Auditing Developments

AuditingDevelopments

#7580CEXAM MATERIAL

7580C Final Exam • 1

AUDITING DEVELOPMENTS (COURSE #7580C)

COURSE DESCRIPTION

The objective of this course is to address the latest developments affecting 2020 and 2021 audit engagements, including the impact of COVID-19 on audit engagements. Topics include: addressing the auditor’s consideration of the business and economic environment in which the client operates; accounting and auditing engagement issues during COVID-19, including the impact of the pandemic on an entity’s ability to continue as a going-concern; client and employee fraud; specific accounting risks for auditors to consider; limiting auditor’s liability; key audit focus areas during volatile times; lessons from litigation; efficiency engagements to reduce auditor time; various practice issues related to audits; dealing with DOL audits of employee benefit plans, and more. Additionally, in this course, auditors will learn about the new auditor’s report, auditing estimates, and audit evidence guidance found in SAS Nos. 134-143, and the new attestation standards found in SSAE Nos. 19-22. The course focuses on recalling, recognizing, and identifying rules related to auditing standards, including new developments pertaining to those standards. No prerequisites. Course level: Basic. Course #7580C – 16 CPE hours.

LEARNING ASSIGNMENTS AND OBJECTIVES

As a result of studying each assignment, you should be able to meet the objectives listed below each individual assignment.

ASSIGNMENT 1: SUBJECTIntroductionImplications of the Current Economic Environment for AuditorsAccounting Issues Related to the Coronavirus (COVID-19)Auditing Engagement Issues- COVID-19Going Concern and COVID-19Client and Employee Fraud

Study the course materials from pages 1 to 136Complete the review questions throughout Assignment 1Answer the exam questions 1 to 27

Objectives:

• To identify an example of a concentration which might require disclosure• To recall the definition of near term• To identify the net operation loss rules under the CARES Act• To recognize a key characteristic of a multi-employer pension plan• To identify the most obvious approach to account for a PPP loan under GAAP• To recall how an entity should account for PPP loan forgiveness• To identify a scenario in which it would be impracticable for an auditor to attend a physical inventory• To recognize an advantage of remote auditing

2 • 7580C Final Exam

• To recognize a behavioral trait of most occupational fraudsters• To recognize the difference between fraud and an error• To recall the three conditions of the fraud triangle• To identify common types of financial statement fraud noted by the FBI• To recognize an example of a misappropriation of assets

ASSIGNMENT 2: SUBJECTSpecific Accounting Risks for Auditors to Consider for 2020-2021 AuditsAttempting to Limit Auditor’s LiabilityImpact of Going-Concern Report ModificationsRetaliation Against Auditors Who Issue Adverse OpinionsRestatementsKey Focus Areas for the Auditor in Volatile TimesLessons from Litigation


Objectives:

• To recognize a factor to consider in evaluating going concern of an entity• To recall how an investment in equity security should be accounted for under GAAP• To recognize the new sales tax rules in the wake of the Wayfair decision• To recognize an example of a coverage ratio• To recall the timeframe within which most lawsuits against auditors occur• To identify a recommendation to tighten up auditor workpapers

ASSIGNMENT 3: SUBJECTEfficient Engagements- Reduce Time, Make More Money without Increasing RiskPractice Issues Related to AuditingCommunicating Internal Control Related Matters Identified- Audit AU-C 265Watch Out for the DOL and Audits of Employee Benefit PlansWhy Do Individuals Cheat and Commit Fraud?Signing at the Beginning of a Document- Decreasing Dishonest Self ReportsAuditing Standards Board (ASB) AgendaPCAOB and SEC Approve Naming Engagement Partners in Audit Engagements



Objectives:

• To identify a suggestion for an auditor to reduce time and increase audit efficiency• To recognize when negative accounts receivable confirmations should not be used• To identify the form of a comfort letter that would be appropriate for an accountant to make to a

lender• To recall the rule for an auditor presenting his or her city and state on the audit report• To identify the rules of an auditor communicating deficiencies found in an audit• To recognize an example of a result that can occur if there is a problem with a DOL employee

benefit plan audit• To identify a type of fraudster

ASSIGNMENT 4: SUBJECTRecent Auditing StandardsRecent Attestation Standards


Objectives:

• To recall the location of certain sections in the auditor’s report• To recognize the categorization of an adverse opinion• To identify a change that SAS No. 136 makes to the limited-scope ERISA audit• To recognize one of the changes made by AU-C 703 to ERISA audits• To recall the reporting requirement when an auditor obtains other information in an audit• To identify a reference that is made in the new definition of materiality• To recognize the definition of certain types of paragraphs made by SAS No. 139• To recognize an example of an attribute of information obtained as audit evidence per SAS No.

142• To identify an attribute of audit evidence referenced in SAS No. 142• To identify how inherent and control risk should be assessed under the SAS No. 143 requirements• To recall the three approaches that an auditor can use to perform further audit procedures required

by SAS No. 143• To identify a change made by SSAE No. 19• To recognize one of the four types of engagements within SSAE No. 21’s new definition of

attestation engagement• To identify an example of subject matter that is within the scope of SSAE No. 22’s review


ASSIGNMENT 5:• Complete the Answer Sheet and Course Evaluation and submit to PES

NOTICEThis course and test have been adapted from supplemental material and uses the materials entitled Auditing Developments- 2021 © 2021 Fustolo Publishing LLC. Displayed by permission of the author. All rights reserved.

Use of these materials or services provided by Professional Education Services, LP (“PES”) is governed by the Terms and Conditions on PES’ website (www.mypescpe.com). PES provides this course with the understanding that it is not providing any accounting, legal, or other professional advice and assumes no liability whatsoever in connection with its use. PES has used diligent efforts to provide quality information and material to its customers, but does not warrant or guarantee the accuracy, timeliness, completeness, or currency of the information contained herein. Ultimately, the responsibility to comply with applicable legal requirements falls solely on the individual licensee, not PES. PES encourages you to contact your state Board or licensing agency for the latest information and to confirm or clarify any questions or concerns you have regarding your duties or obligations as a licensed professional.

© Professional Education Services, LP 2021

Program Publication Date 6/28/2021


AUDITING DEVELOPMENTS (COURSE #7580C)

EXAM INFORMATION

COURSE EXPIRATION DATE: Per AICPA and NASBA standards, this course must be completed within ONE YEAR from the date of purchase.

TEST FORMAT: The following final exam, consisting of 80 multiple choice questions, is based specifically on the material included in this course. The answer sheet must be completed and returned to PES for CPE certification. You will find the answer sheet at the back of this exam packet so that you may easily remove it and use it while taking your test.

LICENSE RENEWAL INFORMATION: The Auditing Developments course (#7580C) qualifies for 16 CPE hours.

PROCESSING: You must score 70% or better to pass. If you mail or fax your exam, when you pass, your Certificate of Completion will be mailed. If you do not pass, we will give you a courtesy call to inform you of this. When completing your exam online, grading is instantaneous. Upon achieving a passing score, the completion certificate is immediately available in your account under “My Completed CPE.” Please note: failed exams may be retaken. Per NASBA and AICPA guidelines, missed questions cannot be indicated until after you pass.

GRADING OPTIONS – Please choose only ONE of the following:

GRADING OPTIONS: Please choose only ONE of the following. If mailing or faxing, make sure to fill out your Answer Sheet completely prior to submitting it.

• ONLINE GRADING –Visit our website at http://www.mypescpe.com. Login to your account (if you are a first-time user, you must set up a new user account). Click on the course title of the exam you wish to take. Once all answers have been selected, click the “Submit/Grade Answers” button at the bottom of the page for instant grading and certification. If you do not see the exam listed, click on “My CPE in Progress.” Click on the “Add Exam to Account” button and follow the instructions.

• MAIL – Your exam will be graded and your certificate of completion mailed to you within one business day. Your certificate will be dated according to the postmark date. Please mail your Answer Sheet to:

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AUDITING DEVELOPMENTS (COURSE #7580C) – FINAL EXAM

The following questions are multiple choice. Please indicate your choice on the enclosed Answer Sheet.

1. Company X has various concentrations in its business. X wants to know which concentrations might require disclosure. Under ASC 275, which of the following is likely to be a type of concentration for which a disclosure is required:

A. concentration of trucksB. concentration in the amount of goodwillC. concentration in the sources of materials

from ChinaD. concentration in fixed assets

2. In accordance with ASC 275, how is the term “near term” defined:

A. not more than 18 months from the date of a triggering event

B. no to exceed one year from the date of the financial statements

C. within five years of the date of the financial statements with certain limitations

D. not defined by GAAP

3. Which of the following is a category of costs that is considered exit costs subject to the rules found in ASC 420, Exit or Disposal Cost Obligations:

A. postemployment benefit expensesB. costs associated with a contractual

arrangementC. costs to terminate a leaseD. costs to consolidate facilities to relocate

employees

4. Company L has a net operating loss in 2020. L had taxable income in years 2015 to 2019. Which of the following is true as to how L can treat the NOL under the CARES Act:

A. L is permitted to carry the NOL forward for 20 years under the CARES Act

B. L is permitted to carry back the NOL five years under the CARES Act

C. L is not permitted to carry the NOL forward under the CARES Act

D. L is not permitted to carryback the NOL under the CARES Act

5. What is one of the characteristics of a multi-employer pension plan:

A. many employers are part of one, identical collective bargaining agreement

B. assets contributed by one particular employer must be used for that employer’s employees only

C. employers are jointly and severally liable for the plan obligations

D. there is no withdrawal or exit fee

6. Larry’s Licorice Company received a PPP loan. Which of the following is the most obvious approach to account for the PPP loan for GAAP:

A. account for the PPP loan as a government grant

B. account for the PPP loan as a gain contingency

C. account for the PPP loan using the installment sale rules

D. account for the PPP loan as debt


7. Company X’s PPP loan is forgiven. How should X account for the forgiveness of debt:

A. as a credit to equityB. as a gain on extinguishment of debtC. as a deferred credit to remain on the balance

sheet D. as a reduction in eligible expenses

8. If an auditor has difficulty obtaining receivable confirmation replies from a large corporate customer, which of the following is an example of an alternative auditing procedure that can be applied as part of numerous alternative procedures:

A. send a confirmation by email with a reverse spam blocker filter

B. assume the receivable is not collectible and set up an allowance for bad debts for its balance

C. send a confirmation by certified mail, receipt requested

D. examine invoices of the customer that are included in the receivable aging

9. If attendance at a physical inventory is impracticable, the auditor should:

A. resign from the engagementB. perform alternative audit proceduresC. demand that the client reschedule the

physical inventory within 60 days of year end

D. qualify his or her audit report

10. Sally CPA is auditing the financial statements of Company X, which has a material inventory. Sally is unable to observe the inventory. In accordance with AU-C 501, which of the following scenarios would be deemed to be “impracticable” for Sally to attend the physical inventory observation:

A. Sally has a scheduling conflict with her daughter’s graduation

B. the inventory is held in a warehouse that has toxic materials and Sally is concerned about her safety

C. Sally wants to use the gross profit method to value inventory and does not believe a physical inventory is important

D. Sally is concerned that the warehouse is too far away from her office

11. Which of the following is an advantage of remote auditing:

A. greater interaction among audit staffB. there is a significant time savings from

avoiding travel timeC. there is less risk of complacency D. it is easier to perform certain audit

procedures such as physical inventory observations

12. Under the going-concern rules for GAAP and auditing standards, which of the following terms is used as a benchmark in considering going concern:

A. uncertaintyB. substantial doubtC. severe uncertainty

D. significant doubt


13. Which of the following is true with respect to hotlines:

A. a hotline is one of the least effective fraud anti-detection methods

B. organizations with hotlines are more likely to catch fraud by a tip

C. organizations with hotlines have frauds that are more costly than those that do not have them or that have other detection methods

D. hotlines are effective only if a company has a reward program attached to it

14. Which of the following is a behavioral trait of most occupational fraudsters:

A. living beyond their meansB. having a criminal recordC. having substantial financial meansD. alienating relationships with vendors and

customers

15. Richard is the CEO of Company X and is an admitted fraudster. Which of the following is a red flag that is most prominent with a man versus woman fraudster:

A. a man fraudster is more likely to be a wheeler-dealer versus a woman fraudster

B. divorce is more prominent in a man fraudster versus a woman fraudster

C. a man fraudster is more likely to have financial difficulties than a female fraudster

D. a woman fraudster usually has a closer relationship with customers than a man fraudster

16. What differentiates fraud from an error:

A. intentB. riskC. degree of loss

D. type of loss incurred

17. The three conditions of the fraud triangle include all of the following except:

A. lifestyle and standard of livingB. incentive and pressureC. opportunityD. rationalization or attitude

18. Common types of financial statement fraud noted by the FBI include all of the following except:

A. phony salesB. identity theftC. parked inventory salesD. channel stuffing

19. Which of the following is an example of a misappropriation of assets:

A. overstating revenueB. embezzling receiptsC. understating an allowance for uncollectible

accountsD. bribing government officials

20. In comparing the different types of fraud, which of the following has the highest ease of concealing the identity of the fraudster:

A. phony vendorsB. skimming salesC. expense reimbursement

D. check tampering


21. Which of the following is not an element of an auditor having professional skepticism:

A. having a questioning mind and performing a critical assessment of all audit evidence received

B. possessing a “show me” mindset that recognizes the distinct possibility that a material misstatement due to fraud could be present

C. ensuring that all statements made by a client are included in a management representation letter

D. probing evidence more thoroughly and critically

22. AU-C 240 requires that an auditor perform three additional procedures to deal with the fraud risk of management override of internal controls. Which of the following is one of those additional procedures:

A. perform a physical observation of inventoriesB. confirm trade receivablesC. conduct a brainstorming sessionD. evaluate the business rationale for significant

unusual transactions

23. One of the key elements emphasized in AU-C 240 is for an auditor to have heightened professional skepticism in conducting an audit. The AICPA’s Audit Risk Alert identifies a list of “circumstances and observations” that should catch the attention of the auditor. That list includes which one of the following:

A. a company that has a culture of humilityB. a strong audit committee and board

governanceC. an overly loyal management teamD. an overly centralized control over the

financial reporting process

24. An example of a missed audit procedure that enhances the risk that fraud might not be detected is which one of the following:

A. confirming information through independent corroborating evidence of management representations

B. accepting confirmations sent directly to the auditor

C. failure to observe inventoriesD. failure to confirm unusual transactions with

third parties

25. Joe CPA is assisting his client in satisfying the steps of revenue recognition in ASC 606. Which one of the following is Step 5 of the revenue recognition model:

A. recognize revenue when the goods are ordered

B. recognize the revenue when there is a completion of the earnings process

C. recognize revenue when the entity satisfies the performance obligation

D. recognize revenue when the cash is received

26. With respect to side agreements involving receivables, an auditor should consider the use of additional audit procedures to test for those agreements that may include which one of the following:

A. perform a look back to prior years’ agreements

B. read and understand contractsC. send the standard confirmation to the

accounts payable departmentD. perform special forensic procedures to

uncover the side agreements

27. Which of the following is an element of the predator profile that Bernie Madoff had:

A. people around Madoff loved himB. Madoff had an inferiority complexC. Madoff apologized too much for his fraud

D. Madoff had the need to look successful


28. Which of the following is an auditing procedure with respect to receivables:

A. investigate standard payment terms given to customers

B. review the industry in which the customers operate

C. test the realization of receivablesD. perform a three-year look-back test of sales

volume posted to accounts receivable

29. Specific auditing procedures to determine if inventories are properly valued include which of the following:

A. previous sales demand in prior yearsB. the change in the mix of inventories between

raw materials, work in process, and finished goods

C. the quantity of high-value inventory items at year end

D. anticipated technological changes that could affect the value of inventories

30. How should an investment in an equity security be accounted for under the new rules in ASU 2016-01:

A. at costB. at fair value with the unrealized gain or loss

on the income statementC. at current value with the unrealized gain or

loss presented in stockholders’ equityD. at lower of cost or market

31. Which one of the following is a category of debt securities under the ASU 2016-01 rules::

A. investments in closely held businessesB. debt securities held-to-maturityC. investments held using the equity methodD. investments of more than 50% of the voting

shares of common stock

32. Company X is an online retailer that sells goods in all 50 states. Which of the following is correct regarding sales tax as it relates to the Wayfair decision:

A. states can require X to pay sales tax even if X does not have a physical presence in those states

B. X might be required to pay sales tax to a state if X has more than 100 transactions in that state

C. X might be required to pay sales tax to a state if X has at least $50,000 of in-state sales collected in that state

D. X is required to collect and pay sales tax only in states in which it has a physical presence

33. Which of the following is an acceptable type of indemnification clause that an auditor can place in his or her engagement letter:

A. indemnification against auditor’s negligenceB. indemnification against knowing

misrepresentations made by an audit client’s management

C. indemnification against intentional errors committed by the auditor

D. indemnification against client unintentional errors

34. Based on a study noted in the materials, which of the following is true with respect to the market’s response to a financial statement restatement:

A. a restatement is generally considered irrelevant and not a factor by the market

B. the market penalizes the stock price for three days after the restatement announcement

C. the credibility of a restated company is generally not impacted by a restatement

D. the quality of a restated company’s earnings is generally not impacted by the announcement of a restatement


35. Which of the following is an example of a coverage ratio:

A. days sales in receivablesB. times debt service is earnedC. Altman Z scoreD. inventory turnover

36. In searching for related-party transactions, the auditor may wish to perform all of the following procedures except:

A. review material cash disbursements and other transactions

B. research the definition of related parties in accounting literature

C. discuss with other professionals about related parties

D. use the Internet to search records for the names of principals at the audit client to find other affiliated entities

37. Most lawsuits against auditors occur within which period of time:

A. the first two years of the auditor’s relationship

B. typically, once there is a triggering eventC. the first five years of the auditor’s

relationshipD. the first seven years of the auditor’s

relationship

38. The Top Ten Actions to minimize the risk of being sued include which of the following:

A. never sue to collect unpaid feesB. take additional CPE coursesC. have two partners sign off on all workpapersD. include arbitration clauses in all engagement

letters

39. Auditors’ responsibility to third parties can be categorized into four different categories that includes which one of the following:

A. passive liabilityB. limited liability approachC. restricted approach D. near-privity

40. In order to tighten up workpapers, the author recommends that an auditor do which one of the following:

A. include all “to do” lists, whether or not completed

B. complete the audit programC. reduce workpaper overload D. perform more tests of account balances and

fewer analytical procedures

41. The author suggests that a firm can reduce time and increase audit efficiency by doing which one of the following:

A. take more work away from the client and its staff to avoid poorly prepared schedules

B. cut time down, particularly time allocated to planning the engagement

C. weed out unprofitable clients and increase fees

D. turn over staff often to reduce the average labor rate per employee

42. Which of the following is true with respect to weeding out unprofitable clients:

A. clients that are high risk should be retained if the auditor receives an unusually high fee for the engagement

B. clients that are high risk, slow payers, high maintenance and low profitability may not be worth keeping

C. clients that are low risk, fast payers, low maintenance and high profitability may not be worth keeping

D. only clients that require audits and reviews, but not compilation engagements, should be considered for weeding out


43. What is one way in which the author recommends saving time:

A. perform physical inventories right after year end

B. confirm trade payablesC. send lawyers letters at the same timeD. eliminate the request for cash cut-off

statements

44. SAS No. 122, AU-C Section 505, External Confirmation, states that negative confirmations of accounts receivables should not be used unless control risk is set at which of the following:

A. below maximumB. maximumC. less than 50% of maximumD. zero

45. Company K uses LIFO to value its inventory. At the end of the year, how should K measure its inventory under ASC 330:

A. at net realizable valueB. at lower of cost and net realizable valueC. at lower of cost or marketD. at cost

46. If an accountant is asked to provide some form of a comfort letter to a lender for a client, which of the following is a statement that would be appropriate for the accountant to make to the lender:

A. “The client is not insolvent”B. “The client has the ability to pay all of his or

her debts”C. “The client has informed me that he is self-

employed”

D. “The client’s business is profitable”

47. Harry Calhoun is auditing the current year’s 20X2 financial statements for X Corporation. The prior period 20X1 financial statements were audited by another auditor. In Harry’s current year 20X2 audit report, Harry includes an other-matter paragraph, separating his responsibility for the 20X1 prior year financial statements. In the current year 20X2 management representation letter, how should Harry handle 20X1 representations:

A. Harry is not required to obtain representations for 20X1 because he is not issuing an opinion on 20X1

B. Harry must obtain representations for 20X1C. Harry is not allowed to obtain representations

for 20X1D. Harry must obtain representations for 20X1,

but insert a disclaimer related to those representations

48. Which of the following is true as it relates to including the city and state on the auditor’s report:

A. the city and state must be placed under the auditor’s signature on the report in all cases

B. the auditor is not permitted to place the city and state under the auditor’s signature if such information is presented in the firm’s letterhead on which the report is printed

C. the SASs do not require the city and state to be named in the auditor’s report

D. if the city and state are named in the firm’s letterhead on which the report is issued, the city and state do not have to be presented below the auditor’s signature

49. Jimmy is a CPA who is auditing Company B. Jimmy identifies a deficiency in internal control that does not rise to being either a significant deficiency or a material weakness. What action must Jimmy take, if any:

A. not a single thing has to be done B. communicate with the board of directorsC. make an oral or written communication with

managementD. modify the audit report


50. A/An ____________ is defined as a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

A. significant deficiencyB. error C. irregularityD. severe deficiency

51. Which of the following is an example of a result that can occur if a CPA firm has a problem with a DOL employee benefit plan audit:

A. the Form 5500 can be disqualifiedB. the CPA firm can be asked to take additional

CPEC. nothing can occur. The DOL has no authority

over the CPA firmD. the CPA firm can be fined by the AICPA and

state CPA society

52. Company X is trying to reduce cheating in the company. Which of the following is not an action that might reduce cheating:

A. reduce the lighting so that the lights are dimmer than usual

B. hang mirrors with eyes on itC. install mock camerasD. have an honor code

53. Cheryl Tige has a problem. She is an employee of a company. Cheryl likes to perpetrate fraud and enjoys the challenge of not getting caught. When she commits the fraud, she receives a “cheaters” high. What kind of fraudster or cheater is she:

A. isolated fraudsterB. perpetual fraudsterC. talented cheater

D. chronic cheater

54. Slim Stallone CPA is the partner in the CPA firm that is performing a PCAOB audit. Slim is shy and does not want his name disclosed under the new PCAOB rules. Which of the following must be disclosed under the PCAOB rules:

A. the name of the engagement partnerB. the home address of the engagement partnerC. the name of each staff person who worked at

least 200 hours on the engagement D. the number of lawsuits against the CPA firm

over the past five years

55. In new AU-C 700A, which of the following must be presented in the first section in the auditor’s report:

A. OpinionB. Responsibilities of ManagementC. Auditor’s ResponsibilityD. Key Matters

56. Key audit matters consist of those matters that were _________ the audit of the financial statements:

A. relevant toB. of most significance inC. important toD. critical to

57. An adverse opinion is an example of which of the following:

A. a modified opinionB. an unmodified opinionC. a qualified opinion

D. a disclaimer of opinion


58. Which kind of paragraph refers to a matter other than those presented or disclosed in the financial statements that is relevant to users’ understanding of the audit, the auditor’s responsibilities, or the audit report:

A. unmodified opinion paragraphB. other-matter paragraphC. qualified opinion paragraphD. adverse opinion paragraph

59. Which of the following is not an example of circumstances in which the auditor may consider it necessary to include an emphasis-of-matter paragraph:

A. an uncertainty relating to the future outcome of unusually important litigation or regulatory action

B. a major catastrophe that has had, or continues to have, a significant effect on the entity’s financial position

C. a significant transaction with a related party D. an alert that restricts the use of the auditor’s

written communication

60. _________________ is defined as “significant transactions that are outside the normal course of business for the entity or that otherwise appear to be unusual due to their timing, size, or nature.”

A. material eventsB. extraordinary transactionsC. major ensuing eventsD. significant unusual transactions

61. Which of the following actions does AU-C 703, SAS No. 136 make to the limited-scope audit of ERISA plans:

A. the limited-scope audit is expanded B. the limited-scope audit is now required, and

no longer optionalC. the limited-scope audit is eliminated and

replacedD. there is no change to the limited-scope audit

62. One change made by AU-C 703 with respect to an ERISA-plan audit is that an auditor should do which of the following:

A. obtain a final version of Form 5500 prior to dating the auditor’s report

B. obtain a draft version of Form 5500 prior to issuing the auditor’s report

C. obtain a final version of Form 5500 prior to issuing the auditor’s report

D. obtain a draft version of Form 5500 prior to dating the auditor’s report

63. The scope of SAS No. 137 applies to other information that is included in which of the following of the entity:

A. notes to financial statementsB. financial statementsC. tax returnsD. annual report

64. When an auditor has obtained other information, he or she should report on the information as follows:

A. include an emphasis-of-matter paragraph in the auditor’s report

B. include an “other information” section in the auditor’s report

C. income an other-matter paragraph in the auditor’s report

D. disclose the other information only in the notes to financial statements

65. Which of the following is referenced in the new definition of materiality in SAS No. 138:

A. experienced practitioner B. reasonable userC. sophisticated businessperson

D. qualified investor


66. A change made by SAS No. 138 is to clarify that judgments about materiality involve which of the following:

A. qualitative considerations onlyB. quantitative considerations onlyC. neither qualitative nor quantitative

considerationsD. both qualitative and quantitative

considerations

67. Susie CPA is issuing an auditor’s report on the regulatory basis and has included language to describe the purpose for which the financial statements were prepared. Her auditor’s report should also include which of the following:

A. a statement that the financial statements may not be suitable for another purpose

B. a statement that a user must have a general understanding of the regulatory basis of accounting

C. a going-concern paragraphD. a statement defining “restricted use”

68. Which one of the following is an example given by SAS No. 139 of certain matters in the auditor’s report on the entity’s complete set of financial statements for which the auditor should consider the implications they have on the audit of a single financial statement or for a specific element of a financial statement:

A. an unmodified opinion B. an emphasis-of-matter or other-matter

paragraph C. a disclosure of subsequent events

D. a report on supplementary information

69. Sally CPA is performing an audit of Cool Boy Air Conditioning Company. Based on the amendment SAS No. 140 makes to AU-C 730, how should Sally present required supplementary information to conform with changes made by SAS No. 134 and 137:

A. in an other-matter paragraph in the auditor’s report

B. in a footnote to the auditor’s reportC. in an emphasis-of-matter paragraph in the

auditor’s reportD. in a separate section in the auditor’s

report entitled “Required Supplementary Information”

70. SAS No. 140 amends the definition of _____________ to align with the new definition of materiality found in SAS No. 138.

A. material noncomplianceB. immaterialC. insignificantD. noncompliance with rules and regulations

71. In accordance with SAS No. 142, which of the following is an example of an attribute of information obtained as audit evidence:

A. its relevanceB. its volume C. its locationD. its timing relative to the audit report release

date


72. Louie CPA is auditing the financial statements of Sal’s Safeway Construction Co. In evaluating information to be used as audit evidence, which of the following is an attribute of the information obtained in Louie’s audit:

A. whether such information corroborates or contradicts assertions in the financial statements

B. whether such information corroborates, but does not contradict assertions in the financial statements

C. whether such information contradicts, but does not corroborate assertions in the financial statements

D. whether such information fails to corroborate or contradict assertions in the financial statements

73. Sally CPA is auditing the financial statements of Marie’s Sweet and Sour Donuts LLC. In evaluating the information she uses as audit evidence, which of the following should Sally do:

A. evaluate whether the information is sufficiently abundant

B. evaluate whether the information is sufficiently precise and detailed

C. evaluate whether the information is correlated with the information needed for the engagement

D. evaluate whether the information is targeted toward high-risk areas

74. Melissa CPA is auditing the financial statements of Company Y. Melissa wants to use automated tools and techniques on information that can be used as audit evidence. In accordance with SAS No. 142, Melissa can use automated tools and techniques on which of the following functions:

A. to perform a risk assessment procedure, but not substantive procedures which must be performed manually

B. to perform risk assessment procedures, substantive tests, and internal control

C. limited to obtaining audit evidence about Y’s internal control

D. limited to performing substantive procedures

75. Larry CPA is auditing Lee’s Last Minute Soup Co. In addressing the Company’s accounting estimates, SAS No. 143 requires which of the following:

A. inherent risk should be assessed, but not control risk

B. control risk should be assessed, but not inherent risk

C. both inherent risk and control risk should be assessed together simultaneously

D. inherent risk and control risk should be assessed separately

76. SAS No. 143 defines _______________ as “susceptibility to an inherent lack of precision in measurement.”

A. estimation uncertaintyB. control riskC. inherent riskD. authenticity

77. Phil CPA is auditing Sarah’s Famous Barbeque. In response to Phil’s assessment of the risks of material misstatement from accounting estimates, Phil is performing further audit procedures. Which of the following is not one of the three approaches that SAS No. 143 references should be performed:

A. obtaining audit evidence from events occurring up to the date of the auditor’s report

B. testing how management made the accounting estimate

C. developing an auditor’s point estimate or range

D. determine whether any risk is a significant risk


78. Which of the following is a change made by SSAE No. 19:

A. requires a practitioner to issue a restricted-use report

B. requires users to take responsibility for the sufficiency of procedures performed

C. allows the practitioner to report directly on a subject matter

D. precludes a practitioner to develop and assist in developing procedures

79. Which of the following is one of the four types of engagements within SSAE No. 21’s new definition of attestation engagement:

A. compilation engagementB. direct examination engagementC. audit engagementD. preparation engagement

80. Ralph CPA is asked to perform a review engagement under SSAE No. 22. Which of the following is a subject matter on which Ralph is permitted to perform a review in accordance with SSAE No. 22:

A. prospective financial informationB. financial statements subject to the rules in

SSARS No. 21C. internal controlD. schedule of investment returns

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