AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 651:

  In single period statements, which of the following should not be reflected as an adjustment to the opening balance of retained earnings?

  A. Effect of a failure to provide for uncollectible accounts in the previous period.
  B. Effect of a decrease in the estimated useful life of depreciable equipment.
  C. Cumulative effect of a change from the percentage of completion to the completed contract method of accounting for long-term construction projects.
  D. Cumulative effect of a change from LIFO to FIFO in valuing merchandise inventory.
  B. Effect of a decrease in the estimated useful life of depreciable equipment.

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  Choice "b" is correct. A change in the estimated useful life of a depreciable asset is a change in estimate handled prospectively. No adjustment to retained earnings is necessary. Choice "a" is incorrect. The correction of a failure to provide for uncollectible accounts is considered to be a correction of an error. The opening balance of retained earnings would be adjusted to correct the error. Choice "c" is incorrect. This change is a change in accounting principle and is handled retrospectively. With retrospective application, the opening balance of retained earnings would be adjusted to reflect the cumulative effect of the changes. Choice "d" is incorrect. This change is a change in accounting principle and is handled retrospectively. With retrospective application, the opening balance of retained earnings would be adjusted to reflect the cumulative effect of the changes.

• Question 652:

  What is strategic planning?

  A. It establishes the general direction of the organization.
  B. It establishes the resources that the plan will require.
  C. It establishes the budget for the organization.
  D. It consists of decisions to use parts of the organization's resources in specified ways.
  A. It establishes the general direction of the organization.

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  Choice "a" is correct. Strategic planning is the creation of an overall strategic plan for an organization to achieve its overall "business objectives." The strategic plan will establish the general direction of the organization. Choice "b" is incorrect. Strategic planning will not establish the resources that the plan will require. The resources that the plan will require are part of the implementation of the strategic plan, not part of the plan itself. Choice "c" is incorrect. Strategic planning will not establish the budget for the organization. Budgets are even further down implementing the plan than are the resources that the plan will require. Choice "d" is incorrect. Strategic planning does not consist of decisions to use parts of the organization's resources in specified ways. Again, these decisions are part of the implementation of the strategic plan, not part of the plan itself.

• Question 653:

  For effective internal accounting control, the accounts payable department should compare the information on each vendor's invoice with the:

  A. Receiving report and the purchase order.
  B. Receiving report and the voucher.
  C. Vendor's packing slip and the purchase order.
  D. Vendor's packing slip and the voucher.
  A. Receiving report and the purchase order.

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  Choice "a" is correct. For effective internal accounting control, the accounts payable department should compare the information on each vendor's invoice with the receiving report and the purchase order to assure that goods were received and that the purchase was properly authorized. Choices "b", "c", and "d" are incorrect. Vendor packing slips and internally generated vouchers do not provide assurance that goods were received and that the purchase was properly authorized.

• Question 654:

  An auditor most likely would be responsible for communicating significant deficiencies in the design of internal control:

  A. To the Securities and Exchange Commission when the client is a publicly-held entity.
  B. To specific legislative and regulatory bodies when reporting under Government Auditing Standards.
  C. To a court-appointed creditors' committee when the client is operating under Chapter 11 of the Federal Bankruptcy Code.
  D. To shareholders with significant influence (more than 20% equity ownership) when the significant deficiencies (reportable conditions) are deemed to be material weaknesses.
  B. To specific legislative and regulatory bodies when reporting under Government Auditing Standards.

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  Choice "b" is correct. When reporting under Government Auditing Standards, the auditor should consider whether any noted deficiencies in such internal controls should be reported to specific legislative and regulatory bodies. Choice "a" is incorrect. The auditor would report significant deficiencies to the audit committee. The auditor is prohibited from disclosing confidential client information to the SEC by the Code of Professional Conduct. Choice "c" is incorrect. When there is no audit committee, the auditor would report significant deficiencies in the design of the client's internal control to an otherwise formally designated committee with oversight over the financial reporting process, not necessarily to a court-appointed creditors' committee. Choice "d" is incorrect. The auditor would report significant deficiencies to the audit committee. The auditor is prohibited from disclosing confidential client information to significant shareholders by the Code of Professional Conduct.

• Question 655:

  Which of the following factors would least likely affect the nature and extent of audit documentation?

  A. The nature of the specific audit procedures.
  B. The risk of material misstatement.
  C. The extent to which judgment was required in performing the specific audit procedures.
  D. The content of the representation letter.
  D. The content of the representation letter.

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  Choice "d" is correct. The content of the representation letter will generally not affect the nature and extent of audit documentation. Factors affecting the nature and extent of audit documentation include: 1. The risk of material misstatement; 2. The extent to which judgment was required in performing the work and evaluating the results; 3. The nature of the specific auditing procedure; 4. The significance of the evidence obtained; 5. The nature and extent of any problems identified; and 6. The need to document conclusions that may not be obvious.

• Question 656:

  Which of the following statements is correct concerning an auditor's responsibilities regarding financial statements?

  A. An auditor may not draft an entity's financial statements based on information from management's accounting system.
  B. The adoption of sound accounting policies is an implicit part of an auditor's responsibilities.
  C. An auditor's responsibilities for audited financial statements are confined to the expression of the auditor's opinion.
  D. Making suggestions that are adopted about an entity's internal control environment impairs an auditor's independence.
  C. An auditor's responsibilities for audited financial statements are confined to the expression of the auditor's opinion.

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  Choice "c" is correct. An auditor's responsibility is to express an opinion on financial statements based on an audit. Choice "a" is incorrect. An auditor may draft an entity's financial statements based on information from management's financial system. This would be referred to as a compilation engagement. Choice "b" is incorrect. The adoption of sound accounting policies is an implicit part of management's responsibilities, not the auditor's responsibilities. Choice "d" is incorrect. An auditor often makes suggestions that are adopted about an entity's internal control environment.

• Question 657:

  Generally, a corporation's articles of incorporation must include all of the following, except the:

  A. Name of the corporation's registered agent.
  B. Name of each incorporator.
  C. Number of authorized shares.
  D. Quorum requirements.
  D. Quorum requirements.

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  Choice "d" is correct. A corporation's articles of incorporation need not contain any information regarding quorum requirements. Choices "a", "b", and "c" are incorrect because under the Revised Model Business Corporations Act a corporation's articles of incorporation must include: (1) The name of the corporation, (2) The name and address of the corporation's registered agent, (3) The names and addresses of each of the incorporators, and (4) The number of shares authorized to be issued.

• Question 658:

  In auditing accounts payable, an auditor's procedures most likely would focus primarily on management's assertion of:

  A. Existence.
  B. Understandability and classification.
  C. Completeness.
  D. Valuation and allocation.
  C. Completeness.

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  Choice "c" is correct. When testing liabilities, an auditor generally is concerned about understatement (as opposed to overstatement, for assets). Therefore, in auditing accounts payable, an auditor's procedures most likely would focus primarily on management's assertion of completeness (if accounts payable is not complete it would be understated). Choice "a" is incorrect. The assertion of existence is the primary focus of the auditor when auditing an asset account, not accounts payable. Choice "b" is incorrect. The understandability and classification assertion is not the primary focus in the audit of accounts payable. Choice "d" is incorrect. The assertion of valuation and allocation is not the main focus with respect to accounts payable. Good external evidence generally is available to support the amount, and allocation over more than one period generally is not required.

• Question 659:

  If the federal government were to regulate a product or service in a competitive market by setting a maximum price that is below the equilibrium price, then in the long run this action will:

  A. Result in a surplus.
  B. Result in a shortage.
  C. Cause a decrease in price.
  D. Have no effect on the market.
  B. Result in a shortage.

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  Choice "b" is correct. Setting a maximum or ceiling price, which is below the equilibrium price dictated by a competitive market, would result in a shortage as a result of excess demand. Choices "a", "c", and "d" are incorrect, per the above Explanation.

• Question 660:

  A letter issued on significant deficiencies relating to an entity's internal control observed during an audit of the financial statements of a nonissuer should include a:

  A. Restriction on the use of the report.
  B. Description of tests performed to search for material weaknesses.
  C. Statement of compliance with applicable laws and regulations.
  D. Paragraph describing management's evaluation of the effectiveness of internal control.
  A. Restriction on the use of the report.

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  Choice "a" is correct. Any report issued on significant deficiencies noted during an audit should (1) indicate that the purpose of the audit was to report on the financial statements and not to provide assurance on internal control, (2) include the definition of significant deficiencies, and (3) include a restriction on the use of the report. Choice "b" is incorrect. Because the auditor does not search for material weaknesses, a description of tests performed in this regard would not be included in a written report. Choice "c" is incorrect. There is no required statement of compliance with applicable laws and regulations in a letter issued on significant deficiencies. Choice "d" is incorrect. There is no paragraph describing management's evaluation in a letter issued on significant deficiencies.