AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 391:

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

  A. Rules acknowledged by the accounting profession because of their universal application.
  B. Pronouncements issued by the Auditing Standards Board.
  C. Measures of the quality of the auditor's performance.
  D. Procedures to be used to gather evidence to support financial statements.
  C. Measures of the quality of the auditor's performance.

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  Choice "c" is correct. Generally accepted auditing standards ("GAAS") are measures of the quality of the auditor's performance. Choice "a" is incorrect. GAAS are not "rules," nor are they universally applicable. GAAS are measures of the quality of an auditor's performance. Choice "b" is incorrect. The Auditing Standards Board (ASB) issues many types of pronouncements, including (but not limited to) "Statements on Auditing Standards" (SASs). While SASs are considered to be interpretations of GAAS, not all ASB pronouncements relate to audits. Therefore, just because something is issued by the ASB does not make it GAAS. Choice "d" is incorrect. Auditing standards differ from auditing procedures in that procedures relate to acts to be performed, whereas standards deal with the quality of the performance of those acts.

• Question 392:

  The work of internal auditors may affect the independent auditor's:

  A. Procedures performed in obtaining an understanding of internal control. II. Procedures performed in assessing the risk of material misstatement. III. Substantive procedures performed in gathering direct evidence.
  B. I and II only.
  C. I and III only.
  D. II and Ill only.
  E. I, II, and III.
  D. II and Ill only.

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  Choice "d" is correct. The internal auditors' work may affect the nature, timing, and extent of the audit, including procedures the auditor performs when obtaining an understanding of the entity's internal control, when assessing risk, and when performing substantive procedures. Choice "a" is incorrect. It is likely that many procedures performed by internal auditors will affect the independent auditor's substantive testing, by providing direct evidence about material misstatements in assertions. Choice "b" is incorrect. It is likely that the work of internal auditors will aid the independent auditor in assessing control risk, since so much of the internal auditors' function is involved with monitoring the control structure. Choice "c" is incorrect. It is very likely that the work of internal auditors will affect the independent auditor's procedures for obtaining an understanding of internal control, because monitoring the control system is the primary responsibility of the internal auditors. Their flowcharts, narratives, and analyses of controls could be helpful to the independent auditor.

• Question 393:

  The working capital financing policy that subjects the firm to the greatest risk of being unable to meet the firm's maturing obligations is the policy that finances:

  A. Fluctuating current assets with long-term debt.
  B. Permanent current assets with long-term debt.
  C. Permanent current assets with short-term debt.
  D. Fluctuating current assets with short-term debt.
  C. Permanent current assets with short-term debt.

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  Choice "c" is correct. The working capital financing policy that finances permanent current assets with short-term debt subjects the firm to the greatest risk of being unable to meet the firm's maturing obligations. Choices "a" and "b" are incorrect because the use of long-term debt financing produces the smallest risk of being unable to meet maturing obligations. Choice "d" is incorrect because, although financing fluctuating current assets with short-term debt exposes the firm to some risk, it is not the greatest or the smallest.

• Question 394:

  For effective internal control purposes, the vouchers payable department generally should:

  A. Stamp, perforate, or otherwise cancel supporting documentation after payment is mailed.
  B. Ascertain that each requisition is approved as to price, quantity and quality by an authorized employee.
  C. Obliterate the quantity ordered on the receiving department copy of the purchase order.
  D. Establish the agreement of the vendor's invoice with the receiving report and purchase order.
  D. Establish the agreement of the vendor's invoice with the receiving report and purchase order.

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  Choice "d" is correct. For effective internal control purposes, the vouchers payable department generally should establish the agreement of the vendor's invoice with the receiving report and purchase order. Choice "a" is incorrect. The treasury or cash disbursement department should stamp, perforate, or otherwise cancel supporting documentation after payment is mailed. Choice "b" is incorrect. The purchasing department should verify that each requisition has been properly approved. Choice "c" is incorrect. The purchasing department should obliterate the "quantity ordered" on the receiving department copy of the purchase order.

• Question 395:

  The following question is based on the following:

  ABC Co.'s trial balance of income statement accounts for the year ended December 31, 2002, included the following:

  

  ABC's income tax rate is 30%.

  In ABC's 2002 multiple-step income statement, what amount should ABC report as income from continuing operations?

  A. $126,000
  B. $129,500
  C. $140,000
  D. $147,000
  C. $140,000

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  Explanation Explanation/Reference:Choice "c" is correct, $140,000.

• Question 396:

  Which of the following statements is(are) correct regarding the methods a target corporation may use to ward off a takeover attempt?

  A. The target corporation may make an offer ("self-tender") to acquire stock from its own shareholders. II. The target corporation may seek an injunction against the acquiring corporation on the grounds that the attempted takeover violates federal antitrust law.
  B. I only.
  C. II only.
  D. Both I and II.
  E. Neither I nor II.
  C. II only.

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  Choice "c" is correct. Rule: A tender offer is a general invitation by a bidder to the shareholders of a target company to tender their shares to the bidder at a specified price during a specified time. A target of a takeover may ward off a tender offer by offering to repurchase shares from its shareholders. If a takeover will violate federal antitrust law, a court will enjoin the takeover. Choices "a", "b", and "d" are incorrect, per the above rule.

• Question 397:

  In evaluating the reasonableness of an accounting estimate, an auditor would be least likely to use which of the following approaches?

  A. Review subsequent events or transactions occurring prior to audit completion.
  B. Develop an independent expectation of the estimate.
  C. Review and test the process used to develop the estimate.
  D. Review the minutes of board of directors and shareholder meetings for discussion of the estimate.
  D. Review the minutes of board of directors and shareholder meetings for discussion of the estimate.

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  Choice "d" is correct. Even if estimates were discussed during board meetings and/or shareholder meetings, it is unlikely that review of such discussion would provide evidence that the estimate is reasonable. Choices "a", "b", and "c" are incorrect. Reviewing subsequent events, developing an independent expectation, and reviewing and testing the process used to develop the estimate are all appropriate methods used to evaluate the reasonableness of an accounting estimate.

• Question 398:

  Which of the following information discovered during an audit most likely would raise a question concerning possible illegal acts?

  A. Related party transactions, although properly disclosed, were pervasive during the year.
  B. The entity prepared several large checks payable to cash during the year.
  C. Material internal control weaknesses previously reported to management were not corrected.
  D. The entity was a campaign contributor to several local political candidates during the year.
  B. The entity prepared several large checks payable to cash during the year.

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  Choice "b" is correct. Information that may raise a question concerning possible illegal acts include unusually large payments made to: ?Cash ?Bearer ?Purchase cashiers checks ?Transfer funds to numbered accounts Choice "a" is incorrect. Related party transactions may provide an indication of fraud, particularly if not made in the ordinary course of business, but they are generally not indicative of illegal acts. Choice "c" is incorrect. Failure to correct material internal control weaknesses may represent a conscious decision by management to accept that degree of risk because of cost or other considerations. Choice "d" is incorrect. Contributions to local political candidates are legal and generally would not raise a question about possible illegal acts.

• Question 399:

  Morris, CPA, suspects that a pervasive scheme of illegal bribes exists throughout the operations of ABC, Inc., a new audit client. Morris notified the audit committee and ABC's legal counsel, but neither could assist Morris in determining whether the amounts involved were material to the financial statements or whether senior management was involved in the scheme. Under these circumstances, Morris should:

  A. Express an unqualified opinion with a separate explanatory paragraph.
  B. Disclaim an opinion on the financial statements.
  C. Express an adverse opinion on the financial statements.
  D. Issue a special report regarding the illegal bribes.
  B. Disclaim an opinion on the financial statements.

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  Choice "b" is correct. Since the CPA could not determine whether the suspected illegal bribes were material to the financial statements, or whether senior management was involved in the scheme, Morris should disclaim an opinion on the financial statements. Choice "a" is incorrect. An unqualified opinion with a separate explanatory paragraph is not appropriate if suspected material illegal bribes cannot be disproven. Choice "c" is incorrect. An adverse opinion is inappropriate since the suspected material illegal bribes have not been proven, nor has any material effect on the financial statements been determined. Choice "d" is incorrect. Special reports are not issued regarding illegal bribes.

• Question 400:

  Which of the following statements most likely represents a disadvantage for an entity that keeps microcomputer-prepared data files rather than manually prepared files?

  A. Attention is focused on the accuracy of the programming process rather than errors in individual transactions.
  B. It is usually easier for unauthorized persons to access and alter the files.
  C. Random error associated with processing similar transactions in different ways is usually greater.
  D. It is usually more difficult to compare recorded accountability with physical count of assets.
  B. It is usually easier for unauthorized persons to access and alter the files.

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  Choice "b" is correct. It is easier to access and alter microcomputer data files than manually prepared data files. Microcomputer access security is difficult to maintain because of the increased number of data entry points and the potential ability to defeat access controls. Choice "a" is incorrect. Once the programs are written, the focus will still be on the accuracy of the transactions. Choice "c" is incorrect. One of the benefits of an automated system over a manual system is the removal of random errors from the process. (Instead, systematic errors are more common.) Choice "d" is incorrect. There is no significant difference between comparing physical counts with accounting records kept either manually or on an automated system.