AICPA released questions AUD 2015 moderate

Reporting standards for financial audits under Government Auditing Standards differ from reporting standards under generally accepted auditing standards in that Government Auditing Sta

AUD 2015 AICPA Released Questions 

Testlet Level: Moderate 

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

with the letter answer only (i.e no explanation given)

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Answers are on Page 13

1 Reporting standards for financial audits under Government Auditing

Standards differ from reporting standards under generally accepted

auditing standards in that Government Auditing Standards require the

auditor to

Describe the scope of the auditor's tests of compliance with laws and regulations

Provide positive assurance that the entity's audit committee is

adequately informed about the effects of any illegal acts

Present the results of the auditor's tests of economy and efficiency regarding the use of the entity's resources

2 Which of the following procedures would most likely assist an auditor in

identifying related party transactions?

Evaluate the reasonableness of management's accounting estimates that are subject to bias

Retest ineffective internal control activities for evidence of management override

Review the minutes of the meetings of the board of directors and its committees

Send second requests for unanswered positive confirmations of

accounts receivable

3 Which of the following factors would most likely influence the form and

extent of the auditor's documentation of an entity's internal control

environment?

Complexity and size of the entity

Amount of audit work performed at an interim date

Amount of audit work performed by the internal auditor

Results of verifying material account balances

4 According to the AICPA Code of Professional Conduct, which of the

following actions will impair independence?

Preparing client financial statements based on information in a trial balance

Processing payroll for a client's signature based on client

recordkeeping

Participating in the hiring or termination of a client's employees

Assisting a client in drafting a stock-offering document or

memorandum

5 When an accountant compiles the financial statements of a nonissuer in

accordance with Statements on Standards for Accounting and Review Services, the accountant's report should include

A statement that the accountant is not aware of material modifications

that should be made to the financial statements for them to be in conformity with GAAP

A statement regarding the accountant's assessment of fraud risk

A statement that the accountant does not express an opinion on the financial statements

A statement regarding the entity's compliance with laws and

regulations

6 In which of the following circumstances is an auditor most likely to rely

on work done by internal auditors?

If financial statement amounts are material and the degree of

subjectivity in evaluating the audit evidence is high

If the internal auditors have concluded that the risk of material

misstatement at the overall financial level is negligible

For financial statement amounts judged by the auditor to require little or

no subjectively evaluated audit evidence

For financial statement amounts determined largely or entirely on the

basis of estimates made by management

7 Which of the following statements is correct regarding a management

The date of the representation letter should typically be the same as

the audit report

The representations made apply until the date of a client's financial

statements

8 Which of the following components of internal control would be

considered the foundation for the other components?

Information and communication

Risk assessment

Control environment

Control activities

9 Which of the following activities by small-business clientÕs best

demonstrates management integrity in the absence of a written code of conduct?

Emphasizing ethical behavior through oral communication and

10 Which of the following procedures would be appropriate to test the

existence assertion during an audit of accounts receivable?

Trace transactions from the subsidiary ledger to the general ledger Send confirmations to customers

Trace a sample of invoices to recording in the general ledger

Determine that all shipments before year end are recorded as sales

11 A company's management provided its auditors with information

concerning litigation, claims, and assessments Which of the following is the auditor's primary means of corroborating management's information?

Inquiring of company's outside counsel

Meeting with the company's audit committee

Meeting with the company's Chairman of the Board

Inquiring of the company's in-house counsel

12 Which of the following would cause an auditor of an entity's financial

statements to issue either a qualified opinion or a disclaimer of opinion?

Scope limitation involving a recorded uncertainty

Inadequate disclosure of an uncertainty

The use of inappropriate accounting principles

Unreasonable accounting estimates

13 At the completion of an audit, which of the following entities has

ownership of the audit working papers?

The client

The client's audit committee

The CPA firm that performed the audit

The client's stockholders

14 Which of the following services would constitute a management

function under Government Auditing Standards, and result in the

impairment of a CPA's independence if performed by the CPA?

Developing entity program policies

Providing methodologies, such as practice guides

Providing accounting opinions to a legislative body

Recommending internal control procedures

15 Which of the following best characterizes an auditor's exercise of

professional skepticism?

Conducting all fraud-related inquiries in a non confrontational manner

Obtaining adequate conclusive evidence in support of the fairness of the financial statements

Having an attitude that includes a questioning mind

Taking into account past relationships and experiences with

management

16 Before accepting an engagement to compile or review the financial

statements of a nonissuer, which of the following specific inquiries should a successor accountant consider making to the predecessor accountant?

How cooperative was the owner's lawyer in providing a legal opinion? How did you assess inherent risk and control risk?

How would you describe the integrity of the owner?

What evaluation did you make of any accounting estimates?

17 An entity has failed to provide documentation for a newly acquired

material asset and informs its auditors that the documentation is lost

According to generally accepted government auditing standards what

would this situation typically indicate to the auditors?

Fraudulent activity

Abusive activity

Misappropriation of assets

A heightened risk of fraud

18 An accountant performing a compilation for a nonissuer believes that

the financial statements might be materially misstated The client refuses to provide additional or revised information How should the accountant

respond?

By requesting that the engagement be changed from a compilation to a review or audit

By issuing a compilation report that is qualified for a scope limitation

By withdrawing from the compilation engagement

By issuing an adverse report on the compilation

19 During an audit of a nonissuer's financial statements, an auditor should

perform tests of controls to obtain sufficient appropriate audit evidence about the operating effectiveness of relevant controls if

The auditor does not presume that client management has committed

fraud

More financial documentation is available through tests of controls

Substantive procedures alone cannot provide sufficient appropriate audit evidence

The auditor does not intend to rely on the operating effectiveness of

controls

20 In performing interviews and examining documents related to

preliminary work in a financial statement audit of a nonissuer, an auditor identifies a business risk associated with plans for a new product line What should the auditor do as a result?

Modify the scope of the engagement to include an analysis of the

budget for the new product line and consider the new risk in conjunction with other risks after the budget items have been analyzed

Analyze the newly identified risk in conjunction with economic

circumstances related exclusively to the new product line and consider whether there is an immediate consequence for the risk of material

misstatement for affected classes of transactions

Modify the financial statement disclosures to include the newly

identified risk if it is likely that the new product line will have an adverse effect on the company's profitability

Analyze the newly identified risk in conjunction with other known

business risks and consider whether there is an immediate consequence for the risk of material misstatement at various levels of the audit

21 If interim substantive procedures for an account identified no

exceptions, which of the following would the auditor not perform on that

account at year end?

Tests of details for the entire year under audit

Tests of details of activity during the period since the interim testing date

Reconciliation of year-end balances to interim balances

Substantive analytical procedures of the period since the interim testing date

22 In communicating with those charged with governance, the auditor

must decide whether to communicate with the audit committee or the

client's entire board of directors Which of the following considerations will

be least relevant to this decision?

Whether the audit committee will be able to provide further information and explanations that the auditor may require while performing the audit The nature of the matters to be communicated

Management's preference

Regulatory requirements related to audit communications with those charged with governance

23 According to the Sarbanes-Oxley Act of 2002, the PCAOB has the legal

authority to perform each of the following, except:

Prosecute suspected criminal violations by registered public accounting firms

Process, review, and approve the registration of public accounting firms that audit issuers

Inspect and review selected audit engagements of registered public accounting firms

Establish auditing, quality control, and independence standards for audits of issuers

24 Which of the following best describes the effect of a contingent fee

arrangement on the auditor's independence?

The contingent fee arrangement does not impair independence if it is

consistent with the registered public accounting firm's quality control

policies

The contingent fee arrangement impairs independence

The contingent fee arrangement does not impair independence unless

more than half of the fee is subject to contingencies

The contingent fee arrangement impairs independence unless

approved by the client's audit committee

25 An accountant is engaged to perform compilation services for a new

client in an industry with which the accountant has no previous experience How should the accountant obtain sufficient knowledge of the industry to perform the compilation service?

By obtaining the most recent letter of credit from the entity's primary financial institution

By consulting AICPA guides, industry publications, or individuals

knowledgeable about the industry

By researching the entity's Internet site and searching for current press releases

By reviewing the predecessor accountant's workpapers without the knowledge of the entity

Answers:

1 Reporting standards for financial audits under Government Auditing

Standards differ from reporting standards under generally accepted

auditing standards in that Government Auditing Standards require the

auditor to

Describe the scope of the auditor's tests of compliance with laws

and regulations

Provide positive assurance that the entity's audit committee is

adequately informed about the effects of any illegal acts

Present the results of the auditor's tests of economy and efficiency regarding the use of the entity's resources

Provide negative assurance that the auditor discovered no transactions

that were indicative of illegal acts

2 Which of the following procedures would most likely assist an auditor in

identifying related party transactions?

Evaluate the reasonableness of management's accounting estimates that are subject to bias

Retest ineffective internal control activities for evidence of management override

Review the minutes of the meetings of the board of directors and

its committees

Send second requests for unanswered positive confirmations of

accounts receivable

3 Which of the following factors would most likely influence the form and

extent of the auditor's documentation of an entity's internal control

environment?

Complexity and size of the entity

Amount of audit work performed at an interim date

Amount of audit work performed by the internal auditor

Results of verifying material account balances

4 According to the AICPA Code of Professional Conduct, which of the

following actions will impair independence?

Preparing client financial statements based on information in a trial balance

Processing payroll for a client's signature based on client

recordkeeping

Participating in the hiring or termination of a client's employees

Assisting a client in drafting a stock-offering document or

memorandum

5 When an accountant compiles the financial statements of a nonissuer in

accordance with Statements on Standards for Accounting and Review Services, the accountant's report should include

A statement that the accountant is not aware of material modifications

that should be made to the financial statements for them to be in conformity with GAAP

A statement regarding the accountant's assessment of fraud risk

A statement that the accountant does not express an opinion on

the financial statements

A statement regarding the entity's compliance with laws and

regulations

6 In which of the following circumstances is an auditor most likely to rely

on work done by internal auditors?

If financial statement amounts are material and the degree of

subjectivity in evaluating the audit evidence is high

If the internal auditors have concluded that the risk of material

misstatement at the overall financial level is negligible

For financial statement amounts judged by the auditor to require

little or no subjectively evaluated audit evidence

For financial statement amounts determined largely or entirely on the

basis of estimates made by management

7 Which of the following statements is correct regarding a management

The date of the representation letter should typically be the same

as the audit report

The representations made apply until the date of a client's financial

statements