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11.

A summary of findings rather than assurance is most likely to be included in a(n):


A. Agreed-upon procedures report.
B. Compilation report.
C. Examination report.
D. Review report.
Difficulty: Medium

12. The Statements on Auditing Standards have been issued by the:


A. Auditing Standards Board.
B. Financial Accounting Standards Board.
C. Securities and Exchange Commission.
D. Federal Bureau of Investigation.

Difficulty: Easy

13. An attestation engagement:


A. Has as its primary source of standards the assurance standards.
B. Includes a report on subject matter, or on an assertion about subject matter.
C. Includes search and verification procedures for all major accounts.
D. Is ordinarily an examination, review or compilation engagement.

Difficulty: Hard

14. An audit provides reasonable assurance of detecting which of the following types of
important illegal acts?

A. Option A
B. Option B
C. Option C
D. Option D

Difficulty: Medium

15. Which of the following is not a broad category of threat to auditor independence?
A. Familiarity.
B. Safeguards implemented by the client.
C. Financial self interest.
D. Undue Influence.

Difficulty: Easy

16. A small CPA firm provides audit services to a large local company. Almost eighty percent of
the CPA firm's revenues come from this client. Which statement is most likely to be true?
A. Appearance of independence may be lacking.
B. The small CPA firm does not have the proficiency to perform a larger audit.
C. The situation is satisfactory if the auditor exercises due skeptical negative assurance care in
the audit.
D. The auditor should provide an "emphasis of a matter paragraph" to his/her audit report
adequately disclosing this information and then it may issue an unqualified opinion.

Difficulty: Easy

17. Which of the following forms of organization is most likely to protect the personal assets of
any partner, or shareholder who has not been involved on an engagement resulting in litigation?
A. Professional corporation.
B. Limited liability partnership.
C. Partnership.
D. Subchapter M Incorporation.

Difficulty: Medium

18. Under which common law approach are auditors most likely to be held liable for ordinary
negligence to a "reasonably foreseeable" third party?
A. Due Diligence Approach.
B. Ultramares Approach.
C. Restatement of Torts Approach.
D. Rosenblum Approach.

Difficulty: Medium

19. Which of the following is not an assertion relating to classes of transactions?


A. Accuracy.
B. Sufficiency.
C. Cutoff.
D. Classification.

Difficulty: Medium

20. Which of the following is required documentation in an audit?


A. A written engagement letter formalizing the level of services to be provided.
B. A flowchart of the client's organization.
C. A written audit program.
D. A memo setting forth the scope of the audit.
21. A predecessor auditor is required to attempt to initiate communication with the successor
auditor:

A. Option A
B. Option B
C. Option C
D. Option D

Difficulty: Hard

22. Which measure of materiality (or both) considers quantitative considerations?

A. Option A
B. Option B
C. Option C
D. Option D

Difficulty: Medium

23. Which of the following statements is correct concerning the understanding of internal control
needed by auditors?
A. The auditors must understand the information system, not the accounting system.
B. The auditors must understand monitoring and all preliminary accounting controls.
C. The auditors must have a sufficient understanding to assess the risks of material misstatement.
D. The auditors must understand the control environment, risk assessment, and all control
activities.

Difficulty: Easy

24. The effectiveness of controls is not generally tested by:


A. Inspection of documents and reports.
B. Performance of analytical procedures.
C. Observation of the application of accounting policies and procedures.
D. Inquiries of appropriate client personnel.

Difficulty: Medium

25. A problem for a CPA associated with advanced IT systems is that:


A. The audit trail normally does not exist.
B. The audit trail is sometimes generated only in machine readable form.
C. The client's internal auditors may have been involved at the design stage.
D. Tests of controls are not possible.

Difficulty: Easy

26. Which of the following testing techniques is more commonly used by internal auditors than
by independent auditors?
A. Integrated test facilities.
B. Test data.
C. Controlled programs.
D. Tagging and tracing transactions.

Difficulty: Medium

27. The auditor using nonstatistical attributes sampling, but who nevertheless has chosen the
sample in conformity with random selection procedures:
A. Need not consider the risk of assessing control risk too low.
B. Has committed a nonsampling error.
C. Will have to use discovery sampling techniques to evaluate the results.
D. Should compare the deviation rate of the sample to the tolerable rate.

Difficulty: Medium

28. When performing tests of controls over authorization of cash receipts, which of the following
sampling methods would be most appropriate?
A. Attributes.
B. Ratio.
C. Stratified.
D. Variables.

Difficulty: Easy

29. Which of the following subsequent events might require an adjustment to the client's
financial statements?
A. A business combination with another company.
B. Loss on the sale of a closely-held investment.
C. Loss of plant and equipment due to a fire.
D. Retirement of bonds payable at a loss.

Difficulty: Medium

30. Authorization of which of the following is least likely to be found during a review of the
minutes of the board of directors?
A. Dividends.
B. New debt issuance.
C. New bank accounts.
D. Writeoff of trade accounts receivable.

Difficulty: Medium

31. Which of the following statements is correct with respect to explanatory paragraphs in
reports on audits of the financial statements of nonpublic companies?
A. They always precede the opinion paragraph.
B. They always follow the opinion paragraph.
C. Sometimes they precede and sometimes they follow the opinion paragraph.
D. They always precede the scope paragraph.

Difficulty: Easy

32. A client has changed the salvage values of a number of its fixed assets. The auditors believe
that the salvage values are realistic. The appropriate report on the financial statements is:
A. Standard unqualified.
B. Unqualified with explanatory language as to consistency.
C. Qualified for consistency.
D. Disclaimer.

Difficulty: Hard

33. Management is beginning to take corrective action on personnel department deficiencies


reported during the last internal audit. According to the IIA's Standards, the internal auditor
should:
A. Oversee the corrective action.
B. Postpone the next audit of the personnel department until the corrective action is completed.
C. Refrain from judging whether the corrective action will remedy the deficiencies.
D. Follow up to see that the corrective action satisfies the audit recommendations.

Difficulty: Medium
Source: IIA

34. The internal auditing department provides information about control and quality of
performance to:
A. Management and the board of directors.
B. A level in the organization sufficient to ensure acceptance of all recommendations.
C. Outside agencies for regulatory and financial compliance.
D. Any member of the organization upon request.

Difficulty: Easy
Source: IIA

35. The GAO standards of reporting for governmental financial audits incorporate the AICPA
standards of reporting and prescribe supplemental standards to satisfy the unique needs of
governmental audits. Which of the following is a supplemental reporting standard for audits in
accordance with Government Auditing Standards?
A. A report on the entity's internal control.
B. Material indications of illegal acts should be reported in a document with distribution
restricted to senior officials of the entity audited.
C. Instances of abuse, fraud, mismanagement, and waste should be reported to the organization
with legal oversight authority over the entity audited.
D. All privileged and confidential information discovered should be reported to the senior
officials of the organization that arranged for the audit.

Difficulty: Medium
Source: AICPA