not the auditor refers to the specialist in the auditor's report.

  Choice "d" is incorrect. An auditor should not divide responsibility for the audit with a specialist. Further,

  making reference to the specialist in an unmodified unqualified report generally is inappropriate.

• Question 1049:

  Which of the following is required documentation in an audit in accordance with generally accepted auditing standards?

  A. A flowchart or narrative of the information system relevant to financial reporting describing the recording and classification of transactions for financial reporting.

  B. An audit plan setting forth in detail the procedures necessary to accomplish the engagement's objectives.

  C. A planning memorandum establishing the timing of the audit procedures and coordinating the assistance of entity personnel.

  D. An internal control questionnaire identifying controls that assure specific objectives will be achieved.

  Correct Answer: B

  Explanation: Choice "b" is correct. In an audit conducted in accordance with GAAS, the auditor must document the audit plan, setting forth in detail the procedures necessary to accomplish the engagement's objectives. Choice "a" is incorrect. Documentation of the auditor's understanding of the client's internal control is required, but may take different forms. A narrative, an internal control questionnaire, a flowchart, or simply a memorandum (for a small client) may be sufficient. Choice "c" is incorrect. A planning memo, while recommended, is not required under GAAS. Choice "d" is incorrect. Documentation of the auditor's understanding of the client's internal control is required, but may take different forms: narrative, internal control questionnaire, flowchart, or simply a memorandum (for a small client) may be sufficient. In addition, controls do not assure the achievement of objectives.

• Question 1050:

  The objective of performing analytical procedures in planning an audit is to identify the existence of:

  A. Unusual transactions and events.

  B. Illegal acts that went undetected because of internal control weaknesses.

  C. Related party transactions.

  D. Recorded transactions that were not properly authorized.

  Correct Answer: A

  Explanation:

  Choice "a" is correct. The objective of performing analytical procedures during planning is to discover

  unusual transactions or events that may have an impact on the planning of the financial statement audit.

  Choice "b" is incorrect. Analytical procedures are not effective in identifying illegal acts that went

  undetected due to internal control weaknesses.

  Choice "c" is incorrect. Analytical procedures are not effective in identifying related party transactions.

  Choice "d" is incorrect. Analytical procedures are not effective as tests of controls to identify unauthorized

  transactions.