AICPA CPA-TEST Online Practice Questions and Exam Preparation

AICPA CPA-TEST Online Questions & Answers

• Question 751:

  Reporting on internal control under Government Auditing Standards differs from reporting under generally accepted auditing standards in that Government Auditing Standards requires a:

  A. Written report describing the entity's internal controls specifically designed to prevent fraud, abuse, and illegal acts.
  B. Report describing the scope of the auditor's testing of compliance and of internal control.
  C. Statement of negative assurance that internal controls not tested have an immaterial effect on the entity's financial statements.
  D. Statement of positive assurance that internal controls designed to detect material errors and fraud were tested.
  B. Report describing the scope of the auditor's testing of compliance and of internal control.

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  Choice "b" is correct. Government Auditing Standards require a description of the scope of the auditor's testing of compliance and of internal control. This is not required under generally accepted auditing standards. Choice "a" is incorrect. Although a written report on internal control is required, the auditor does not have to identify procedures specifically designed to prevent fraud, abuse, and illegal acts. Choice "c" is incorrect. Government Auditing Standards require tests of compliance with applicable laws and regulations governing a particular grant, because the grant money received can only be spent for certain purposes. However, neither GAGAS nor GAAS requires that negative assurance be given with respect to internal controls. Choice "d" is incorrect. Although Government Auditing Standards require tests of compliance with applicable laws and regulations governing a particular grant (the grant money received can only be spent for certain purposes), auditors are not required to give positive assurance that internal controls designed to detect material errors and fraud were tested under either GAGAS or GAAS.

• Question 752:

  An auditor should request that an audit client send a letter of inquiry to those attorneys who have been consulted concerning litigation, claims, or assessments. The primary reason for this request is to provide:

  A. The opinion of a specialist as to whether loss contingencies are possible, probable, or remote.
  B. A description of litigation, claims, and assessments that have a reasonable possibility of unfavorable outcomes.
  C. An objective appraisal of management's controls adopted for identifying and evaluating legal matters.
  D. The corroboration of the information furnished by management concerning litigation, claims, and assessments.
  D. The corroboration of the information furnished by management concerning litigation, claims, and assessments.

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  Choice "d" is correct. The primary reason for an auditor to request that the audit client send a letter of inquiry to its attorneys is to provide corroboration of the information furnished by management concerning litigation, claims and assessments. Choice "a" is incorrect. The letter of inquiry is used to corroborate information furnished by management. The likelihood of loss contingencies occurring is only one item addressed in this correspondence, but it is not the primary purpose of the request. Choice "b" is incorrect. The description of litigation, claims and assessments that have a reasonable possibility of unfavorable outcomes should be provided by management, not the attorneys. Choice "c" is incorrect. The attorneys do not give an appraisal of management's controls adopted for identifying and evaluating legal matters.

• Question 753:

  If a firm's credit terms require payment within 45 days but allow a discount of 2 percent if paid within 15 days (using a 360 day year), the approximate cost/benefit of the trade credit terms is:

  A. 16 percent.
  B. 48 percent.
  C. 24 percent.
  D. 36 percent.
  C. 24 percent.

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  Explanation Explanation/Reference:Choice "c" is correct. The formula for computing the cost/benefit for trade discounts is: Choice is 24% ("c"). Choices "a", "b", and "d" are incorrect, per the above calculations.

• Question 754:

  ABC Company has disclosed an uncertainty due to pending litigation. The auditor's decision to issue a qualified opinion rather than an unqualified opinion most likely would be determined by the:

  A. Lack of sufficient evidence.
  B. Inability to estimate the amount of loss.
  C. Entity's lack of experience with such litigation.
  D. Lack of insurance coverage for possible losses from such litigation.
  A. Lack of sufficient evidence.

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  Choice "a" is correct. Lack of sufficient evidence to support management's assertions would most likely cause an auditor to issue a qualified or disclaimer of opinion. Choice "b" is incorrect. As long as it is fully disclosed, an inability to estimate the amount of loss from a future event (outcome of pending legislation) would most likely result in an unqualified opinion. Choices "c" and "d" are incorrect. Neither a lack of experience nor a lack of insurance coverage would impact the auditor's report.

• Question 755:

  Which of the following statements is correct if there is an increase in the resources available within an economy?

  A. More goods and services will be produced in the economy.
  B. The economy will be capable of producing more goods and services.
  C. The standard of living in the economy will rise.
  D. The technological efficiency of the economy will improve.
  B. The economy will be capable of producing more goods and services.

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  Choice "b" is correct. If there is an increase in the resources available in an economy, the economy will be capable of producing more goods and services. This increase is really an increase in the long-run aggregate supply (potential GDP). On the aggregate supply and demand chart, the long-run aggregate supply line (LRAS) is the vertical line that represents the potential or equilibrium level of output. If that line shifts to the right, then the economy is capable of expanding, but it will not automatically expand just because the line shifts to the right. Choice "a" is incorrect. Just because there is an increase in the resources available in an economy, it does not mean that more goods and services will automatically be produced. There would have to be increased demand (a shift upward in the aggregate demand line) for more goods and services to actually be produced. Choice "c" is incorrect. If there is an increase in the resources available in an economy, the standard of living in the economy will not necessarily rise. It could rise, but it will not necessarily do that. Choice "d" is incorrect. If there is an increase in the resources available in an economy, the technological efficiency of the economy will not automatically improve. This statement is backwards. An increase in technological efficiency of an economy will normally increase the resources available in the economy by increasing productivity.

• Question 756:

  Which of the following events occurring in the year under audit would most likely indicate that internal controls utilized in previous years may be inadequate in the year under audit?

  A. The entity announced that the internal audit function would be eliminated after the balance sheet date.
  B. The audit committee chairperson unexpectedly resigned during the year under audit.
  C. The chief financial officer waived approvals on all checks to one vendor to expedite payment.
  D. The frequency of accounts payable check runs was changed from biweekly to weekly.
  C. The chief financial officer waived approvals on all checks to one vendor to expedite payment.

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  Choice "c" is correct. Vouchers should be approved before payment occurs. Overriding this control to expedite payment may result in unauthorized payments being made. The auditor would need to consider this change in evaluating current controls and determining the nature, timing, and extent of testing. Choice "a" is incorrect. If the internal audit function is being eliminated after the balance sheet date, there would be little effect on the current year's audit. Choice "b" is incorrect. Resignation of the audit committee chairperson would not imply that internal controls are less adequate than in the past, as long as a new, competent person steps up to become chair. Choice "d" is incorrect. Changing the frequency of the accounts payable check runs from biweekly to weekly would not automatically imply that controls are inadequate. The auditor would need to review the new procedures to determine whether adequate controls were still in place.

• Question 757:

  A firm averages $4,000 in sales per day and is paid, on an average, within 30 days of the sale. After they receive their invoice, 55 percent of the customers pay by check, while the remaining 45 percent pay by credit card. Approximately how much would the company show in accounts receivable on its balance sheet on any given date?

  A. $120,000
  B. $48,000
  C. $54,000
  D. $21,600
  A. $120,000

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  Choice "a" is correct. $120,000 accounts receivable approximation. There is no effect on total A/R based on how (i.e., check or credit card) the customers actually pay their A/R.

• Question 758:

  Which of the following procedures most likely would not be an internal control designed to reduce the risk of errors in the billing process?

  A. Comparing control totals for shipping documents with corresponding totals for sales invoices.
  B. Using computer programmed controls on the pricing and mathematical accuracy of sales invoices.
  C. Matching shipping documents with approved sales orders before invoice preparation.
  D. Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger.
  D. Reconciling the control totals for sales invoices with the accounts receivable subsidiary ledger.

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  Choice "d" is correct. Reconciling control totals for sales invoices with the accounts receivable subsidiary ledger is not an effective control related to the billing process, since errors that exist in the preparation of invoices would likely carry through to accounts receivable. Choice "a" is incorrect. Comparing shipping totals with sales invoice totals is an effective control to reduce billing errors. Choice "b" is incorrect. Computer controls related to pricing and mathematical accuracy will reduce billing errors. Choice "c" is incorrect. Matching shipping documents with approved sales orders ensures that invoices are properly authorized and only goods ordered have been shipped.

• Question 759:

  In which of the following circumstances would an auditor not express an unqualified opinion?

  A. There has been a material change between periods in accounting principles.
  B. Quarterly financial data required by the SEC has been omitted.
  C. The auditor wishes to emphasize an unusually important subsequent event.
  D. The auditor is unable to obtain audited financial statements of a consolidated investee.
  D. The auditor is unable to obtain audited financial statements of a consolidated investee.

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  Choice "d" is correct. The inability to obtain audited financial statements of a consolidated investee represents a scope limitation which may result in either a qualified opinion or a disclaimer of opinion. Choice "a" is incorrect. A material change in accounting principles between periods is disclosed in an explanatory paragraph added to an otherwise unqualified opinion. Choice "b" is incorrect. Omission of selected quarterly data required by SEC regulations is disclosed in an explanatory paragraph added to an otherwise unqualified opinion. Choice "c" is incorrect. Emphasis of a matter is disclosed in an explanatory paragraph added to an otherwise unqualified opinion.

• Question 760:

  When the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the accounting department the:

  A. Unpaid voucher.
  B. Debit memo.
  C. Vendor invoice.
  D. Credit memo.
  B. Debit memo.

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  Choice "b" is correct. When nonconforming goods are returned to a vendor, the purchasing department should send a debit memo to the accounting department to ensure that the accounts payable balance is reduced appropriately. Choice "a" is incorrect. The unpaid voucher is sent from the accounts payable department to the treasurer's department for payment when conforming goods are received. Choice "c" is incorrect. The vendor invoice is sent to the accounting department when conforming goods are received. Choice "d" is incorrect. A credit memo is generally used to reduce accounts receivable, not accounts payable.