AICPA AICPA Certifications CPA-TEST Questions & Answers

• Question 971:

  Analytical procedures performed in the overall review stage of an audit suggest that several accounts have unexpected relationships. The results of these procedures most likely would indicate that:

  A. Irregularities exist among the relevant account balances.

  B. Internal control activities are not operating effectively.

  C. Additional tests of details are required.

  D. The communication with those charged with governance should be revised.

  Correct Answer: C

  Explanation:

  Choice "c" is correct. If analytical procedures suggest unexpected relationships, the auditor would perform

  additional tests of details of the accounts involved.

  Choice "a" is incorrect. The identification of unexpected relationships as a result of analytical procedures

  does not necessarily mean that irregularities exist in the relevant account balances, although this is a

  possible Explanation: .

  Choice "b" is incorrect. The identification of unexpected relationships as a result of analytical procedures

  does not necessarily mean that internal control activities are not operating effectively, although this is a

  possible Explanation: .

  Choice "d" is incorrect. The identification of unexpected relationships as a result of analytical procedures

  does not necessarily mean that communication with those charged with governance should be revised,

  although this is a possible consequence.

• Question 972:

  To be effective, analytical procedures in the overall review stage of an audit engagement should be performed by:

  A. The staff accountant who performed the substantive auditing procedures.

  B. The managing partner who has responsibility for all audit engagements at that practice office.

  C. A manager or partner who has a comprehensive knowledge of the client's business and industry.

  D. The CPA firm's quality control manager or partner who has responsibility for the firm's peer review program.

  Correct Answer: C

  Explanation: Choice "c" is correct. The manager and partner on a specific job generally bear a great deal of responsibility for the audit and the report. Typically they would perform analytical procedures during the final review stage, to evaluate overall financial statement presentation and to assess the conclusions reached. In order to evaluate the results of the analysis and to perform an effective review, the manager or partner should have a comprehensive knowledge of the client's business and the industry. Choice "a" is incorrect. It is more effective to have a manager or partner perform this review rather than a staff accountant, because the manager or partner is generally more experienced and knowledgeable, and because it provides a double check on the work of the staff accountant. Choices "b" and "d" are incorrect. The managing partner and the quality control manager or partner might not have a comprehensive knowledge of the client's business and industry.

• Question 973:

  Which of the following is a true statement regarding documentation requirements for analytical procedures?

  A. When an analytical procedure is used as the principal substantive test of a significant financial statement assertion, the auditor is required to document the reasons analytical procedures were performed instead of tests of details.

  B. When an analytical procedure is used as the principal substantive test of a significant financial statement assertion, the auditor is required to document his or her expectation and management's concurrence with that expectation.

  C. When an analytical procedure is used during the overall review stage of the audit, the auditor is required to document the auditor's expectation and any additional procedures performed to investigate significant unexplained differences.

  D. When an analytical procedure is used as the principal substantive test of a significant financial statement assertion, the auditor is required to document both the auditor's expectation and the factors considered in developing that expectation.

  Correct Answer: D

  Explanation: Choice "d" is correct. When an analytical procedure is used as the principal substantive test of a significant financial statement assertion, the auditor is required to document both the auditor's expectation and the factors considered in developing that expectation. Choice "a" is incorrect. There is no requirement that the auditor document the reasons analytical procedures were performed instead of tests of details. Choice "b" is incorrect. There is no requirement that the auditor document management's concurrence with the expectation. Choice "c" is incorrect. When an analytical procedure is performed during the overall review stage, there are no specific documentation requirements. The requirement that the auditor document the expectation and any additional procedures performed to investigate significant unexplained differences relates to analytical procedures performed as principal substantive tests.

• Question 974:

  Which of the following circumstances most likely would cause an auditor to suspect that material misstatements exist in a client's financial statements?

  A. The assumptions used in developing the prior year's accounting estimates have changed.

  B. Differences between reconciliations of control accounts and subsidiary records are not investigated.

  C. Negative confirmation requests yield fewer responses than in the prior year's audit.

  D. Management consults with another CPA firm about complex accounting matters.

  Correct Answer: B

  Explanation:

  Choice "b" is correct. If control accounts in the general ledger do not reconcile to the subsidiary ledgers,

  there may be a problem in the way transactions were recorded and posted. Failure to investigate such

  differences implies that, if such a problem exists, it has not been identified and corrected. The auditor

  would therefore suspect that material misstatements exist in the client's financial statements.

  Choice "a" is incorrect. The assumptions used in developing accounting estimates generally do change as

  new information becomes available or as situations or conditions change. This would not necessarily

  indicate that a material misstatement exists.

  Choice "c" is incorrect. Since responses to negative confirmations are only received when there are

  discrepancies, a lower response rate likely would be indicative of fewer problems with accounts receivable.

  This corresponds to a reduced likelihood of material misstatement.

  Choice "d" is incorrect. Management's consultation with another CPA firm about complex accounting

  matters indicates proactive steps on the part of management to accurately address those matters.

  Material misstatements with respect to the complex accounting matters therefore would be less likely to

  exist.

• Question 975:

  An audit supervisor reviewed the work performed by the staff to determine if the audit was adequately performed. The supervisor accomplished this by primarily reviewing which of the following?

  A. Checklists.

  B. Working papers.

  C. Analytical procedures.

  D. Financial statements.

  Correct Answer: B

  Explanation: Choice "b" is correct. Audit documentation, or working papers, comprises the principal record of audit procedures performed, evidence obtained, and conclusions reached. Reviewing the working papers allows a supervisor to understand the work performed and the evidence obtained, and to evaluate whether the audit was adequately performed. Choice "a" is incorrect. Checklists might be used within the audit documentation, but checklists alone would not provide a comprehensive record of the audit procedures performed, the evidence obtained, and conclusions reached. Choice "c" is incorrect. Analytical procedures might be documented within the working papers, but such procedures alone would not provide a comprehensive record of the audit procedures performed, the evidence obtained, and conclusions reached. Choice "d" is incorrect. Reviewing the financial statements would provide no information regarding the audit procedures performed, the evidence obtained, or conclusions reached, and therefore would provide no basis on which to review the work performed by the staff.

• Question 976:

  Which best describes the documentation completion date?

  A. Forty-five days from the report release date, based on PCAOB standards.

  B. Sixty days from the report release date, based on PCAOB standards.

  C. Seven years from the report release date, based on auditing standards.

  D. Five years from the report release date, based on auditing standards.

  Correct Answer: A

  Explanation:

  Choice "a" is correct. According to PCAOB standards, the documentation completion date is forty-five days

  following the report release date.

  Choice "b" is incorrect. According to auditing standards, the documentation completion date is sixty days

  following the report release date.

  Choices "c" and "d" are incorrect. Seven years and five years refer to the required retention period under

  PCAOB standards and auditing standards, respectively.

• Question 977:

  Which of the following is not true about the report release date?

  A. It is defined as the date after which existing documentation must not be deleted, and additions to the documentation file must be documented as such.

  B. It is often the date on which the report is delivered to the client.

  C. It is the date on which the auditor grants the client permission to use the report.

  D. It is used to define the beginning of the retention period.

  Correct Answer: A

  Explanation:

  Choice "a" is correct. The documentation completion date (and not the report release date) is defined as

  the date after which existing documentation must not be deleted, and additions to the documentation file

  must be documented as such.

  Choice "b" is incorrect. The report release date is often the date on which the report is delivered to the

  client.

  Choice "c" is incorrect. The report release date is the date on which the auditor grants the client permission

  to use the report.

  Choice "d" is incorrect. The report release date is used to define the beginning of the retention period.

• Question 978:

  Audit documentation should be prepared in enough detail so that:

  A. An experienced auditor who has worked with the client in the past can understand the procedures performed and the evidence obtained.

  B. A reader of the financial statements who has no previous connection with the audit can understand the procedures performed and the evidence obtained.

  C. A reader of the financial statements who has a background in financial analysis can understand the procedures performed and the evidence obtained.

  D. An experienced auditor who has no previous connection with the audit can understand the procedures performed and the evidence obtained.

  Correct Answer: D

  Explanation: Choice "d" is correct. Audit documentation should be prepared in enough detail so that an experienced auditor who has no previous connection with the audit can understand the procedures performed and the evidence obtained. Choice "a" is incorrect. The requirement is that audit documentation be detailed enough that an experienced auditor who has no previous connection with the audit can understand the procedures performed and the evidence obtained. This is a higher standard than simply requiring the audit documentation to be appropriate for an auditor who is already familiar with the client. Choices "b" and "c" are incorrect. Readers of the financial statements typically would not have access to the audit documentation.

• Question 979:

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

  A. A flowchart or an internal control questionnaire that evaluates the effectiveness of the entity's internal control.

  B. A management representation letter that summarizes the timing and details of the auditor's planned fieldwork.

  C. An indication in the audit documentation that the accounting records agree or reconcile with the financial statements.

  D. A list of the procedures performed and the findings obtained.

  Correct Answer: C

  Explanation:

  Choice "c" is correct. The quantity, type, and content of audit documentation vary with the circumstances,

  but it should be sufficient to show that the accounting records agree or reconcile with the financial

  statements.

  Choice "a" is incorrect. The auditor's understanding of internal control can be documented in a variety of different ways. Flowcharts and internal control questionnaires are two methods that might be used to assist the auditor in obtaining an understanding of internal control, but they generally do not provide information about the effectiveness of the entity's internal controls. Choice "b" is incorrect. An engagement letter (and not a representation letter) summarizes the timing and details of the auditor's planned field work. Choice "d" is incorrect. A list of procedures and findings is required for an agreed-upon procedures engagement, not for an audit.

• Question 980:

  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.

  Correct Answer: D

  Explanation:

  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.