AICPA CPA-Auditing CPA Exam Practice Test Instant Access

Question 1

In evaluating an entity's accounting estimates, one of the auditor's objectives is to determine whether the estimates are:

APrepared in a satisfactory control environment.

BConsistent with industry guidelines.

CBased on verifiable objective assumptions.

DReasonable in the circumstances.

Answer : D

Choice 'd' is correct. The auditor has four responsibilities with respect to evaluating estimates: to assess management's practices, to verify that all material estimates have been developed, to determine that accounting estimates are reasonable, and to ensure that accounting estimates are properly recorded and disclosed.

Choice 'a' is incorrect. With respect to accounting estimates, the auditor would only be concerned with the entity's control environment in terms of assessing management's policies and practices. It might be the case that the control environment is less than satisfactory, but as long as management has taken this into account, and has properly developed, presented, and disclosed all material estimates, the poor control environment is irrelevant.

Choice 'b' is incorrect. The auditor is concerned with making sure that management has properly developed, presented, and disclosed all material estimates. Whether or not those estimates are consistent with industry guidelines is not a concern, as long as the estimates are reasonable in the circumstances.

Choice 'c' is incorrect. Estimates need not be based on verifiable objective assumptions. In fact, many estimates are subjective, and can be susceptible to misstatement. The auditor should evaluate whether management has properly developed, presented, and disclosed all material estimates.

Question 2

A limitation on the scope of an auditor's examination sufficient to preclude an unqualified opinion will always result when management:

AEngages the auditor after the year-end physical inventory count is completed.

BFails to correct a material internal control weakness that had been identified during the prior year's audit.

CRefuses to furnish a management representation letter to the auditor.

DPrevents the auditor from reviewing the audit documentation of the predecessor auditor.

Answer : C

Choice 'c' is correct. Management's refusal to furnish a written representation letter constitutes a limitation on the scope sufficient to preclude an unqualified opinion.

Choice 'a' is incorrect. Engaging the auditor after the year-end physical count is completed need not preclude an unqualified opinion if the auditor can apply satisfactory alternative audit procedures.

Choice 'b' is incorrect. Failure to correct a material internal accounting control weakness that had been identified during the prior year's audit need not preclude an unqualified opinion, although it may require the auditor to apply extended auditing procedures.

Choice 'd' is incorrect. Inability to review the predecessor's prior year audit documentation may cause the successor auditor more work but need not preclude an unqualified opinion in the current year.

Question 3

An entity's internal control requires for every check request that there be an approved voucher, supported by a prenumbered purchase order and a prenumbered receiving report. To determine whether checks are being issued for unauthorized expenditures, an auditor most likely would select items for testing from the population of all:

APurchase orders.

BCanceled checks.

CReceiving reports.

DApproved vouchers.

Answer : B

Choice 'b' is correct. To determine whether checks are being issued for unauthorized expenditures, the auditor is most likely to select from the population of canceled checks. For each check, the auditor would then look for evidence supporting the payment, such as a purchase order, a receiving report, and an approved invoice.

Choice 'a' is incorrect. If the auditor selected from the population of purchase orders, he or she would never find those check requests that were missing the purchase orders. Without purchase orders, the expenditures would be considered unauthorized.

Choice 'c' is incorrect. If the auditor selected from the population of receiving reports, he or she would never find those check requests that were missing the receiving reports. Without receiving reports, the expenditures would be considered unauthorized.

Choice 'd' is incorrect. If the auditor selected from the population of approved vouchers, he or she would never find those check requests that were missing the approved vouchers. Without approved vouchers, the expenditures would be considered unauthorized.

Question 4

Which of the following controls would an entity most likely use in safeguarding against the loss of marketable securities?

AAn independent trust company that has no direct contact with the employees who have recordkeeping responsibilities has possession of the securities.

BThe internal auditor verifies the marketable securities in the entity's safe each year on the balance sheet date.

CThe independent auditor traces all purchases and sales of marketable securities through the subsidiary ledgers to the general ledger.

DA designated member of the board of directors controls the securities in a bank safe-deposit box.

Answer : A

Choice 'a' is correct. The control most likely to be used by an entity in safeguarding against the loss of marketable securities is that an independent trust company that has no direct contact with the employees who have recordkeeping responsibilities, has possession of the securities. For good internal control over the safeguarding of any asset, the individual who has the recordkeeping responsibilities over that asset should never have access to it.

Choice 'b' is incorrect. Verifying the securities held in the entity's safe would detect that the loss occurred, but it would not prevent the loss.

Choice 'c' is incorrect. Tracing purchases and sales of marketable securities would verify that the transactions were properly recorded, but would not safeguard against loss.

Choice 'd' is incorrect. Having one person control the securities in a bank safe-deposit box is a weakness in internal control because that one person can steal the securities. A better system requires that at least two employees have joint control over the securities in a bank safe-deposit box.

Question 5

In considering materiality for planning purposes, an auditor believes that misstatements aggregating $10,000 would have a material effect on an entity's income statement, but that misstatements would have to aggregate $20,000 to materially affect the balance sheet. Ordinarily, it would be appropriate to design auditing procedures that would be expected to detect misstatements that aggregate:

A$10,000

B$15,000

C$20,000

D$30,000
Explanation
Choice 'a' is correct. Because the statements are interrelated, the auditor ordinarily considers materiality for planning purposes in terms of the smallest aggregate level of misstatement that could be considered material to any one of the financial statements.
Choices 'b', 'c', and 'd' are incorrect, based on the above explanation.

Answer : A

Question 6

In which of the following circumstances would an auditor most likely add an explanatory paragraph to the standard report while not affecting the auditor's unqualified opinion?

AThe auditor is asked to report on the balance sheet, but not on the other basic financial statements.

BThere is substantial doubt about the entity's ability to continue as a going concern.

CManagement's estimates of the effects of future events are unreasonable.

DCertain transactions cannot be tested because of management's records retention policy.

Answer : B

Choice 'b' is correct. If, after considering identified conditions and events and management's plans, the auditor concludes that substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time remains, the audit report should include an explanatory paragraph to reflect that conclusion.

Choice 'a' is incorrect. Reporting on just the balance sheet is acceptable provided access to financial information is not limited. Such reporting does not require an explanatory paragraph.

Choice 'c' is incorrect. If the auditor concludes that management's estimate is unreasonable and that its effect is to cause the financial statements to be materially misstated, the auditor should express a qualified or an adverse opinion.

Choice 'd' is incorrect. Restrictions on the scope of the audit, whether imposed by the client or by circumstances, may require the auditor to qualify or to disclaim an opinion.

Question 7

An auditor generally tests the segregation of duties related to inventory by:

APersonal inquiry and observation.

BTest counts and cutoff procedures.

CAnalytical procedures and invoice recomputation.

DDocument inspection and reconciliation.

Answer : A

Choice 'a' is correct. The independent auditor's direct personal knowledge, based on personal inquiry and observation, are auditing procedures commonly used to test segregation of duties.

Choice 'b' is incorrect. Test counts and cutoff procedures represent substantive tests, and they would not be used to test segregation of duties.

Choice 'c' is incorrect. Analytical procedures and invoice recomputation represent substantive tests, and they would not be used to test segregation of duties.

Choice 'd' is incorrect. Document inspection and reconciliation represent substantive tests, and they would not be used to test segregation of duties.

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