Download CPA Auditing and Attestation Exam.AUD.ActualTests.2019-03-15.613q.vcex

Vendor: AICPA
Exam Code: AUD
Exam Name: CPA Auditing and Attestation Exam
Date: Mar 15, 2019
File Size: 2 MB

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Demo Questions

Question 1
Several sources of GAAP consulted by an auditor are in conflict as to the application of an accounting principle. 
Which of the following should the auditor consider the most authoritative?
  1. FASB Technical Bulletins.
  2. AICPA Accounting Interpretations.
  3. FASB Statements of Financial Accounting Concepts.
  4. AICPA Technical Practice Aids.
Correct answer: A
Explanation:
Choice "A" is correct. In accordance with the GAAP hierarchy, FASB Technical Bulletins are considered the most authoritative of the sources listed in the question.  Choice "B" is incorrect. Of the sources listed, AICPA Accounting Interpretations would be considered the second most authoritative.  Choice "C" is incorrect. FASB Statements of Financial Accounting Concepts are among the least authoritative sources of GAAP available to auditors.  Choice "D" is incorrect. AICPA Technical Practice Aids are among the least authoritative sources of GAAP available to auditors.
Choice "A" is correct. In accordance with the GAAP hierarchy, FASB Technical Bulletins are considered the most authoritative of the sources listed in the question.  
Choice "B" is incorrect. Of the sources listed, AICPA Accounting Interpretations would be considered the second most authoritative.  
Choice "C" is incorrect. FASB Statements of Financial Accounting Concepts are among the least authoritative sources of GAAP available to auditors.  
Choice "D" is incorrect. AICPA Technical Practice Aids are among the least authoritative sources of GAAP available to auditors.
Question 2
For an entity's financial statements to be presented fairly in conformity with generally accepted accounting principles, the principles selected should:
  1. Be applied on a basis consistent with those followed in the prior year.
  2. Be approved by the Auditing Standards Board or the appropriate industry subcommittee.
  3. Reflect transactions in a manner that presents the financial statements within a range of acceptable limits.
  4. Match the principles used by most other entities within the entity's particular industry.
Correct answer: C
Explanation:
Choice "C" is correct. Financial statements are presented fairly in conformity with GAAP when there are no material misstatements included therein. The fact that there may occasionally be immaterial misstatements means that the financial statements are correct "within a range of acceptable limits."  Choice "A" is incorrect. Accounting principles may change from year to year. As long as such changes are properly accounted for, the financial statements are still in conformity with GAAP.  Choice "B" is incorrect. The AICPA and the FASB determine GAAP, not the Auditing Standards Board.  Choice "D" is incorrect. There is no requirement that an entity's financial statements be prepared in accordance with prevalent industry practices in order to be in conformity with GAAP
Choice "C" is correct. Financial statements are presented fairly in conformity with GAAP when there are no material misstatements included therein. The fact that there may occasionally be immaterial misstatements means that the financial statements are correct "within a range of acceptable limits."  
Choice "A" is incorrect. Accounting principles may change from year to year. As long as such changes are properly accounted for, the financial statements are still in conformity with GAAP.  
Choice "B" is incorrect. The AICPA and the FASB determine GAAP, not the Auditing Standards Board.  
Choice "D" is incorrect. There is no requirement that an entity's financial statements be prepared in accordance with prevalent industry practices in order to be in conformity with GAAP
Question 3
Which of the following statements is correct concerning an auditor's responsibilities regarding financial statements?
  1. An auditor may not draft an entity's financial statements based on information from management's accounting system.
  2. The adoption of sound accounting policies is an implicit part of an auditor's responsibilities.
  3. An auditor's responsibilities for audited financial statements are confined to the expression of the auditor's opinion.
  4. Making suggestions that are adopted about an entity's internal control environment impairs an auditor's independence.
Correct answer: C
Explanation:
Choice "C" is correct. An auditor's responsibility is to express an opinion on financial statements based on an audit.  Choice "A" is incorrect. An auditor may draft an entity's financial statements based on information from management's financial system. This would be referred to as a compilation engagement.  Choice "B" is incorrect. The adoption of sound accounting policies is an implicit part of management's responsibilities, not the auditor's responsibilities.  Choice "D" is incorrect. An auditor often makes suggestions that are adopted about an entity's internal control environment.
Choice "C" is correct. An auditor's responsibility is to express an opinion on financial statements based on an audit.  
Choice "A" is incorrect. An auditor may draft an entity's financial statements based on information from management's financial system. This would be referred to as a compilation engagement.  
Choice "B" is incorrect. The adoption of sound accounting policies is an implicit part of management's responsibilities, not the auditor's responsibilities.  
Choice "D" is incorrect. An auditor often makes suggestions that are adopted about an entity's internal control environment.
Question 4
Which of the following provides the most authoritative guidance for an auditor?
  1. An AICPA audit and accounting guide that provides specific guidance with respect to the accounting practices in the client's industry.
  2. A Journal of Accountancy article discussing implementation of a new standard.
  3. General guidance provided by a Statement on Auditing Standards.
  4. Specific guidance provided by an interpretation of a Statement on Auditing Standards.
Correct answer: C
Explanation:
Choice "C" is correct. General guidance provided by a Statement on Auditing Standards is the most authoritative of level of auditing guidance. Auditors are required to comply with SASs, and should be prepared to justify any departures therefrom.  Choices "A" and "D" are incorrect. AICPA audit and accounting guides and SAS interpretations are interpretive publications that provide guidance regarding how SASs should be applied in specific situations. They are not as authoritative as SASs.  Choice "B" is incorrect. Journal of Accountancy articles have no authoritative status but may be helpful to the auditor.
Choice "C" is correct. General guidance provided by a Statement on Auditing Standards is the most authoritative of level of auditing guidance. Auditors are required to comply with SASs, and should be prepared to justify any departures therefrom.  
Choices "A" and "D" are incorrect. AICPA audit and accounting guides and SAS interpretations are interpretive publications that provide guidance regarding how SASs should be applied in specific situations. They are not as authoritative as SASs.  
Choice "B" is incorrect. Journal of Accountancy articles have no authoritative status but may be helpful to the auditor.
Question 5
Which of the following accurately depicts the auditor's responsibility with respect to Statements on Auditing Standards?
  1. The auditor is required to follow the guidance provided by the Standards, without exception.
  2. The auditor is generally required to follow the guidance provided by Standards with which he or she is familiar, but will not be held responsible for departing from provisions of which he or she was unaware.
  3. The auditor is generally required to follow the guidance provided by the Standards, unless following such guidance would result in an audit that is not cost-effective.
  4. The auditor is generally required to follow the guidance provided by the Standards, and should be able to justify any departures.
Correct answer: D
Explanation:
Choice "D" is correct. The auditor is generally required to follow the guidance provided by the Standards, and should be able to justify any departures. Choice "A" is incorrect. On rare occasions, the auditor may depart from the guidance provided by the SASs, but he or she must justify such departures.  Choice "B" is incorrect. Lack of familiarity with a SAS is not a valid reason for departing from its guidance. The auditor is expected to have sufficient knowledge of the SASs to identify those that are applicable to a given audit engagement.  Choice "C" is incorrect. The cost associated with following the guidance provided by a SAS is not an acceptable reason for departing from its guidance.
Choice "D" is correct. The auditor is generally required to follow the guidance provided by the Standards, and should be able to justify any departures. 
Choice "A" is incorrect. On rare occasions, the auditor may depart from the guidance provided by the SASs, but he or she must justify such departures.  
Choice "B" is incorrect. Lack of familiarity with a SAS is not a valid reason for departing from its guidance. The auditor is expected to have sufficient knowledge of the SASs to identify those that are applicable to a given audit engagement.  
Choice "C" is incorrect. The cost associated with following the guidance provided by a SAS is not an acceptable reason for departing from its guidance.
Question 6
In the first audit of a new client, an auditor was able to extend auditing procedures to gather sufficient evidence about consistency. Under these circumstances, the auditor should:
  1. Not report on the client's income statement.
  2. Not refer to consistency in the auditor's report.
  3. State that the consistency standard does not apply.
  4. State that the accounting principles have been applied consistently.
Correct answer: B
Explanation:
Choice "B" is correct. The auditor's standard report implies that the auditor is satisfied that the comparability of financial statements between periods has not been materially affected by changes in accounting principles and that such principles have been consistently applied between or among periods. Since the auditor has gathered sufficient evidence about consistency, no reference need be made in the report.  Choice "A" is incorrect. If the auditor is able to obtain sufficient evidence about consistency, the auditor may report on the entity's financial statements. Choice "C" is incorrect. The consistency standard is one of the ten GAAS, and it does apply to this audit.  Choice "D" is incorrect. If the auditor is able to obtain sufficient evidence about consistency, no mention of consistency need be made. Consistency is implied in the standard report.
Choice "B" is correct. The auditor's standard report implies that the auditor is satisfied that the comparability of financial statements between periods has not been materially affected by changes in accounting principles and that such principles have been consistently applied between or among periods. Since the auditor has gathered sufficient evidence about consistency, no reference need be made in the report.  
Choice "A" is incorrect. If the auditor is able to obtain sufficient evidence about consistency, the auditor may report on the entity's financial statements. 
Choice "C" is incorrect. The consistency standard is one of the ten GAAS, and it does apply to this audit.  
Choice "D" is incorrect. If the auditor is able to obtain sufficient evidence about consistency, no mention of consistency need be made. Consistency is implied in the standard report.
Question 7
Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of:
  1. Objective judgment.
  2. Independent integrity.
  3. Professional skepticism.
  4. Impartial conservatism.
Correct answer: C
Explanation:
Choice "C" is correct. The auditor should plan and perform the audit with an attitude of professional skepticism. This attitude includes a questioning mind and a critical assessment of audit evidence.  Choices "A", "B", and "D" are incorrect. Objectivity, independence, integrity, and impartiality are basic ethical characteristics and professional qualities embodied in the general standards.
Choice "C" is correct. The auditor should plan and perform the audit with an attitude of professional skepticism. This attitude includes a questioning mind and a critical assessment of audit evidence.  
Choices "A", "B", and "D" are incorrect. Objectivity, independence, integrity, and impartiality are basic ethical characteristics and professional qualities embodied in the general standards.
Question 8
Which of the following categories is included in generally accepted auditing standards?
  1. Standards of review.
  2. Standards of planning.
  3. Standards of fieldwork.
  4. Standards of evidence.
Correct answer: C
Explanation:
Choice "C" is correct. Generally accepted auditing standards include three categories: general standards, standards of fieldwork, and standards of reporting. Choices "A", "B", and "D" are incorrect, based on the above Explanation.
Choice "C" is correct. Generally accepted auditing standards include three categories: general standards, standards of fieldwork, and standards of reporting. 
Choices "A", "B", and "D" are incorrect, based on the above Explanation.
Question 9
When qualifying an opinion because of an insufficiency of audit evidence, an auditor should refer to the situation in the: 
  
  1. Option A
  2. Option B
  3. Option C
  4. Option D
Correct answer: B
Explanation:
Choice "B" is correct. When a qualified opinion is issued due to a lack of sufficient audit evidence, the lack of evidence should be disclosed in an explanatory paragraph before the opinion paragraph. Since insufficient evidence is a scope limitation, the scope paragraph should also be modified to refer to the limitation and to the explanatory paragraph that discusses it.  Choices "A" and "C" are incorrect. Management (and not the auditor) prepares the notes to the financial statements. The auditor therefore would not refer to this (or any other) situation in the notes to the financial statements.  Choice "D" is incorrect. The auditor does refer to the situation in the scope paragraph.
Choice "B" is correct. When a qualified opinion is issued due to a lack of sufficient audit evidence, the lack of evidence should be disclosed in an explanatory paragraph before the opinion paragraph. Since insufficient evidence is a scope limitation, the scope paragraph should also be modified to refer to the limitation and to the explanatory paragraph that discusses it.  
Choices "A" and "C" are incorrect. Management (and not the auditor) prepares the notes to the financial statements. The auditor therefore would not refer to this (or any other) situation in the notes to the financial statements.  
Choice "D" is incorrect. The auditor does refer to the situation in the scope paragraph.
Question 10
When an auditor believes there is substantial doubt about the ability of an entity to continue as a going concern, all of the following should be included in the audit documentation, except:
  1. The conditions that gave rise to the substantial doubt.
  2. The auditor's conclusion about whether substantial doubt remains or is alleviated.
  3. Management's conclusion regarding whether substantial doubt remains or is alleviated.
  4. The effect of the auditor's conclusion on the auditor's report.
Correct answer: C
Explanation:
Choice "C" is correct. Whether substantial doubt remains or is alleviated is a judgment call made by the auditor, and there is no requirement to document management's opinion on the matter.  Choices "A", "B", and "D" are incorrect. When an auditor believes there is substantial doubt about the ability of an entity to continue as a going concern, the conditions that gave rise to the substantial doubt, the auditor's conclusion about whether substantial doubt remains or is alleviated, and the effect of the auditor's conclusion on the auditor's report should all be documented.
Choice "C" is correct. Whether substantial doubt remains or is alleviated is a judgment call made by the auditor, and there is no requirement to document management's opinion on the matter.  
Choices "A", "B", and "D" are incorrect. When an auditor believes there is substantial doubt about the ability of an entity to continue as a going concern, the conditions that gave rise to the substantial doubt, the auditor's conclusion about whether substantial doubt remains or is alleviated, and the effect of the auditor's conclusion on the auditor's report should all be documented.
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