2015 auditing AICPA released questions difficult

    AUD 2015 AICPA Released Questions  Testlet 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 Certified Public Accountants and is licensed to NINJA CPA Review for use by its customers only Answers are on page 14 Which of the following statements correctly defines the term reasonable assurance? A substantial level of assurance to allow an auditor to detect a material misstatement A significant level of assurance to allow an auditor to detect a material misstatement An absolute level of assurance to allow an auditor to detect a material misstatement A high, but not absolute, level of assurance to allow an auditor to detect a material misstatement 1  AUD 2015: Difficult                                                                           www.another71.com    A practitioner may perform an agreed-upon procedures engagement on prospective financial statements provided that which of the following is met? Use of the agreed-upon procedures report is not restricted The practitioner sets the criteria to be used in the determination of findings The client agrees that the practitioner will decide appropriate procedures to be performed The prospective financial statements include a summary of significant assumptions If the predecessor auditor refuses to give the current auditor of a nonissuer access to the documentation, what should the current auditor do? Review the risk assessment of the opening balances of the financial statements Withdraw from the engagement Disclaim an opinion due to a scope limitation Discuss the matter with the client's legal counsel 2  AUD 2015: Difficult                                                                           www.another71.com    Analytical procedures used in planning an audit should focus on: Identifying material weaknesses in internal control Enhancing the auditor's understanding of the client's business Testing individual account balances that depend on accounting estimates Evaluating the adequacy of the evidence gathered concerning unusual balances If an auditor is obtaining an understanding of an issuer's information and communication component of internal control, which of the following factors should the auditor assess? The integrity and ethical values of top management The philosophy and operating style of management to promote effective internal control over financial reporting The classes of transactions in the issuer's operations that are significant to the issuer's financial statements The oversight responsibility over financial reporting and internal control by the board or audit committee 3  AUD 2015: Difficult                                                                           www.another71.com    Which of the following is not a role of the risk assessment in an integrated audit of a nonissuer? Concluding on the effectiveness of a given control Selecting controls to test Determining significant accounts and relevant assertions Determining evidence necessary to conclude on the effectiveness of a given control Which of the following situations represents a limitation, rather than a failure, of internal control? A jewelry store employee steals a small necklace from a display cabinet A bank teller embezzles several hundred dollars from the cash drawer A purchasing employee and an outside vendor participate in a kickback scheme A movie theater cashier sells reduced-price tickets to full-paying customers and pockets the difference 4  AUD 2015: Difficult                                                                           www.another71.com    An audit client has substantial assets held in a trust that is managed by the trust department of a bank Which of the following actions by the auditor is the most efficient way to obtain information about the trust department's internal controls? Perform a review or compilation of the trust department Perform tests of controls on a sample of the client's transactions with the trust department Rely on the trust department's audit report on internal controls placed in operation and their operating effectiveness Ask management of the trust department to complete a questionnaire about internal controls and provide flowcharts for related processes Which of the following levels would most likely address the risk of material misstatement by the auditor's consideration of an entity's control environment? Financial statements Disclosures Classes of transactions Specific account balances 5  AUD 2015: Difficult                                                                           www.another71.com    10 In addition to descriptions of the nature, timing, and extent of planned risk assessment procedures and planned further audit procedures, which of the following additional pieces of information should be documented in the audit plan? Procedures performed to assess independence and the ability to perform the engagement The understanding of the terms of the engagement, including scope, fees, and resource allocation Other audit procedures to be performed to comply with generally accepted auditing standards Issues with management integrity that could affect the decision to continue the audit engagement 11 An audit team has concluded that inventory is highly susceptible to misappropriation and that a potential misstatement would be material to the financial statements How should the audit team address the audit procedures to the increased risk? Review the client's control procedures over the safeguarding of inventory, and perform a physical inventory count on the last day of the current year Review the client's control procedures over the safeguarding of inventory, incorporate the use of substantive analytical procedures, and develop an expectation Review the client's control procedures over the safeguarding of inventory, but not modify substantive procedures over inventory Review the client's control procedures over the safeguarding of inventory, and perform physical inventory counts throughout the current year 6  AUD 2015: Difficult                                                                           www.another71.com    12 When planning an engagement to examine the effectiveness of the entity's internal control in an integrated audit of a nonissuer, a practitioner would least likely consider which of the following factors? Preliminary judgments about the effectiveness of internal control The extent of recent changes in the entity and its operations The type of available evidential matter pertaining to the effectiveness of the entity's internal control The evaluation of the operating effectiveness of the controls 13 In the audit of a nonissuer, which of the following statements is correct regarding the use of external confirmations to obtain audit evidence? Management's refusal to allow an auditor to perform external confirmation procedures is considered a departure from GAAP sufficient to qualify the opinion Negative confirmations provide more persuasive audit evidence than positive confirmations Negative confirmations should be used only if a very high exception rate is expected A factor for an auditor to consider when designing confirmation requests is the assertion being tested 7  AUD 2015: Difficult                                                                           www.another71.com    14 After performing a compliance audit of an entity that received federal funds, what conclusion would the auditor draw if the entity does not have adequate documentation to support $5 million in operating expenses paid from federal program funds? The entity spent $5 million in operating expenses that were not approved Questioned costs of $5 million for operating expenses have been identified The entity spent $5 million of government funds for services that were not required The entity submitted unauthorized invoices for expenses 15 An auditor of a nonissuer is most likely to conclude that a misstatement identified during an audit that is below the quantitative materiality limit is qualitatively material if it Changes the company's operating results from a net loss to a net income Arises from a transaction cycle with controls that were determined to be operating effectively Is the first time a misstatement has arisen from the relevant transaction cycle Decreases management's incentive compensation for the period 8  AUD 2015: Difficult                                                                           www.another71.com    16 What is the maximum number of days in which a nonissuer's auditor should complete the assembly of the final audit file following the report release date? 30 days 45 days 60 days 75 days 17 In an integrated audit of a nonissuer, if an auditor concludes that a material weakness exists as of the date specified in management's assertion, the auditor should take which of the following actions? Obtain written representations from management relating to such matters Communicate, in writing, to the entity's outside legal counsel that the material weakness exists Issue an adverse opinion Disclaim an opinion 9  AUD 2015: Difficult                                                                           www.another71.com    18 A nonissuer requests that a CPA change an audit engagement to a review engagement If the accountant agrees to the change, how, if at all, should the accountant's review report be modified? The accountant should issue the review report without mentioning the change in engagement The accountant should include in the review report a disclaimer of an audit opinion The accountant should include in the review report the circumstances that resulted in the change in engagement The accountant should include in the review report a reference to the original engagement but not the reason for the change 19 Which of the following procedures regarding notes payable would an accountant most likely perform during a nonissuer's review engagement? Confirming the year-end outstanding note payable balance with the lender Examining records indicating proper authorization of the notes payable Making inquiries of management regarding maturities, interest rate, and collateral Documenting control procedures for payment calculations of the notes' principal and interest 10  AUD 2015: Difficult                                                                           www.another71.com    22 According to the AICPA Code of Professional Conduct, which of the following activities results in an act discreditable to the profession? A CPA solicits recent Uniform CPA Examination questions without written authorization from the AICPA A CPA signs a document containing immaterial false and misleading information, or permits or directs another CPA to so A CPA who is engaged to perform a government audit neglects to follow certain government auditing requirements and discloses in the audit report the fact that such requirements were not followed and the reasons for it A CPA fails to give a client copies of the CPA's workpapers related to a completed and issued work product upon the client's request because the client has not paid fees payable to the CPA for the work product 23 An issuer's auditor is prohibited from providing tax services to which of the following individuals? The chair of the board of directors The chair of the audit committee The CEO The CFO of an affiliate of the issuer audited by another firm 12  AUD 2015: Difficult                                                                           www.another71.com    24 Each of the following is an ethical principle that should guide the work of auditors in the conduct of audits under government auditing standards, except Materiality Integrity The public interest Proper use of government information 25 According to the IFAC Code of Ethics for Professional Accountants, audit teams are required to be independent of the audit client during the engagement period and during which other period? The fiscal year following the period covered by the financial statements The period covered by the financial statements The calendar years that include any part of the period covered by the financial statements The two years prior to the period covered by the financial statements 13  AUD 2015: Difficult                                                                           www.another71.com    Answers: Which of the following statements correctly defines the term reasonable assurance? A substantial level of assurance to allow an auditor to detect a material misstatement A significant level of assurance to allow an auditor to detect a material misstatement An absolute level of assurance to allow an auditor to detect a material misstatement A high, but not absolute, level of assurance to allow an auditor to detect a material misstatement A practitioner may perform an agreed-upon procedures engagement on prospective financial statements provided that which of the following is met? Use of the agreed-upon procedures report is not restricted The practitioner sets the criteria to be used in the determination of findings The client agrees that the practitioner will decide appropriate procedures to be performed The prospective financial statements include a summary of significant assumptions 14  AUD 2015: Difficult                                                                           www.another71.com    If the predecessor auditor refuses to give the current auditor of a nonissuer access to the documentation, what should the current auditor do? Review the risk assessment of the opening balances of the financial statements Withdraw from the engagement Disclaim an opinion due to a scope limitation Discuss the matter with the client's legal counsel 15  AUD 2015: Difficult                                                                           www.another71.com    Analytical procedures used in planning an audit should focus on: Identifying material weaknesses in internal control Enhancing the auditor's understanding of the client's business Testing individual account balances that depend on accounting estimates Evaluating the adequacy of the evidence gathered concerning unusual balances If an auditor is obtaining an understanding of an issuer's information and communication component of internal control, which of the following factors should the auditor assess? The integrity and ethical values of top management The philosophy and operating style of management to promote effective internal control over financial reporting The classes of transactions in the issuer's operations that are significant to the issuer's financial statements The oversight responsibility over financial reporting and internal control by the board or audit committee 16  AUD 2015: Difficult                                                                           www.another71.com    Which of the following is not a role of the risk assessment in an integrated audit of a nonissuer? Concluding on the effectiveness of a given control Selecting controls to test Determining significant accounts and relevant assertions Determining evidence necessary to conclude on the effectiveness of a given control Which of the following situations represents a limitation, rather than a failure, of internal control? A jewelry store employee steals a small necklace from a display cabinet A bank teller embezzles several hundred dollars from the cash drawer A purchasing employee and an outside vendor participate in a kickback scheme A movie theater cashier sells reduced-price tickets to full-paying customers and pockets the difference 17  AUD 2015: Difficult                                                                           www.another71.com    An audit client has substantial assets held in a trust that is managed by the trust department of a bank Which of the following actions by the auditor is the most efficient way to obtain information about the trust department's internal controls? Perform a review or compilation of the trust department Perform tests of controls on a sample of the client's transactions with the trust department Rely on the trust department's audit report on internal controls placed in operation and their operating effectiveness Ask management of the trust department to complete a questionnaire about internal controls and provide flowcharts for related processes Which of the following levels would most likely address the risk of material misstatement by the auditor's consideration of an entity's control environment? Financial statements Disclosures Classes of transactions Specific account balances 18  AUD 2015: Difficult                                                                           www.another71.com    10 In addition to descriptions of the nature, timing, and extent of planned risk assessment procedures and planned further audit procedures, which of the following additional pieces of information should be documented in the audit plan? Procedures performed to assess independence and the ability to perform the engagement The understanding of the terms of the engagement, including scope, fees, and resource allocation Other audit procedures to be performed to comply with generally accepted auditing standards Issues with management integrity that could affect the decision to continue the audit engagement 11 An audit team has concluded that inventory is highly susceptible to misappropriation and that a potential misstatement would be material to the financial statements How should the audit team address the audit procedures to the increased risk? Review the client's control procedures over the safeguarding of inventory, and perform a physical inventory count on the last day of the current year Review the client's control procedures over the safeguarding of inventory, incorporate the use of substantive analytical procedures, and develop an expectation Review the client's control procedures over the safeguarding of inventory, but not modify substantive procedures over inventory Review the client's control procedures over the safeguarding of inventory, and perform physical inventory counts throughout the current year 19  AUD 2015: Difficult                                                                           www.another71.com    12 When planning an engagement to examine the effectiveness of the entity's internal control in an integrated audit of a nonissuer, a practitioner would least likely consider which of the following factors? Preliminary judgments about the effectiveness of internal control The extent of recent changes in the entity and its operations The type of available evidential matter pertaining to the effectiveness of the entity's internal control The evaluation of the operating effectiveness of the controls 13 In the audit of a nonissuer, which of the following statements is correct regarding the use of external confirmations to obtain audit evidence? Management's refusal to allow an auditor to perform external confirmation procedures is considered a departure from GAAP sufficient to qualify the opinion Negative confirmations provide more persuasive audit evidence than positive confirmations Negative confirmations should be used only if a very high exception rate is expected A factor for an auditor to consider when designing confirmation requests is the assertion being tested 20  AUD 2015: Difficult                                                                           www.another71.com    14 After performing a compliance audit of an entity that received federal funds, what conclusion would the auditor draw if the entity does not have adequate documentation to support $5 million in operating expenses paid from federal program funds? The entity spent $5 million in operating expenses that were not approved Questioned costs of $5 million for operating expenses have been identified The entity spent $5 million of government funds for services that were not required The entity submitted unauthorized invoices for expenses 15 An auditor of a nonissuer is most likely to conclude that a misstatement identified during an audit that is below the quantitative materiality limit is qualitatively material if it Changes the company's operating results from a net loss to a net income Arises from a transaction cycle with controls that were determined to be operating effectively Is the first time a misstatement has arisen from the relevant transaction cycle Decreases management's incentive compensation for the period 21  AUD 2015: Difficult                                                                           www.another71.com    16 What is the maximum number of days in which a nonissuer's auditor should complete the assembly of the final audit file following the report release date? 30 days 45 days 60 days 75 days 17 In an integrated audit of a nonissuer, if an auditor concludes that a material weakness exists as of the date specified in management's assertion, the auditor should take which of the following actions? Obtain written representations from management relating to such matters Communicate, in writing, to the entity's outside legal counsel that the material weakness exists Issue an adverse opinion Disclaim an opinion 22  AUD 2015: Difficult                                                                           www.another71.com    18 A nonissuer requests that a CPA change an audit engagement to a review engagement If the accountant agrees to the change, how, if at all, should the accountant's review report be modified? The accountant should issue the review report without mentioning the change in engagement The accountant should include in the review report a disclaimer of an audit opinion The accountant should include in the review report the circumstances that resulted in the change in engagement The accountant should include in the review report a reference to the original engagement but not the reason for the change 19 Which of the following procedures regarding notes payable would an accountant most likely perform during a nonissuer's review engagement? Confirming the year-end outstanding note payable balance with the lender Examining records indicating proper authorization of the notes payable Making inquiries of management regarding maturities, interest rate, and collateral Documenting control procedures for payment calculations of the notes' principal and interest 23  AUD 2015: Difficult                                                                           www.another71.com    20 When financial statements that an accountant has compiled in accordance with Statements on Standards for Accounting and Review Services omit substantially all disclosures required by generally accepted accounting principles, the accountant's report should include Management's justification for its decision to elect to omit substantially all the disclosures No modification of the standard compilation report because compilations not require disclosures that are required for audited financial statements Information alerting readers about omission of the disclosures and notification that the omission may influence the user's conclusions about the financial statements A separate paragraph in the compilation report stating that the financial statements are misleading due to the lack of disclosures by management 21 The standard accountant's report issued after reviewing the financial statements of a nonissuer in accordance with SSARS should state that the Accountant is not aware of any material modifications that should be made to the financial statements for them to be in conformity with GAAP Accountant does not express an opinion or any other form of assurance on the entity's internal control system Accountant has no responsibility to update the report for circumstances occurring after the date of the report Financial statements present fairly the entity's financial position and the results of its operations and cash flows in conformity with GAAP 24  AUD 2015: Difficult                                                                           www.another71.com    22 According to the AICPA Code of Professional Conduct, which of the following activities results in an act discreditable to the profession? A CPA solicits recent Uniform CPA Examination questions without written authorization from the AICPA A CPA signs a document containing immaterial false and misleading information, or permits or directs another CPA to so A CPA who is engaged to perform a government audit neglects to follow certain government auditing requirements and discloses in the audit report the fact that such requirements were not followed and the reasons for it A CPA fails to give a client copies of the CPA's workpapers related to a completed and issued work product upon the client's request because the client has not paid fees payable to the CPA for the work product 23 An issuer's auditor is prohibited from providing tax services to which of the following individuals? The chair of the board of directors The chair of the audit committee The CEO The CFO of an affiliate of the issuer audited by another firm 25  AUD 2015: Difficult                                                                           www.another71.com    24 Each of the following is an ethical principle that should guide the work of auditors in the conduct of audits under government auditing standards, except Materiality Integrity The public interest Proper use of government information 25 According to the IFAC Code of Ethics for Professional Accountants, audit teams are required to be independent of the audit client during the engagement period and during which other period? The fiscal year following the period covered by the financial statements The period covered by the financial statements The calendar years that include any part of the period covered by the financial statements The two years prior to the period covered by the financial statements 26  AUD 2015: Difficult                                                                           www.another71.com