2016 auditing AICPA released questions difficult

AUD 2016 AICPA Released Questions 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 1 An accountant's compilation report on a financial projection that does not contain a range should include a statement that There will usually be differences between the projected and actual results because events and circumstances frequently not occur as expected The compilation includes an evaluation of the support for the assumptions underlying the projection The accountant's responsibility to update the report for future events and circumstances is limited to one year The projection is limited to presenting, in the form of financial statements, information that is the accountant's representation The standard report issued by a CPA after reviewing the financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services (SSARS) should state that the CPA Assessed the accounting principles used and significant estimates made by management Has no responsibility to update the CPA's report for events and circumstances occurring after the report's date Is not aware of any material modifications that should be made to the financial statements Believes that there will usually be differences between the projected and actual results A practitioner reporting on pro forma financial information does not possess an understanding of the client's business and the industry in which the client operates The practitioner should take which of the following actions? Issue a disclaimer, because the scope of work was not sufficient to express an opinion Review industry trade journals Refer a substantial portion of the audit to another CPA who will act as the principal practitioner Perform ratio analysis of the financial data of comparable prior periods 2016 AICPA Released Questions - Auditing & Attestation (Difficult) - www.ninjacpareview.com An accountant's compilation report on a financial projection that does not contain a range should include a statement that There will usually be differences between the projected and actual results because events and circumstances frequently not occur as expected The compilation includes an evaluation of the support for the assumptions underlying the projection The accountant's responsibility to update the report for future events and circumstances is limited to one year The projection is limited to presenting, in the form of financial statements, information that is the accountant's representation The standard report issued by a CPA after reviewing the financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services (SSARS) should state that the CPA Assessed the accounting principles used and significant estimates made by management Has no responsibility to update the CPA's report for events and circumstances occurring after the report's date Is not aware of any material modifications that should be made to the financial statements Believes that there will usually be differences between the projected and actual results A practitioner reporting on pro forma financial information does not possess an understanding of the client's business and the industry in which the client operates The practitioner should take which of the following actions? Issue a disclaimer, because the scope of work was not sufficient to express an opinion Review industry trade journals Refer a substantial portion of the audit to another CPA who will act as the principal practitioner Perform ratio analysis of the financial data of comparable prior periods 2016 AICPA Released Questions - Auditing & Attestation (Difficult) - www.ninjacpareview.com A company engages a practitioner to assist the audit committee by performing specific procedures that were agreed to by the audit committee Which of the following statements is correct regarding the procedures to be performed? The procedures should be designed to allow the practitioner to provide negative assurance The practitioner should not involve the audit committee in determining what procedures are to be performed The practitioner has responsibility for the adequacy of the procedures to be performed The specific procedures performed should be listed in the practitioner's report to the audit committee Which of the following procedures would an auditor most likely perform to identify unusual sales transactions? Tracing credits in the accounts receivable ledger to source documentation Performing a trend analysis of quarterly sales Examining duplicate sales invoices for credit approval by the credit manager Tracing cash receipt entries to the bank statement deposit for amount and date Which of the following standards should a CPA firm apply in a review of pro forma financial information? Statements on Standards for Attestation Engagements Statements on Standards for Consulting Services Statements on Standards for Accounting and Review Services Generally accepted auditing standards 2016 AICPA Released Questions - Auditing & Attestation (Difficult) - www.ninjacpareview.com A company engages a practitioner to assist the audit committee by performing specific procedures that were agreed to by the audit committee Which of the following statements is correct regarding the procedures to be performed? The procedures should be designed to allow the practitioner to provide negative assurance The practitioner should not involve the audit committee in determining what procedures are to be performed The practitioner has responsibility for the adequacy of the procedures to be performed The specific procedures performed should be listed in the practitioner's report to the audit committee Which of the following procedures would an auditor most likely perform to identify unusual sales transactions? Tracing credits in the accounts receivable ledger to source documentation Performing a trend analysis of quarterly sales Examining duplicate sales invoices for credit approval by the credit manager Tracing cash receipt entries to the bank statement deposit for amount and date Which of the following standards should a CPA firm apply in a review of pro forma financial information? Statements on Standards for Attestation Engagements Statements on Standards for Consulting Services Statements on Standards for Accounting and Review Services Generally accepted auditing standards 2016 AICPA Released Questions - Auditing & Attestation (Difficult) - www.ninjacpareview.com A company hired a practitioner to perform an examination of prospective financial statements The practitioner concluded that the assumptions did not provide a reasonable basis for the prospective financial statements Which of the following types of opinion should the practitioner issue? Unqualified Qualified Adverse Disclaimer Which of the following types of control best describes procedures to ensure appropriate systems software acquisition? Application Physical General Monitoring Considering only the provisions of the AICPA Code of Professional Conduct, which of the following services may a CPA perform for a commission or contingent fee? Preparation of an original income tax return Representation of a nonattest client in an IRS examination Preparation of an amended income tax return to claim a deduction that was inadvertently omitted on an originally filed return Performance of consulting services for an audit client 2016 AICPA Released Questions - Auditing & Attestation (Difficult) - www.ninjacpareview.com A company hired a practitioner to perform an examination of prospective financial statements The practitioner concluded that the assumptions did not provide a reasonable basis for the prospective financial statements Which of the following types of opinion should the practitioner issue? Unqualified Qualified Adverse Disclaimer Which of the following types of control best describes procedures to ensure appropriate systems software acquisition? Application Physical General Monitoring Considering only the provisions of the AICPA Code of Professional Conduct, which of the following services may a CPA perform for a commission or contingent fee? Preparation of an original income tax return Representation of a nonattest client in an IRS examination Preparation of an amended income tax return to claim a deduction that was inadvertently omitted on an originally filed return Performance of consulting services for an audit client 2016 AICPA Released Questions - Auditing & Attestation (Difficult) - www.ninjacpareview.com 10 How should differences of opinion between the engagement partner and the quality control reviewer be resolved? Preparation of an original income tax return Representation of a nonattest client in an IRS examination Preparation of an amended income tax return to claim a deduction that was inadvertently omitted on an originally filed return Performance of consulting services for an audit client 11 Based on new information gained during an audit of a nonissuer, an auditor determines that it is necessary to modify materiality for the financial statements as a whole In this circumstance, which of the following statements is accurate? The auditor is required to reperform audit procedures already completed on the audit using the revised materiality The auditor should consider disclaiming an opinion due to a scope limitation The revision of materiality at the financial statement levels will not affect the planned nature and timing of audit procedures, only the extent of those procedures Materiality levels for particular classes of transactions, account balances, or disclosures might also need to be revised 12 In an audit of a nonissuer's financial statements, projected misstatement is The likely amount of misstatement in the subsequent-period's financial statements if a control is not properly implemented An auditor's best estimate of misstatements in a population extrapolated from misstatements identified in an audit sample The only amount that the auditor considers in evaluating materiality and fairness of the financial statements An auditor's best estimate, before performing audit procedures, of misstatements that the auditor expects to find during the audit 2016 AICPA Released Questions - Auditing & Attestation (Difficult) - www.ninjacpareview.com 10 How should differences of opinion between the engagement partner and the quality control reviewer be resolved? Preparation of an original income tax return Representation of a nonattest client in an IRS examination Preparation of an amended income tax return to claim a deduction that was inadvertently omitted on an originally filed return Performance of consulting services for an audit client 11 Based on new information gained during an audit of a nonissuer, an auditor determines that it is necessary to modify materiality for the financial statements as a whole In this circumstance, which of the following statements is accurate? The auditor is required to reperform audit procedures already completed on the audit using the revised materiality The auditor should consider disclaiming an opinion due to a scope limitation The revision of materiality at the financial statement levels will not affect the planned nature and timing of audit procedures, only the extent of those procedures Materiality levels for particular classes of transactions, account balances, or disclosures might also need to be revised 12 In an audit of a nonissuer's financial statements, projected misstatement is The likely amount of misstatement in the subsequent-period's financial statements if a control is not properly implemented An auditor's best estimate of misstatements in a population extrapolated from misstatements identified in an audit sample The only amount that the auditor considers in evaluating materiality and fairness of the financial statements An auditor's best estimate, before performing audit procedures, of misstatements that the auditor expects to find during the audit 2016 AICPA Released Questions - Auditing & Attestation (Difficult) - www.ninjacpareview.com 13 According to the U.S Department of Labor, an auditor of an employee benefit plan would be considered independent if The auditor is committed to acquire a material indirect financial interest in the plan sponsor An actuary associated with the auditor's firm renders services to the plan A member of the auditor's firm is an investment advisor to the plan The auditor's firm maintains financial records for the plan 14 Which of the following audit procedures would be most appropriate to test the valuation of the collateral of a delinquent loan receivable? Sending a positive confirmation letter to the debtor to confirm the loan balance Performing a site visit to physically inspect the collateral Reviewing the debtor's purchase records to test the historical value of the collateral Obtaining a current value appraisal of the collateral 15 An accountant performing a nonissuer's review engagement is considering the appropriateness of a client's balance for accrued wages The accountant should perform each of the following procedures, except Testing the process used by management to determine the balance Comparing the current-year balance to the prior-year balance Obtaining representations from management regarding the year-end balance Making inquiries of the payroll accountant regarding completeness of the account balance 2016 AICPA Released Questions - Auditing & Attestation (Difficult) - www.ninjacpareview.com 13 According to the U.S Department of Labor, an auditor of an employee benefit plan would be considered independent if The auditor is committed to acquire a material indirect financial interest in the plan sponsor An actuary associated with the auditor's firm renders services to the plan A member of the auditor's firm is an investment advisor to the plan The auditor's firm maintains financial records for the plan 14 Which of the following audit procedures would be most appropriate to test the valuation of the collateral of a delinquent loan receivable? Sending a positive confirmation letter to the debtor to confirm the loan balance Performing a site visit to physically inspect the collateral Reviewing the debtor's purchase records to test the historical value of the collateral Obtaining a current value appraisal of the collateral 15 An accountant performing a nonissuer's review engagement is considering the appropriateness of a client's balance for accrued wages The accountant should perform each of the following procedures, except Testing the process used by management to determine the balance Comparing the current-year balance to the prior-year balance Obtaining representations from management regarding the year-end balance Making inquiries of the payroll accountant regarding completeness of the account balance 2016 AICPA Released Questions - Auditing & Attestation (Difficult) - www.ninjacpareview.com 16 To what degree, if at all, is a significant deficiency related to a material weakness? It is less severe than a material weakness It is more severe than a material weakness It is unrelated to a material weakness It is equivalent to a material weakness 17 In an integrated audit of a nonissuer, which of the following is the responsibility of an auditor with regard to testing controls at a company with multiple business units? Testing controls over only certain specific risks at all business units of the company Testing controls over all risks at all business units of the company Testing controls over all risks at business units that are material to the company's consolidated financial statements Testing controls over specific risks at business units that are material to the company's consolidated financial statements 18 If an auditor performing an integrated examination identifies one or more material weaknesses in a nonissuer's internal control, the auditor should Expand the examination of internal control to identify deficiencies less severe than material weaknesses Conclude that the financial statements are materially misstated because of the material weakness in internal control Disclaim an opinion on internal control Express an adverse opinion on the entity's internal control 2016 AICPA Released Questions - Auditing & Attestation (Difficult) - www.ninjacpareview.com 16 To what degree, if at all, is a significant deficiency related to a material weakness? It is less severe than a material weakness It is more severe than a material weakness It is unrelated to a material weakness It is equivalent to a material weakness 17 In an integrated audit of a nonissuer, which of the following is the responsibility of an auditor with regard to testing controls at a company with multiple business units? Testing controls over only certain specific risks at all business units of the company Testing controls over all risks at all business units of the company Testing controls over all risks at business units that are material to the company's consolidated financial statements Testing controls over specific risks at business units that are material to the company's consolidated financial statements 18 If an auditor performing an integrated examination identifies one or more material weaknesses in a nonissuer's internal control, the auditor should Expand the examination of internal control to identify deficiencies less severe than material weaknesses Conclude that the financial statements are materially misstated because of the material weakness in internal control Disclaim an opinion on internal control Express an adverse opinion on the entity's internal control 2016 AICPA Released Questions - Auditing & Attestation (Difficult) - www.ninjacpareview.com 19 A registered public accounting firm is conducting an audit of an issuer and initiated its current-year audit on January 1, year Many of the firm's former auditors are now employed by the client Under which of the following circumstances may the firm perform the audit? The client's CFO was the lead partner on the audit until December 31, year The client's CEO was a manager on the audit until June 30, year The client's controller was a staff accountant on the audit for two weeks during year The client's chief accounting officer was the concurring partner on the audit until April 15, year 20 The auditor is required to communicate each of the following items to those charged with governance, except An overview of the planned scope and timing of the audit The auditor's responsibilities to complete the audit in accordance with generally accepted auditing standards All control deficiencies detected during the course of the audit Any significant findings from the audit 21 Which of the following statements best describes the IFAC Code of Ethics for Professional Accountants? A conceptual framework that establishes the appropriate actions for all possible threats to compliance with established principles A conceptual framework that applies only to professional accountants in public practice A conceptual framework that requires a professional accountant to identify, evaluate, and address threats to compliance with established principles A conceptual framework that identifies voluntary compliance measures with established ethical principles 2016 AICPA Released Questions - Auditing & Attestation (Difficult) - www.ninjacpareview.com 19 A registered public accounting firm is conducting an audit of an issuer and initiated its current-year audit on January 1, year Many of the firm's former auditors are now employed by the client Under which of the following circumstances may the firm perform the audit? The client's CFO was the lead partner on the audit until December 31, year The client's CEO was a manager on the audit until June 30, year The client's controller was a staff accountant on the audit for two weeks during year The client's chief accounting officer was the concurring partner on the audit until April 15, year 20 The auditor is required to communicate each of the following items to those charged with governance, except An overview of the planned scope and timing of the audit The auditor's responsibilities to complete the audit in accordance with generally accepted auditing standards All control deficiencies detected during the course of the audit Any significant findings from the audit 21 Which of the following statements best describes the IFAC Code of Ethics for Professional Accountants? A conceptual framework that establishes the appropriate actions for all possible threats to compliance with established principles A conceptual framework that applies only to professional accountants in public practice A conceptual framework that requires a professional accountant to identify, evaluate, and address threats to compliance with established principles A conceptual framework that identifies voluntary compliance measures with established ethical principles 2016 AICPA Released Questions - Auditing & Attestation (Difficult) - www.ninjacpareview.com 22 An accountant performed a review engagement of the financial statements of a nonissuer oil and gas refinery Which of the following would be included in the accountant's documentation? The internal auditor's inspection reports of the level of oil reserves The response of the client's legal counsel to pending worker's compensation claims A memo on a discussion with the CFO regarding a suspected kiting scheme An evaluation of the refinery's controls over oil pressure levels 23 Which of the following most accurately describes the process of a walkthrough? Testing and documenting the results of tests of selected controls Inspection of selected documents, records, and internal control documentation Observation of an entity's activities and operations Following a transaction from its origination until it is reflected in the financial statements 24 Which of the following matters in a financial statement audit is most appropriate to communicate with those charged with governance? Clearance explanations of workpaper review notes Major variances in budgeted versus actual audit hours The nature and timing of detailed audit procedures An overview of the planned scope and timing of the audit 25 Which of the following tasks can be achieved using generalized audit software? Determining acceptable risk levels for substantive testing of account balances Filtering data based on accounts receivable data recording Detecting transactions that may be suspicious due to alteration of data input Assessing likelihood of fraud based on input of fraud risk factors 2016 AICPA Released Questions - Auditing & Attestation (Difficult) - www.ninjacpareview.com 22 An accountant performed a review engagement of the financial statements of a nonissuer oil and gas refinery Which of the following would be included in the accountant's documentation? The internal auditor's inspection reports of the level of oil reserves The response of the client's legal counsel to pending worker's compensation claims A memo on a discussion with the CFO regarding a suspected kiting scheme An evaluation of the refinery's controls over oil pressure levels 23 Which of the following most accurately describes the process of a walkthrough? Testing and documenting the results of tests of selected controls Inspection of selected documents, records, and internal control documentation Observation of an entity's activities and operations Following a transaction from its origination until it is reflected in the financial statements 24 Which of the following matters in a financial statement audit is most appropriate to communicate with those charged with governance? Clearance explanations of workpaper review notes Major variances in budgeted versus actual audit hours The nature and timing of detailed audit procedures An overview of the planned scope and timing of the audit 25 Which of the following tasks can be achieved using generalized audit software? Determining acceptable risk levels for substantive testing of account balances Filtering data based on accounts receivable data recording Detecting transactions that may be suspicious due to alteration of data input Assessing likelihood of fraud based on input of fraud risk factors 2016 AICPA Released Questions - Auditing & Attestation (Difficult) - www.ninjacpareview.com ... Standards for Accounting and Review Services Generally accepted auditing standards 2016 AICPA Released Questions - Auditing & Attestation (Difficult) - www.ninjacpareview.com A company engages a practitioner... Standards for Accounting and Review Services Generally accepted auditing standards 2016 AICPA Released Questions - Auditing & Attestation (Difficult) - www.ninjacpareview.com A company hired a practitioner... Perform ratio analysis of the financial data of comparable prior periods 2016 AICPA Released Questions - Auditing & Attestation (Difficult) - www.ninjacpareview.com An accountant''s compilation report