2016 auditing AICPA released questions moderate

AUD 2016 AICPA Released Questions Level: Moderate 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 1 Which of the following procedures is an accountant required to perform before issuing a compilation report under Statements on Standards for Accounting and Review Services (SSARS)? Make inquiries of third parties regarding liabilities that appear in the financial statements Read the financial statements and consider whether such financial statements appear to be free from obvious material errors Obtain a letter supporting management representations in the financial statements Review account balances for material changes subsequent to the year end Which of the following engagements may an accountant or practitioner perform when there is a lack of independence? Compilation Agreed-upon procedures Review Attestation Which of the following ultimately determines the sufficiency and appropriateness of audit evidence to support the auditor's conclusions? Professional requirements Professional standards Professional experience Professional judgment 2016 AICPA Released Questions - Auditing & Attestation (Moderate) - www.ninjacpareview.com Which of the following procedures is an accountant required to perform before issuing a compilation report under Statements on Standards for Accounting and Review Services (SSARS)? Make inquiries of third parties regarding liabilities that appear in the financial statements Read the financial statements and consider whether such financial statements appear to be free from obvious material errors Obtain a letter supporting management representations in the financial statements Review account balances for material changes subsequent to the year end Which of the following engagements may an accountant or practitioner perform when there is a lack of independence? Compilation Agreed-upon procedures Review Attestation Which of the following ultimately determines the sufficiency and appropriateness of audit evidence to support the auditor's conclusions? Professional requirements Professional standards Professional experience Professional judgment 2016 AICPA Released Questions - Auditing & Attestation (Moderate) - www.ninjacpareview.com Which of the following assertions is most closely related to the audit objective to verify that all sales have been recorded? Completeness Occurrence Accuracy Cutoff Which of the following best identifies the effect of an increase in the risk of material misstatement on detection risk and the extent of substantive procedures? The acceptable level of detection risk decreases, and the extent of substantive procedures increases The acceptable level of detection risk increases, and the extent of substantive procedures increases The acceptable level of detection risk decreases, and the extent of substantive procedures decreases The acceptable level of detection risk increases, and the extent of substantive procedures decreases Which of the following is an analytical procedure? Comparing current-year balances to prior-year balances Matching sales invoices to shipping documents Confirming accounts receivable Making inquiries of client management 2016 AICPA Released Questions - Auditing & Attestation (Moderate) - www.ninjacpareview.com Which of the following assertions is most closely related to the audit objective to verify that all sales have been recorded? Completeness Occurrence Accuracy Cutoff Which of the following best identifies the effect of an increase in the risk of material misstatement on detection risk and the extent of substantive procedures? The acceptable level of detection risk decreases, and the extent of substantive procedures increases The acceptable level of detection risk increases, and the extent of substantive procedures increases The acceptable level of detection risk decreases, and the extent of substantive procedures decreases The acceptable level of detection risk increases, and the extent of substantive procedures decreases Which of the following is an analytical procedure? Comparing current-year balances to prior-year balances Matching sales invoices to shipping documents Confirming accounts receivable Making inquiries of client management 2016 AICPA Released Questions - Auditing & Attestation (Moderate) - www.ninjacpareview.com An entity has an internal audit staff that the independent auditor assessed to be both competent and objective Which of the following statements is correct about the independent auditor's use of the internal auditors to provide direct assistance in performing tests of controls? The auditor cannot rely on any of the work of the internal auditors The internal auditors should not be performing any audit procedures that the auditor is able to perform The auditor can use internal auditors to assess control risk, but cannot rely on their tests of controls The auditor should supervise, review, evaluate, and test the work performed by the internal auditors Which of the following activities would be most helpful to a CPA in deciding whether to accept a new audit client? Reviewing industry benchmarking data Considering the client's compensation methods Evaluating the CPA's ability to properly service the client Evaluating the most recent peer review of the client's previous auditor Which of the following statements correctly describes the "top-down approach" used during an audit of internal control over financial reporting? Begin reviewing balance sheet accounts and then review income statement accounts Begin reviewing income statement accounts and then review balance sheet accounts Begin by understanding the overall risks to internal control over financial reporting at the financial statement level Begin by understanding the overall risks to internal control over financial reporting at the general ledger level 2016 AICPA Released Questions - Auditing & Attestation (Moderate) - www.ninjacpareview.com An entity has an internal audit staff that the independent auditor assessed to be both competent and objective Which of the following statements is correct about the independent auditor's use of the internal auditors to provide direct assistance in performing tests of controls? The auditor cannot rely on any of the work of the internal auditors The internal auditors should not be performing any audit procedures that the auditor is able to perform The auditor can use internal auditors to assess control risk, but cannot rely on their tests of controls The auditor should supervise, review, evaluate, and test the work performed by the internal auditors Which of the following activities would be most helpful to a CPA in deciding whether to accept a new audit client? Reviewing industry benchmarking data Considering the client's compensation methods Evaluating the CPA's ability to properly service the client Evaluating the most recent peer review of the client's previous auditor Which of the following statements correctly describes the "top-down approach" used during an audit of internal control over financial reporting? Begin reviewing balance sheet accounts and then review income statement accounts Begin reviewing income statement accounts and then review balance sheet accounts Begin by understanding the overall risks to internal control over financial reporting at the financial statement level Begin by understanding the overall risks to internal control over financial reporting at the general ledger level 2016 AICPA Released Questions - Auditing & Attestation (Moderate) - www.ninjacpareview.com 10 Each of the following items should be included in a presentation of pro forma financial statements, except The significant assumptions used in developing the pro forma information The source of the historical information on which the pro forma information is based An indication that the pro forma information is not necessarily indicative of results All direct and indirect effects attributed to the related transaction 11 What standards are applicable for a compilation of a nonissuer? Statements on Auditing Standards Statements on Standards for Accounting and Review Services (SSARS) Statements on Standards for Attestation Engagements (SSAE) Generally accepted auditing standards (GAAS) 12 An auditor of a nonissuer exercising professional skepticism with respect to the risks of material misstatement due to fraud will most appropriately Adopt an attitude of acceptance unless evidence indicates otherwise Authenticate documents used as audit evidence Consider the reliability of information to be used as audit evidence Assess the entity's document-retention controls before using documents as audit evidence 2016 AICPA Released Questions - Auditing & Attestation (Moderate) - www.ninjacpareview.com 10 Each of the following items should be included in a presentation of pro forma financial statements, except The significant assumptions used in developing the pro forma information The source of the historical information on which the pro forma information is based An indication that the pro forma information is not necessarily indicative of results All direct and indirect effects attributed to the related transaction 11 What standards are applicable for a compilation of a nonissuer? Statements on Auditing Standards Statements on Standards for Accounting and Review Services (SSARS) Statements on Standards for Attestation Engagements (SSAE) Generally accepted auditing standards (GAAS) 12 An auditor of a nonissuer exercising professional skepticism with respect to the risks of material misstatement due to fraud will most appropriately Adopt an attitude of acceptance unless evidence indicates otherwise Authenticate documents used as audit evidence Consider the reliability of information to be used as audit evidence Assess the entity's document-retention controls before using documents as audit evidence 2016 AICPA Released Questions - Auditing & Attestation (Moderate) - www.ninjacpareview.com 13 If an auditor of an issuer examines purchase orders obtained from the issuer to verify proper authorization of transactions, then the auditor is conducting A reperformance A confirmation An observation An inspection 14 In a financial statement audit of a nonissuer, an auditor would consider a judgmental misstatement to be a misstatement that Involves an estimate Exists because of non-statistical sampling performed by the auditor Arises from a flaw in the accounting system Arises from a routine calculation 15 Which of the following statements is correct with respect to fraud encountered during an audit engagement of a nonissuer? The distinguishing factor between fraud and error is the materiality of the transaction involved An auditor who initially detects fraud ultimately makes the legal determination of whether fraud has actually occurred Fraudulent financial reporting can include the unintentional misstatement of amounts or disclosures in financial statements It is often difficult to detect fraudulent intent in matters involving accounting estimates and the application of accounting principles 2016 AICPA Released Questions - Auditing & Attestation (Moderate) - www.ninjacpareview.com 13 If an auditor of an issuer examines purchase orders obtained from the issuer to verify proper authorization of transactions, then the auditor is conducting A reperformance A confirmation An observation An inspection 14 In a financial statement audit of a nonissuer, an auditor would consider a judgmental misstatement to be a misstatement that Involves an estimate Exists because of non-statistical sampling performed by the auditor Arises from a flaw in the accounting system Arises from a routine calculation 15 Which of the following statements is correct with respect to fraud encountered during an audit engagement of a nonissuer? The distinguishing factor between fraud and error is the materiality of the transaction involved An auditor who initially detects fraud ultimately makes the legal determination of whether fraud has actually occurred Fraudulent financial reporting can include the unintentional misstatement of amounts or disclosures in financial statements It is often difficult to detect fraudulent intent in matters involving accounting estimates and the application of accounting principles 2016 AICPA Released Questions - Auditing & Attestation (Moderate) - www.ninjacpareview.com 16.A senior auditor conducted a dual-purpose test on a client's invoice to determine whether the invoice was approved and to ascertain the amount and other terms of the invoice Which of the following lists two tests that the auditor performed? Substantive procedures and analytical procedures Substantive analytical procedures and tests of controls Tests of controls and tests of details Tests of details and substantive procedures 17 Manual controls would most likely be more suitable than automated controls for which of the following? Large, unusual, or nonrecurring transactions High-volume transactions that require additional calculations Situations with routine errors that can be predicted and corrected Circumstances that require a high degree of accuracy 18 According to the PCAOB, each of the following statements is true with respect to the auditor's responsibility to communicate material weaknesses in internal control over financial reporting, except: All such weaknesses must be communicated in writing to the audit committee All such weaknesses must be communicated in writing to management All such weaknesses must be communicated prior to the issuance of the auditor's report on internal control over financial reporting All such weaknesses must be communicated in writing to all stockholders 2016 AICPA Released Questions - Auditing & Attestation (Moderate) - www.ninjacpareview.com 16.A senior auditor conducted a dual-purpose test on a client's invoice to determine whether the invoice was approved and to ascertain the amount and other terms of the invoice Which of the following lists two tests that the auditor performed? Substantive procedures and analytical procedures Substantive analytical procedures and tests of controls Tests of controls and tests of details Tests of details and substantive procedures 17 Manual controls would most likely be more suitable than automated controls for which of the following? Large, unusual, or nonrecurring transactions High-volume transactions that require additional calculations Situations with routine errors that can be predicted and corrected Circumstances that require a high degree of accuracy 18 According to the PCAOB, each of the following statements is true with respect to the auditor's responsibility to communicate material weaknesses in internal control over financial reporting, except: All such weaknesses must be communicated in writing to the audit committee All such weaknesses must be communicated in writing to management All such weaknesses must be communicated prior to the issuance of the auditor's report on internal control over financial reporting All such weaknesses must be communicated in writing to all stockholders 2016 AICPA Released Questions - Auditing & Attestation (Moderate) - www.ninjacpareview.com 19 According to SEC regulations, each of the following non-audit services will impair an auditor's independence, except Designing a management information system that aggregates source data underlying the financial statements Performing an internal audit function Preparing the audit client's financial statements that are filed with the SEC Preparing the audit client's tax return 20 At least how often should the PCAOB inspect a registered public accounting firm that regularly issues audit reports to 50 issuers? Annually Every two years Every three years As requested by the firm 21 According to the IFAC Code of Ethics for Professional Accountants, in deciding whether to disclose confidential information, the professional accountant should consider which of the following relevant factors? The time period to which the information relates Whether the anticipated recipients are appropriate and the type of communication that is expected Whether the information was obtained directly or indirectly and if it will benefit the recipient Whether the information was obtained performing a paid service 2016 AICPA Released Questions - Auditing & Attestation (Moderate) - www.ninjacpareview.com 19 According to SEC regulations, each of the following non-audit services will impair an auditor's independence, except Designing a management information system that aggregates source data underlying the financial statements Performing an internal audit function Preparing the audit client's financial statements that are filed with the SEC Preparing the audit client's tax return 20 At least how often should the PCAOB inspect a registered public accounting firm that regularly issues audit reports to 50 issuers? Annually Every two years Every three years As requested by the firm 21 According to the IFAC Code of Ethics for Professional Accountants, in deciding whether to disclose confidential information, the professional accountant should consider which of the following relevant factors? The time period to which the information relates Whether the anticipated recipients are appropriate and the type of communication that is expected Whether the information was obtained directly or indirectly and if it will benefit the recipient Whether the information was obtained performing a paid service 2016 AICPA Released Questions - Auditing & Attestation (Moderate) - www.ninjacpareview.com 22 When an accountant compiles a client's financial statements accompanied by supplemental information, which of the following is a required element of the accountant's separate report on the supplemental information? A statement that the information has been compiled from information that is the representation of management without audit or review A list of the procedures performed by the accountant during the compilation A statement that the accountant did not become aware of any material modifications that should be made to the information A confirmation of the independence of the accountant with respect to the information presented 23 According to the AICPA Code of Professional Conduct, what would a covered member most appropriately upon learning that another member of an attest engagement team is considering employment with the client? Notify an appropriate person in the firm Disassociate from the engagement Report the situation to the client's board of directors Advise the engagement partner to withdraw the firm from the engagement 24 Which of the following best describes the earliest date for an auditor's report? The last day of audit field work The date all audit procedures have been completed and the audit file has been assembled The date audit documentation was completed The date the auditor has obtained sufficient appropriate audit evidence to support the opinion 25 When an auditor of a parent nonissuer is also the auditor of a component, then each of the following factors would ordinarily influence the decision to obtain a separate engagement letter from the component, except The legal requirements regarding the appointment of the auditor Whether a separate audit report is to be issued on the component Whether there has been any turnover of the component's board members The degree of independence of the component management from the parent entity 2016 AICPA Released Questions - Auditing & Attestation (Moderate) - www.ninjacpareview.com 22 When an accountant compiles a client's financial statements accompanied by supplemental information, which of the following is a required element of the accountant's separate report on the supplemental information? A statement that the information has been compiled from information that is the representation of management without audit or review A list of the procedures performed by the accountant during the compilation A statement that the accountant did not become aware of any material modifications that should be made to the information A confirmation of the independence of the accountant with respect to the information presented 23 According to the AICPA Code of Professional Conduct, what would a covered member most appropriately upon learning that another member of an attest engagement team is considering employment with the client? Notify an appropriate person in the firm Disassociate from the engagement Report the situation to the client's board of directors Advise the engagement partner to withdraw the firm from the engagement 24 Which of the following best describes the earliest date for an auditor's report? The last day of audit field work The date all audit procedures have been completed and the audit file has been assembled The date audit documentation was completed The date the auditor has obtained sufficient appropriate audit evidence to support the opinion 25 When an auditor of a parent nonissuer is also the auditor of a component, then each of the following factors would ordinarily influence the decision to obtain a separate engagement letter from the component, except The legal requirements regarding the appointment of the auditor Whether a separate audit report is to be issued on the component Whether there has been any turnover of the component's board members The degree of independence of the component management from the parent entity 2016 AICPA Released Questions - Auditing & Attestation (Moderate) - www.ninjacpareview.com ... Professional standards Professional experience Professional judgment 2016 AICPA Released Questions - Auditing & Attestation (Moderate) - www.ninjacpareview.com Which of the following procedures... Professional standards Professional experience Professional judgment 2016 AICPA Released Questions - Auditing & Attestation (Moderate) - www.ninjacpareview.com Which of the following assertions... Confirming accounts receivable Making inquiries of client management 2016 AICPA Released Questions - Auditing & Attestation (Moderate) - www.ninjacpareview.com Which of the following assertions