2016 auditing AICPA released questions difficult

The standard report issued by a CPA after reviewing the financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services SSARS should st

AUD 2016 AICPA Released Questions

Level: Difficult

Please Note: These questions are released to the CPA Review providers with the

letter answer only (i.e no explanation given)

This document contains copyrighted material from the American Institute of

1 An accountant's compilation report on a financial projection that does not contain a range should include a statement that

There will usually be differences between the projected and actual results because events and circumstances frequently do not occur

as expected

The compilation includes an evaluation of the support for the assumptions underlying the projection

The accountant's responsibility to update the report for future events and circumstances is limited to one year

The projection is limited to presenting, in the form of financial statements, information that is the accountant's representation

2 The standard report issued by a CPA after reviewing the financial statements of a nonissuer in accordance with Statements on

Standards for Accounting and Review Services (SSARS) should state that the CPA

Assessed the accounting principles used and significant estimates made by management

Has no responsibility to update the CPA's report for events and circumstances occurring after the report's date

Is not aware of any material modifications that should be made to the financial statements

Believes that there will usually be differences between the projected and actual results

3 A practitioner reporting on pro forma financial information does not possess an understanding of the client's business and the

industry in which the client operates The practitioner should take which of the following actions?

Issue a disclaimer, because the scope of work was not sufficient to express an opinion

Review industry trade journals

Refer a substantial portion of the audit to another CPA who will act as the principal practitioner

Perform ratio analysis of the financial data of comparable prior periods

1 An accountant's compilation report on a financial projection that does not contain a range should include a statement that

There will usually be differences between the projected and actual results because events and circumstances frequently do not occur as expected

The compilation includes an evaluation of the support for the assumptions underlying the projection

The accountant's responsibility to update the report for future events and circumstances is limited to one year

The projection is limited to presenting, in the form of financial statements, information that is the accountant's representation

2 The standard report issued by a CPA after reviewing the financial statements of a nonissuer in accordance with Statements on

Standards for Accounting and Review Services (SSARS) should state that the CPA

Assessed the accounting principles used and significant estimates made by management

Has no responsibility to update the CPA's report for events and circumstances occurring after the report's date

Is not aware of any material modifications that should be made to the financial statements

Believes that there will usually be differences between the projected and actual results

3 A practitioner reporting on pro forma financial information does not possess an understanding of the client's business and the

industry in which the client operates The practitioner should take which of the following actions?

Issue a disclaimer, because the scope of work was not sufficient to express an opinion

Review industry trade journals

Refer a substantial portion of the audit to another CPA who will act as the principal practitioner

Perform ratio analysis of the financial data of comparable prior periods

4 A company engages a practitioner to assist the audit committee by performing specific procedures that were agreed to by the audit

committee Which of the following statements is correct regarding the procedures to be performed?

The procedures should be designed to allow the practitioner to provide negative assurance

The practitioner should not involve the audit committee in determining what procedures are to be performed

The practitioner has responsibility for the adequacy of the procedures to be performed

The specific procedures performed should be listed in the practitioner's report to the audit committee

5 Which of the following procedures would an auditor most likely perform to identify unusual sales transactions?

Tracing credits in the accounts receivable ledger to source documentation

Performing a trend analysis of quarterly sales

Examining duplicate sales invoices for credit approval by the credit manager

Tracing cash receipt entries to the bank statement deposit for amount and date

6 Which of the following standards should a CPA firm apply in a review of pro forma financial information?

Statements on Standards for Attestation Engagements

Statements on Standards for Consulting Services

Statements on Standards for Accounting and Review Services

Generally accepted auditing standards

4 A company engages a practitioner to assist the audit committee by performing specific procedures that were agreed to by the audit

committee Which of the following statements is correct regarding the procedures to be performed?

The procedures should be designed to allow the practitioner to provide negative assurance

The practitioner should not involve the audit committee in determining what procedures are to be performed

The practitioner has responsibility for the adequacy of the procedures to be performed

The specific procedures performed should be listed in the practitioner's report to the audit committee

5 Which of the following procedures would an auditor most likely perform to identify unusual sales transactions?

Tracing credits in the accounts receivable ledger to source documentation

Performing a trend analysis of quarterly sales

Examining duplicate sales invoices for credit approval by the credit manager

Tracing cash receipt entries to the bank statement deposit for amount and date

6 Which of the following standards should a CPA firm apply in a review of pro forma financial information?

Statements on Standards for Attestation Engagements

Statements on Standards for Consulting Services

Statements on Standards for Accounting and Review Services

Generally accepted auditing standards

7 A company hired a practitioner to perform an examination of prospective financial statements The practitioner concluded that the

assumptions did not provide a reasonable basis for the prospective financial statements Which of the following types of opinion

should the practitioner issue?

Unqualified

Qualified

Adverse

Disclaimer

8 Which of the following types of control best describes procedures to ensure appropriate systems software acquisition?

Application

Physical

General

Monitoring

9 Considering only the provisions of the AICPA Code of Professional Conduct, which of the following services may a CPA perform for

a commission or contingent fee?

Preparation of an original income tax return

Representation of a nonattest client in an IRS examination

Preparation of an amended income tax return to claim a deduction that was inadvertently omitted on an originally filed return

Performance of consulting services for an audit client

7 A company hired a practitioner to perform an examination of prospective financial statements The practitioner concluded that the

assumptions did not provide a reasonable basis for the prospective financial statements Which of the following types of opinion

should the practitioner issue?

Unqualified

Qualified

Adverse

Disclaimer

8 Which of the following types of control best describes procedures to ensure appropriate systems software acquisition?

Application

Physical

General

Monitoring

9 Considering only the provisions of the AICPA Code of Professional Conduct, which of the following services may a CPA perform for

a commission or contingent fee?

Preparation of an original income tax return

Representation of a nonattest client in an IRS examination

Preparation of an amended income tax return to claim a deduction that was inadvertently omitted on an originally filed return

Performance of consulting services for an audit client

10 How should differences of opinion between the engagement partner and the quality control reviewer be resolved?

Preparation of an original income tax return

Representation of a nonattest client in an IRS examination

Preparation of an amended income tax return to claim a deduction that was inadvertently omitted on an originally filed return

Performance of consulting services for an audit client

11 Based on new information gained during an audit of a nonissuer, an auditor determines that it is necessary to modify materiality for

the financial statements as a whole In this circumstance, which of the following statements is accurate?

The auditor is required to reperform audit procedures already completed on the audit using the revised materiality

The auditor should consider disclaiming an opinion due to a scope limitation

The revision of materiality at the financial statement levels will not affect the planned nature and timing of audit procedures, only the

extent of those procedures

Materiality levels for particular classes of transactions, account balances, or disclosures might also need to be revised

12 In an audit of a nonissuer's financial statements, projected misstatement is

The likely amount of misstatement in the subsequent-period's financial statements if a control is not properly implemented

An auditor's best estimate of misstatements in a population extrapolated from misstatements identified in an audit sample

The only amount that the auditor considers in evaluating materiality and fairness of the financial statements

An auditor's best estimate, before performing audit procedures, of misstatements that the auditor expects to find during the audit

10 How should differences of opinion between the engagement partner and the quality control reviewer be resolved?

Preparation of an original income tax return

Representation of a nonattest client in an IRS examination

Preparation of an amended income tax return to claim a deduction that was inadvertently omitted on an originally filed return

Performance of consulting services for an audit client

11 Based on new information gained during an audit of a nonissuer, an auditor determines that it is necessary to modify materiality for

the financial statements as a whole In this circumstance, which of the following statements is accurate?

The auditor is required to reperform audit procedures already completed on the audit using the revised materiality

The auditor should consider disclaiming an opinion due to a scope limitation

The revision of materiality at the financial statement levels will not affect the planned nature and timing of audit procedures, only the

extent of those procedures

Materiality levels for particular classes of transactions, account balances, or disclosures might also need to be revised

12 In an audit of a nonissuer's financial statements, projected misstatement is

The likely amount of misstatement in the subsequent-period's financial statements if a control is not properly implemented

An auditor's best estimate of misstatements in a population extrapolated from misstatements identified in an audit sample

The only amount that the auditor considers in evaluating materiality and fairness of the financial statements

An auditor's best estimate, before performing audit procedures, of misstatements that the auditor expects to find during the audit

13 According to the U.S Department of Labor, an auditor of an employee benefit plan would be considered independent if

The auditor is committed to acquire a material indirect financial interest in the plan sponsor

An actuary associated with the auditor's firm renders services to the plan

A member of the auditor's firm is an investment advisor to the plan

The auditor's firm maintains financial records for the plan

14 Which of the following audit procedures would be most appropriate to test the valuation of the collateral of a delinquent loan

receivable?

Sending a positive confirmation letter to the debtor to confirm the loan balance

Performing a site visit to physically inspect the collateral

Reviewing the debtor's purchase records to test the historical value of the collateral

Obtaining a current value appraisal of the collateral

15 An accountant performing a nonissuer's review engagement is considering the appropriateness of a client's balance for accrued

wages The accountant should perform each of the following procedures, except

Testing the process used by management to determine the balance

Comparing the current-year balance to the prior-year balance

Obtaining representations from management regarding the year-end balance

Making inquiries of the payroll accountant regarding completeness of the account balance

13 According to the U.S Department of Labor, an auditor of an employee benefit plan would be considered independent if

The auditor is committed to acquire a material indirect financial interest in the plan sponsor

An actuary associated with the auditor's firm renders services to the plan

A member of the auditor's firm is an investment advisor to the plan

The auditor's firm maintains financial records for the plan

14 Which of the following audit procedures would be most appropriate to test the valuation of the collateral of a delinquent loan

receivable?

Sending a positive confirmation letter to the debtor to confirm the loan balance

Performing a site visit to physically inspect the collateral

Reviewing the debtor's purchase records to test the historical value of the collateral

Obtaining a current value appraisal of the collateral

15 An accountant performing a nonissuer's review engagement is considering the appropriateness of a client's balance for accrued

wages The accountant should perform each of the following procedures, except

Testing the process used by management to determine the balance

Comparing the current-year balance to the prior-year balance

Obtaining representations from management regarding the year-end balance

Making inquiries of the payroll accountant regarding completeness of the account balance

16 To what degree, if at all, is a significant deficiency related to a material weakness?

It is less severe than a material weakness

It is more severe than a material weakness

It is unrelated to a material weakness

It is equivalent to a material weakness

17 In an integrated audit of a nonissuer, which of the following is the responsibility of an auditor with regard to testing controls at a

company with multiple business units?

Testing controls over only certain specific risks at all business units of the company

Testing controls over all risks at all business units of the company

Testing controls over all risks at business units that are material to the company's consolidated financial statements

Testing controls over specific risks at business units that are material to the company's consolidated financial statements

18 If an auditor performing an integrated examination identifies one or more material weaknesses in a nonissuer's internal control, the

auditor should

Expand the examination of internal control to identify deficiencies less severe than material weaknesses

Conclude that the financial statements are materially misstated because of the material weakness in internal control

Disclaim an opinion on internal control

Express an adverse opinion on the entity's internal control