AICPA CPA-Auditing CPA Exam Practice Test Instant Access

Question 1

Stratified mean per unit (MPU) sampling is a statistical technique that may be more efficient than unstratified MPU because it usually:

AMay be applied to populations where many monetary errors are expected to occur.

BProduces an estimate having a desired level of precision with a smaller sample size.

CIncreases the variability among items in a stratum by grouping sampling units with similar characteristics.

DYields a weighted sum of the strata standard deviations that is greater than the standard deviation of the population.

Answer : B

Choice 'b' is correct. A stratified sample generally is more efficient than an unstratified sample since the population is classified in a manner that emphasizes the higher dollar value items. The result is an estimate having a desired level of precision with a smaller sample size.

Choice 'a' is incorrect. Both stratified and unstratified MPU may be used for populations where many monetary errors are expected to occur.

Choice 'c' is incorrect. Stratified sampling reduces the variability among items in a stratum.

Choice 'd' is incorrect. Standard deviations measure variability, and stratification would tend to reduce the strata standard deviations as compared to the overall standard deviation of the population.

Question 2

When planning a sample for a substantive test of details, an auditor should consider tolerable misstatement for the sample. This consideration should:

ABe related to the auditor's business risk.

BNot be adjusted for qualitative factors.

CBe related to preliminary judgments about materiality levels.

DNot be changed during the audit process.

Answer : C

Choice 'c' is correct. Tolerable misstatement is the maximum monetary misstatement in an account balance that may exist without causing the financial statements to be materially misstateD. Tolerable misstatement is a planning concept related to the auditor's preliminary judgments about materiality levels.

Choice 'a' is incorrect. The auditor's overall business risk is not related to the tolerable misstatement used in planning a sample for a substantive test of details.

Choice 'b' is incorrect. The tolerable misstatement should be adjusted for both qualitative and quantitative factors.

Choice 'd' is incorrect. The auditor should modify his or her consideration of tolerable misstatement if, during the audit process, information used to determine the initial level of tolerable misstatement changes.

Question 3

A principal advantage of statistical methods of attribute sampling over nonstatistical methods is that they provide a scientific basis for planning the:

ARisk of overreliance.

BTolerable rate.

CExpected population deviation rate.

DSample size.

Answer : D

Choice 'd' is correct. A principal advantage of statistical methods of attribute sampling over nonstatistical methods is that they provide a scientific basis for planning the sample size.

Choices 'a', 'b', and 'c' are incorrect. The risk of overreliance, the tolerable rate, and the expected population deviation rate are factors considered in determining a statistical sample size.

Question 4

During consideration of internal control in a financial statement audit, an auditor is not obligated to:

ASearch for all significant deficiencies in the operation of internal control.

BUnderstand the internal control environment and the accounting system.

CDetermine whether the control activities relevant to audit planning have been implemented.

DPerform procedures to understand the design of internal control.

Answer : A

Choice 'a' is correct. During consideration of internal control in a financial statement audit, an auditor is not obligated to search for all significant deficiencies in the operation of internal control, but should communicate any such situations noted to management and those charged with governance.

Choice 'b' is incorrect. The auditor is required to obtain an understanding of each of the five components of internal control, including the control environment and the (accounting) information system.

Choices 'c' and 'd' are incorrect. As part of planning, the auditor is required to obtain an understanding of the design of relevant controls and to determine whether they have been implemented.

Question 5

Should an auditor communicate the following matters to those charged with governance of a public entity?

AOption A

BOption B

COption C

DOption D

Answer : A

Choice 'a' is correct. Unless all of those charged with governance are also involved with managing the entity, significant audit adjustments and significant matters relating to consultation with other accountants should be communicated to those charged with governance.

Choices 'b', 'c', and 'd' are incorrect, based on the above Explanation: .

Question 6

Which of the following expressions most likely would be included in a management representation letter?

ANo events have occurred subsequent to the balance sheet date that require adjustment to, or disclosure in, the financial statements.

BThere are no significant deficiencies in internal control identified during the prior-year's audit of which those charged with governance are unaware.

CWe do not intend to provide any information that may be construed to constitute a waiver of the attorney-client privilege.

DCertain computer files and other required audit evidence may exist only for a short period of time and only in computer-readable form.

Answer : A

Choice 'a' is correct. It is appropriate for the representation letter to contain a statement regarding subsequent events.

Choice 'b' is incorrect. The representation letter typically includes information in four categories: financial statements; completeness; recognition, measurement, and disclosure; and subsequent events.

The communication of significant deficiencies in internal control does not fall within these categories.

Choice 'c' is incorrect. The representation letter typically includes information in four categories: financial statements; completeness; recognition, measurement, and disclosure; and subsequent events.

A waiver of attorney-client privilege does not fall within these categories.

Choice 'd' is incorrect. While this may be an accurate statement, it is not something that would be included in the management representation letter. The representation letter typically includes information in four categories: financial statements; completeness; recognition, measurement, and disclosure; and subsequent events.

Question 7

Which of the following factors most likely would cause an auditor to question the integrity of management?

AManagement has an aggressive attitude toward financial reporting and meeting profit goals.

BAudit tests detect material fraud that was known to management, but not disclosed to the auditor.

CManagerial decisions are dominated by one person who is also a stockholder.

DWeaknesses in internal control reported to the audit committee are not corrected by management.

Answer : B

Choice 'b' is correct. Management is required to disclose all material matters to the independent auditor, including information concerning material frauD. This disclosure is so important that it is included in writing, in the management representation letter. Failure of management to disclose material fraud to the auditor would cause the auditor to question management's integrity and perhaps even to withdraw from the engagement.

Choice 'a' is incorrect. While management's aggressive attitude certainly constitutes a fraud risk, this alone would not necessarily cause the auditor to question management's integrity. It is possible for management to be both aggressive and ethical.

Choice 'c' is incorrect. While the domination of management by a stockholder certainly constitutes a fraud risk, this alone would not necessarily cause the auditor to question management's integrity. It is possible for management to be an ethical shareholder.

Choice 'd' is incorrect. Failure to correct a known weakness in internal control may be a conscious decision based on the cost and benefit involved with making the correction. Such decisions do not imply that management lacks integrity.

AICPA CPA-Auditing CPA Auditing and Attestation CPA Exam Practice Test