2013 AICPA released AUD MCQs

7/18/2019 2013 AICPA released AUD MCQs

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2013 AICPA Newly Released Questions – Auditing

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Following are multiple choice questions recently released by the AICPA. These

questions were released by the AICPA with letter answers only. Our editorial board is

currently working on providing detailed explanations for these questions, so please

check back to the Becker Knowledgebase soon for the updated file.

Please note that the AICPA generally releases questions that it does NOT intend to use

again. These questions and content may or may not be representative of questions you

may see on any upcoming exams.

Click here to view 2013 AICPA Released Simulations.

http://www.becker.com/accounting/cpaexamreview/students/2013_AICPA_AUD_SIMs.pdf







AICPA QUESTIONS RATED MODERATE DIFFICULTY

1. CPA-

Which of the following types of audit evidence provides the least assurance of reliability?

a. Receivable confirmations received from the client's customers.

b. Prenumbered receiving reports completed by the client's employees.c. Prior months' bank statements obtained from the client.

d. Municipal property tax bills prepared in the client's name.

Explanation

Choice "b" is correct.





2. CPA-

An auditor is considering whether the omission of the confirmation of investments impairs the auditor'sability to support a previously expressed unmodified opinion. The auditor need not perform this omittedprocedure if:

a. The results of alternative procedures that were performed compensate for the omission.

b. The auditor's assessed level of detection risk is low.c. The omission is documented in a communication with the audit committee.

d. No individual investment is material to the financial statements taken as a whole.

Explanation

Choice "a" is correct.





3. CPA-

Which of the following explanations most likely would satisfy an auditor who questions managementabout significant debits to accumulated depreciation accounts in the current year?

a. Prior years' depreciation expenses were erroneously understated.

b. Current year's depreciation expense was erroneously understated.

c. The estimated remaining useful lives of plant assets were revised upward.d. Plant assets were retired during the current year.

Explanation

Choice "d" is correct.





4. CPA-

An auditor has substantial doubt about the entity's ability to continue as a going concern for a reasonableperiod of time because of negative cash flows and working capital deficiencies. Under thesecircumstances, the auditor would be most concerned about the:

a. Control environment factors that affect the organizational structure.

b. Correlation of detection risk and inherent risk.c. Effectiveness of the entity's internal control activities.

d. Possible effects on the entity's financial statements.

Explanation






5. CPA-

Subsequent to issuing a report on audited financial statements, a CPA discovers that the accountsreceivable confirmation process omitted a number of accounts that are material, in the aggregate. Whichof the following actions should the CPA take immediately?

a. Bring the matter to the attention of the board of directors or audit committee.

b. Withdraw the auditor's report from those persons currently relying on it.c. Perform alternative procedures to verify account balances.

d. Discuss the potential financial statement adjustments with client management.

Explanation

Choice "c" is correct.





6. CPA-

An entity engaged an accountant to review its financial statements in accordance with Statements onStandards for Accounting and Review Services. The accountant determined that the entity maintained itsaccounts on a comprehensive basis of accounting other than generally accepted accounting principles(GAAP). In this situation, the accountant most likely would have taken which of the following actions?

a. Withdrawn from the engagement because the entity has not been following GAAP.

b. Advised management to make the adjustments necessary for the account balances to conform withGAAP.

c. Modified the review report to reflect the fact that the financial statements were presented on anothercomprehensive basis of accounting.

d. Requested that management justify the use of the other comprehensive basis of accounting in themanagement representation letter.

Explanation






7. CPA-

Which of the following factors should an external auditor obtain updated information about whenassessing an internal auditor's competence?

a. The reporting status of the internal auditor within the organization.

b. The educational level and professional experiences of the internal auditor.

c. Whether policies prohibit the internal auditor from auditing areas where relatives are employed.d. Whether the board of directors, audit committee, or owner-manager oversees employment decisions

related to the internal auditor.

Explanation






8. CPA-

An auditor traces the serial numbers on equipment to a nonissuer's sub-ledger. Which of the followingmanagement assertions is supported by this test?

a. Valuation and allocation.

b. Completeness.

c. Rights and obligations.d. Presentation and disclosure.

Explanation






9. CPA-

Which of the following should a practitioner perform as part of an engagement for agreed-uponprocedures in accordance with Statements on Standards for Attestation Engagements?

a. Issue a report on findings based on specified procedures performed.

b. Assess whether the procedures meet the needs of the parties.

c. Express negative assurance on findings of work performed.d. Report the differences between agreed-upon and audit procedures.

Explanation






10. CPA-

When the operating effectiveness of a control is not evidenced by written documentation, an auditorshould obtain evidence about the control's effectiveness by:

a. Mailing confirmations.

b. Inquiry and other procedures such as observation.

c. Analytical procedures.d. Recalculating the balance in related accounts.

Explanation






11. CPA-

An auditor is evaluating a client's internal controls. Which of the following situations would be the mostdifficult internal control issue for an auditor to detect?

a. The accounting staff neglects the control, due to increased transactions to be processed.

b. The technology department writes a program that does not properly implement the control, due to a

lack of understanding.c. Two employees, who work in different departments, are circumventing an internal control.

d. Someone erroneously disables edit checks in a software program designed to identify controlexceptions.

Explanation






12. CPA-

Inherent risk and control risk differ from detection risk in which of the following ways?

a. Inherent risk and control risk are calculated by the client.

b. Inherent risk and control risk exist independently of the audit.

c. Inherent risk and control risk are controlled by the auditor.

d. Inherent risk and control risk exist as a result of the auditor's judgment about materiality.

Explanation






13. CPA-

Which of the following matters does an auditor usually include in the engagement letter?

a. Arrangements regarding fees and billing.

b. Analytical procedures that the auditor plans to perform.

c. Indications of negative cash flows from operating activities.

d. Identification of working capital deficiencies.

Explanation






14. CPA-

Which of the following is an important consideration when deciding the nature of tests to use in a financialstatement audit?

a. Tests of details typically provide a low level of assurance.

b. Analytical procedures are an inefficient means of obtaining assurance.

c. The procedures to be applied on a particular engagement are a matter of the auditor's professional judgment.

d. The use of tests of controls should be considered without regard to the level of assurance required.

Explanation






15. CPA-

Which of the following procedures would an auditor most likely complete to test the existence assertion ofproperty, plant and equipment?

a. Obtaining a listing of all current-year additions, vouching significant additions to original invoices, anddetermining that they have been placed in service.

b. Obtaining a detailed fixed-asset register and ensuring items are appropriately capitalized.c. Obtaining a listing of current-year additions and verifying that items are recorded in the proper period.

d. Obtaining a detailed fixed-asset register and ensuring depreciation methods are applied consistently.

Explanation






16. CPA-

Which of the following is correct regarding a compilation of financial statements engagement inaccordance with Statement on Standards for Accounting and Review Services?

a. If the accountant's independence is impaired, a qualified opinion must be issued.

b. The accountant may not base the report on information obtained from prior engagements with the

same client.c. The accountant is not required to make inquiries nor perform procedures to corroborate the

information provided by the client.

d. The accountant should perform analytical procedures to financial data.

Explanation






17. CPA-

What is the primary objective of the fraud brainstorming session?

a. Determine audit risk and materiality.

b. Identify whether analytical procedures should be applied to the revenue accounts.

c. Assess the potential for material misstatement due to fraud.

d. Determine whether the planned procedures in the audit program will satisfy the general auditobjectives.

Explanation






18. CPA-

While performing an audit of the f inancial statements of a company for the year ended December 31, year1, the auditor notes that the company's sales increased substantially in December, year 1, with acorresponding decrease in January, year 2. In assessing the risk of fraudulent financial reporting ormisappropriation of assets, what should be the auditor's initial indication about the potential for fraud insales revenue?

a. There is a broad indication of misappropriation of assets.

b. There is an indication of theft of the entity's assets.

c. There is an indication of embezzling receipts.

d. There is a broad indication of financial reporting fraud.

Explanation






19. CPA-

According to the Sarbanes-Oxley Act of 2002, which of the following non-audit services can be providedby a registered public accounting firm to the client contemporaneously with the audit when preapproval isgranted by audit committee action?

a. Internal audit outsourcing services.

b. Tax services.c. Actuarial services related to the audit.

d. Advice on financial information system design.

Explanation






20. CPA-

Which of the following situations would not impair objectivity, integrity, or independence with respect toan audit client?

a. An auditor takes the client's audit committee to Las Vegas for the weekend.

b. An out-of-town client takes the audit engagement team out to dinner at a renowned local restaurant.

c. An auditor provides client management with box seats for the season at a major league baseballfranchise.

d. A client takes the audit engagement team on a two-day ski trip after the audit team worked for twoconsecutive weekends.

Explanation






21. CPA-

When a PCAOB auditing standard indicates that an auditor "could" perform a specific procedure, howshould the auditor decide whether and how to perform the procedure?

a. By comparing the PCAOB standard with related AICPA auditing standards.

b. By exercising professional judgment in the circumstances.

c. By soliciting input from the issuer's audit committee.d. By evaluating whether the audit is likely to be subject to inspection by the PCAOB.

Explanation






22. CPA-

While performing certain non-audit services for an insurance company, a professional accountant isasked to recommend the appropriate accounting treatment for a weather hedge transaction. Theaccountant has worked with financial hedges but has no experience with weather hedges. Which of thefollowing actions by the accountant would be in compliance with the IFAC Code of Ethics for Professional

Accountants?

a. Agree to recommend the appropriate accounting treatment after performing sufficient research onweather hedges.

b. Refuse to conduct the research and make a recommendation, because of insufficient experience.

c. Refuse to conduct the research and make a recommendation, because of a conflict of interest.

d. Agree with the accounting treatment recommended by the company's hedge fund trader.

Explanation






23. CPA-

According to the SEC, members of an issuer's audit committee may not:

a. Establish procedures for employees to anonymously report fraud.

b. Be responsible for the compensation of any registered public accounting firm employed by theregistrant to provide an audit report.

c. Accept any consulting, advisory, or other compensatory fee from the registrant for services other thanas a member of the board.

d. Engage independent counsel as deemed necessary to carry out their duties.

Explanation






24. CPA-

Which of the following would not be included in an accountant's documentation of a compilation of aclient's financial statements?

a. Discussion with the client regarding the proper presentation of gross cash flows for investmentpurchases.

b. An engagement letter.c. A memo to the CFO about a potentially significant fraud revealed during compilation procedures.

d. A review of the segregation of duties in the cash disbursement process.

Explanation






25. CPA-

If requested to perform a compilation engagement for a nonissuer in which an accountant has animmaterial direct financial interest, the accountant is:

a. Independent because the financial interest in the nonissuer is immaterial.

b. Not independent and, therefore, may not be associated with the financial statements.

c. Not independent and, therefore, may not issue a compilation report.d. Not independent and, therefore, may issue a compilation report, but may not issue a review report.

Explanation






AICPA QUESTIONS RATED HARD DIFFICULTY

26. CPA-

When there has been a change in accounting principles, but the effect of the change on the comparabilityof the financial statements is not material, the auditor should:

a. Not refer to the change in the auditor's report.b. Refer to the note in the financial statements that discusses the change.

c. Refer to the change in an emphasis-of-matter paragraph.

d. Explicitly state whether the change conforms with GAAP.

Explanation






27. CPA-

An entity prepares its financial statements on its income tax basis. A description of how that basis differsfrom GAAP should be included in the:

a. Notes to the financial statements.

b. Auditor's engagement letter.

c. Management representation letter.d. Introductory paragraph of the auditor's report.

Explanation






28. CPA-

When an accountant compiles projected financial statements, the accountant's report should include aseparate paragraph that:

a. Disclaims any form of assurance on the historical financial statements.

b. Expresses limited assurance that the results will be within the projected range.

c. Describes the limitations on the usefulness of the projection.d. Evaluates the hypothetical assumptions used to prepare the projection.

Explanation






29. CPA-

Which of the following would be considered an analytical procedure?

a. Testing purchasing, shipping, and receiving cutoff activities.

b. Comparing inventory balances to recent sales activities.

c. Projecting the deviation rate of a statistical sample to the population.

d. Reconciling physical counts to perpetual records and general ledger balances.

Explanation






30. CPA-

Which of the following statements should be included in a practitioner's report on the application ofagreed-upon procedures?

a. A statement that the practitioner performed an examination of prospective financial statements.

b. A statement of scope limitation that will qualify the practitioner's opinion.

c. A statement referring to standards established by the AICPA.d. A statement of negative assurance based on procedures performed.

Explanation






31. CPA-

Which of the following documents the procedures that are applied and the conclusions reached in anaudit engagement?

a. Management representation letter.

b. Audit guide.

c. Auditor's report.d. Working papers.

Explanation






32. CPA-

When reviewing the financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services, an accountant's procedures should include:

a. Obtaining an understanding of internal control.

b. Assessing fraud risk.

c. Applying substantive tests of transactions.d. Inquiring into actions taken at meetings of the Board of Directors.

Explanation






33. CPA-

Which of the following rules of the AICPA Code of Professional Conduct must be observed even by amember who is not in public practice?

a. Independence in Fact and Appearance.

b. Integrity and Objectivity.

c. Professional Competence.d. Compliance with Standards.

Explanation






34. CPA-

A practitioner is engaged to express an opinion on management's assertion that the square footage of awarehouse offered for sale is 150,000 square feet. The practitioner should refer to which of the followingsources for professional guidance?

a. Statements on Auditing Standards.

b. Statements on Standards for Attestation Engagements.c. Statements on Standards for Accounting and Review Services.

d. Statements on Standards for Consulting Services.

Explanation






35. CPA-

Which of the following would a successor auditor ask the predecessor auditor to provide after acceptingan audit engagement?

a. Disagreements between the predecessor auditor and management as to significant accountingpolicies and principles.

b. The predecessor auditor's understanding of the reasons for the change of auditors.c. Facts known to the predecessor auditor that might bear on the integrity of management.

d. Matters that may facilitate the evaluation of financial reporting consistency between the current andprior years.

Explanation






36. CPA-

Which of the following procedures should a user auditor include in the audit plan to create the mostefficient audit when an audit client uses a service organization for several processes?

a. Review the service auditor's report on controls placed in operation.

b. Review the service auditor's report and outline the accounting system in a memo to the working

papers.c. Audit the service organization's controls, assess risk, and prepare the audit plan.

d. Audit the service organization’s controls to test the work of the service auditor.

Explanation






37. CPA-

Which of the following is a management assertion regarding account balances at the period end?

a. Transactions and events that have been recorded have occurred and pertain to the entity.

b. Transactions and events have been recorded in the proper accounts.

c. The entity holds or controls the rights to assets, and liabilities are obligations of the entity.

d. Amounts and other data related to transactions and events have been recorded appropriately.

Explanation






38. CPA-

While performing interim audit procedures of accounts receivable, numerous unexpected errors are foundresulting in a change of risk assessment. Which of the following audit responses would be mostappropriate?

a. Move detailed analytical procedures from year end to interim.

b. Increase the dollar threshold of vouching customer invoices.c. Send negative accounts receivable confirmations instead of positive accounts receivable

confirmations.

d. Use more experienced audit team members to perform year-end testing.

Explanation






39. CPA-

Which of the following types of risk increases when an auditor performs substantive analytical auditprocedures for financial statement accounts at an interim date?

a. Inherent.

b. Control.

c. Detection.d. Sampling.

Explanation






40. CPA-

Which of the following matters relating to an entity's operations would an auditor most likely consider asan inherent risk factor in planning an audit?

a. The entity's fiscal year ends on June 30.

b. The entity enters into derivative transactions as hedges.

c. The entity's financial statements are generated at an outside service center.d. The entity's financial data are available only in computer-readable form.

Explanation






41. CPA-

Which of the following is a factor in the control environment?

a. Segregation of duties.

b. Information processing.

c. Performance reviews.

d. Management's philosophy and operating style.

Explanation






42. CPA-

Which of the following statements about audit sampling risks is correct for a nonissuer?

a. Nonsampling risk arises from the possibility that, when a substantive test is restricted to a sample,conclusions might be different than if the auditor had tested each item in the population.

b. Nonsampling risk can arise because an auditor failed to recognize misstatements.

c. Sampling risk is derived from the uncertainty in applying audit procedures to specific risks.d. Sampling risk includes the possibility of selecting audit procedures that are not appropriate to achieve

the specific objective.

Explanation






43. CPA-

An auditor of a nonissuer should design tests of details to ensure that sufficient audit evidence supportswhich of the following?

a. The planned level of control risk.

b. Management's assertions that internal controls exist and are operating efficiently.

c. The effectiveness of internal controls.d. The planned level of assurance at the relevant assertion level.

Explanation






44. CPA-

Providing more supervision during an audit of a nonissuer in response to assessed risks of materialmisstatement at the financial statement level is an example of:

a. A substantive response.

b. Further audit procedures.

c. Tests of controls.d. An overall response.

Explanation






45. CPA-

The Public Company Accounting Oversight Board was established by which of the following?

a. The Financial Accounting Standards Board.

b. The American Institute of Certified Public Accountants.

c. The Sarbanes-Oxley Act of 2002.

d. The International Accounting Standards Board.

Explanation






46. CPA-

Which of the following applies to an accountant conducting a review of interim financial information?

a. The accountant must indicate in the report those circumstances in which generally acceptedaccounting principles have not been consistently observed in the current period in relation to thepreceding period.

b. The accountant must express an opinion on the financial statements taken as a whole.c. The accountant must maintain independence in mental attitude in all matters relating to the

engagement.

d. The accountant must obtain sufficient appropriate evidence by performing procedures to afford areasonable basis for an opinion.

Explanation






47. CPA-

Which of the following circumstances would be inappropriate for the auditor to communicate to thosecharged with governance?

a. A material misstatement was noted by the auditor and corrected by management.

b. No significant deficiencies in internal control exist that would affect the financial statements.

c. The auditor is requesting representations regarding the financial statements from management.d. Management has consulted with other accountants about accounting and auditing matters during the

period under audit.

Explanation






48. CPA-

An auditor may provide an issuer client any of the following non-audit services without impairingindependence and without obtaining the preapproval of the audit committee, except:

a. Non-audit services with revenues in aggregate of less than 5% of the total revenues paid by theissuer to the auditor during the fiscal year in which the non-audit services are provided.

b. Non-audit services that were promptly brought to the attention of, and approved by, the auditcommittee prior to the completion of the audit.

c. Non-audit services to perform financial information systems design and implementation.

d. Services that the issuer did not recognize as non-audit services at the time of the engagement.

Explanation






49. CPA-

An accountant compiles the financial statements of a nonissuer and issues the standard compilationreport. Although not specifically stated in this report, it is implied that:

a. The accountant has not audited or reviewed the financial statements.

b. Substantially all disclosures required by GAAP are included in the financial statements.

c. The financial statements should not be used to obtain credit.d. The compilation is limited to presenting information that is the representation of management.

Explanation





50. CPA-

According to the Sarbanes-Oxley Act of 2002, what is the maximum number of years an audit partner canperform audit services for an issuer before the auditor rotation is required?

a. 2 years.

b. 3 years.

c. 4 years.d. 5 years.

Explanation


Documents

2013 AICPA released AUD MCQs