Wiley Cpa Exam Review 2013 Auditing And Attestation 10th Edition O Ray Whittington - Solutions

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Which of the following statements is generally correct about the sample size in statistical sampling when testing internal controls?a. As the population size doubles, the sample size should increase by about 67%.b. The sample size is inversely proportional to the expected error rate.c. There is no
This separate paragraph should indicate thea. Substantive reasons for the prior year’s qualified opinion.b. Reason for changing the level of service from an audit to a review.c. Consistency of application of accounting principles between year 2 and year 1.d. Restriction on the distribution of the
and year
Hart, CPA, is engaged to review the year-2 financial statements of Kell Co., a nonissuer. Previously, Hart audited Kell’s year-1 financial statements and expressed a qualified opinion due to a scope limitation. Hart decides to include a separate paragraph in the year-2 review report because
A CPA is engaged to audit the financial statements of a nonissuer. After the audit begins, the client’s management questions the extent of procedures and objects to the confirmation of certain contracts. The client asks the accountant to change the scope of the engagement from an audit to a
A cooling-off period of how many years is required before a member of an issuer’s audit engagement team may begin working for the registrant in a key position?a. One year.b. Two years.c. Three years.d. Four years.
According to the AICPA Statements on Standards for Attestation Engagements, a public accounting firm should establish quality control policies to provide assurance about which of the following matters related to agreed-upon procedures engagements?a. Use of the report is not restricted.b. The public
In which of the following circumstances would a covered member’s independence be impaired with respect to a nonissuer client?a. The member is designated to serve as guardian of a friend’s children if the need arises, and the friend’s estate, which would be held in trust for the children,
Which of the following procedures would be generally performed when evaluating the accounts receivable balance in an engagement to review financial statements in accordance with Statements on Standards for Accounting and Review Services?a. Perform a reasonableness test of the balance by computing
Which of the following courses of action is the most appropriate if an auditor concludes that there is a high risk of material misstatement?a. Use smaller, rather than larger, sample sizes.b. Perform substantive tests as of an interim date.c. Select more effective substantive tests.d. Increase of
Which of the following statements best describes why an auditor would use only substantive procedures to evaluate specific relevant assertion and risks?a. The relevant internal control components are not well documented.b. The internal auditor already has tested the relevant controls and found them
Which of the following items should be included in an auditor’s report for financial statements prepared in conformity with a special-purpose financial reporting framework?a. A sentence stating that the auditor is responsible for the financial statements.b. A title that includes the word
Which of the following activities is an accountant not responsible for in review engagements performed in accordance with Statements on Standards for Accounting and Review Services?a. Performing basic analytical procedures.b. Remaining independent.c. Developing an understanding of internal
Which of the following management assertions is an auditor most likely testing if the audit objective states that all inventory on hand is reflected in the ending inventory balance?a. The entity has rights to the inventory.b. Inventory is properly valued.c. Inventory is properly presented in the
A company employs three accounts payable clerks and one treasurer. Their responsibilities are as follows:Employee Responsibility Clerk 1 Reviews vendor invoices for proper signature approval. Clerk 2 Enters vendor invoices into the accounting system and verifies payment terms. Clerk 3 Posts entered
Which of the following items should be included in prospective financial statements issued in an attestation engagement performed in accordance with Statements on Standards for Attestation Engagements?a. All significant assertions used to prepare the financial statements.b. All significant
A client has capitablizable leases but refuses to capitalize them in the financial statements. Which of the following reporting options does an auditor have if the amounts pervasively distort the financial statements?a. Qualified opinion.b. Unmodified (unqualified) opinion.c. Disclaimer opinion.d.
Which of the following controls should prevent an invoice for the purchase of merchandise from being paid twice?a. The check signer accounts for the numerical sequence of receiving reports used in support of each payment.b. An individual independent of cash operations prepares a bank
According to the Code of Professional Conduct of the AICPA, for which type of service may a CPA receive a contingent fee?a. Performing an audit of a financial statement.b. Performing a review of a financial statement.c. Performing an examination of prospective financial information.d. Seeking a
For which of the following audit tests would an auditor most likely use attribute sampling?a. Inspecting purchase orders for proper approval by supervisors.b. Making an independent estimate of recorded payroll expense.c. Determining that all payables are recorded at year-end.d. Selecting accounts
An auditor is engaged to report on selected financial data that are included in a client-prepared document containing audited financial statements. Under these circumstances, the report on the selected data shoulda. State that the presentation is a comprehensive basis of accounting other than
In confirming a client’s accounts receivable in prior years, an auditor discovered many differences between recorded account balances and confirmation replies.These differences were resolved and were not misstatements. In defining the sampling unit for the current year’s audit, the auditor most
Under the ethical standards of the profession, which of the following is a“permitted loan” regardless of the date it was obtained?a. Home mortgage loan.b. Student loan.c. Secured automobile loan.d. Personal loan.
Zag Co. issues financial statements that present financial position and results of operations but Zag omits the related statement of cash flows. Zag would like to engage Brown, CPA, to audit its financial statements without the statement of cash flows although Brown’s access to all of the
Which of the following procedures would a CPA most likely perform during the risk assessment phase of a financial statement audit?a. Make inquiries of the client’s lawyer concerning pending litigation.b. Perform cutoff tests of cash receipts and disbursements.c. Compare financial information with
An auditor who is unable to form an opinion on a new client’s opening inventory balances may issue an unmodified (unqualified) opinion on the current year’sa. Income statement only.b. Statement of cash flows only.c. Balance sheet only.d. Statement of shareholders’ equity only.
A CPA firm would best provide itself reasonable assurance of meeting its responsibility to offer professional services that conform with professional standards bya. Establishing an understanding with each client concerning individual responsibilities in a signed engagement letter.b. Assessing the
To compile financial statements of a nonissuer in accordance with Statements of Standards for Accounting and Review Services, an accountant shoulda. Identify material misstatements in the financial statements.b. Review bank statement reconciliations.c. Make inquiries of significant customers,
An accountant was asked by a potential client to perform a compilation of its financial statements. The accountant is not familiar with the industry in which the client operates. In this situation, which of the following actions is the accountant most likely to take?a. Request that management
The controller of a small utility company has interviewed audit firms proposing to perform the annual audit of their employee benefit plan. According to the guidelines of the Department of Labor (DOL), the selected auditor must bea. The firm that proposes the lowest fee for the work required.b.
An accountant can perform, with preapproval of the audit committee of the board of directors, which of the following nonaudit services during the audit of an issuer?a. Bookkeeping services.b. Human resource services.c. Tax planning services.d. Internal audit outsourcing services.
Each of the following is a type of a known misstatement, excepta. An inaccuracy in processing data.b. The misapplication of accounting principles.c. Differences between management and the auditor’s judgment regarding estimates.d. A difference between the classification of a reported financial
A government internal audit function is presumed to be free from organizational independence impairments for reporting internally when the head of the organizationa. Is not accountable to those charged with governance.b. Performs auditing procedures that are consistent with generally accepted
Under Sarbanes-Oxley Act of 2002, exactly how many consecutive years may an audit partner lead an audit for an issuer?a. Four years.b. Five years.c. Six years.
The understanding with the client regarding a financial statement audit generally includes which of the following matters?a. The expected opinion to be issued.b. The responsibilities of the auditor.c. The contingency fee structure.d. The preliminary judgment about materiality.
In which of the following paragraphs (section) of an auditor’s report on a nonpublic company does an auditor communicate the nature of the audit procedures performed?a. Introductory paragraph.b. Opinion paragraph.c. Auditor’s Responsibilities paragraph.d. Emphasis-of-matter paragraph.
Of which of the following matters is a management representation letter required to contain specific representations?a. Length of a material contract with a new customer.b. Information concerning fraud by the CFO.c. Reason for a significant increase in revenue over the prior year.d. The competency
Under which of the following circumstances should an auditor consider confirming the terms of a large complex sale?a. When the assessed level of control risk over the sale is low.b. When the assessed level of detection risk over the sale is high.c. When the combined assessed level of inherent and
An auditor is not required to confirm accounts receivable if the overall balance of the accounts isa. Older than the prior year.b. Immaterial.c. Smaller than expected.d. Subject to valuation estimates.
Which of the following procedures would an auditor most likely perform in the planning stage of an audit?a. Make a preliminary judgment about materiality.b. Confirm a sample of the entity’s accounts payable with known creditors.c. Obtain written representations from management that there are no
Which of the following situations most likely represents the highest risk of a misstatement arising from misappropriations of assets?a. A large number of bearer bonds on hand.b. A large number of inventory items with low sales prices.c. A large number of transactions processed in a short period of
Which of the following is the best way to compensate for the lack of adequate segregation of duties in a small organization?a. Disclosing lack of segregation of duties to the external auditors during the annual review.b. Replacing personnel every three or four years.c. Requiring accountants to pass
In which of the following should an auditor’s report refer to the lack of consistency when there is a change in accounting principle that is significant?a. The scope paragraph.b. The opinion paragraph.c. An emphasis-of-matter paragraph following the opinion paragraph.d. An emphasis-of-matter
An auditor should consider which of the following when evaluating the ability of a company to continue as a going concern?a. Audit fees.b. Future assurance services.c. Management’s plans for disposal of assets.d. A lawsuit for which judgment is not anticipated for 18 months.
Which of the following procedures most likely would be performed in a review engagement of a nonissuer’s financial statements in accordance with Statements on Standards for Accounting and Review Services?a. Making inquiries of management.b. Observing a year-end inventory count.c. Assessing the
Obtaining an understanding of an internal control involves evaluating the design of the control and determining whether the control has beena. Authorized.b. Implemented.c. Tested.d. Monitored.
The inability to complete which of the following activities most likely would prevent an accountant from accepting and completing an engagement for a review of financial statements performed in accordance with Statements on Standards for Accounting and Review Services?a. Performing tests of details
In auditing related-party transactions, an auditor ordinarily places primary emphasis ona. The probability that related-party transactions will recur.b. Confirming the existence of the related parties.c. Verifying the valuation of the related-party transactions.d. The adequacy of the disclosure of
A group engagement partner (principal auditor) decides not to refer to the audit of a component (other) auditor who audited a subsidiary of the consolidated financial statements. After making inquiries about the component auditor’s professional reputation and independence, the group engagement
Which of the following would not be considered an analytical procedure?a. Converting dollar amounts of income statement account balances to percentages of net sales for comparison with industry averages.b. Developing the current year’s expected net sales based on the sales trend of similar
Which of the following audit procedures most likely would assist an auditor in identifying conditions and events that may indicate there could be substantial doubt about an entity’s ability to continue as a going concern?a. Confirmation of accounts receivable from principal customers.b.
An accountant who accepts an engagement to compile a financial projection most likely would make the client aware that thea. Projection may not be included in a document with audited historical financial statements.b. Accountant’s responsibility to update the projection for future events and
During an engagement to review the financial statements of a nonissuer(nonpublic) entity, an accountant becomes aware that several leases that should be capitalized are not capitalized. The accountant considers these leases to be material to the financial statements. The accountant decides to
Which of the following information discovered during an audit most likely would raise a question concerning possible illegal acts?a. Related-party transactions, although properly disclosed, were pervasive during the year.b. The entity prepared several large checks payable to cash during the year.c.
In planning an audit, the auditor’s knowledge about the design of relevant controls should be used toa. Identify the types of potential misstatements that could occur.b. Assess the operational efficiency of internal control.c. Determine whether controls have been circumvented by collusion.d.
Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle?a. Fictitious transactions may be recorded that cause an understatement of revenues and an overstatement of receivables.b. Claims received from customers
Which of the following characteristics most likely would heighten an auditor’s concern about the risk of material misstatements in an entity’s financial statements?a. The entity’s industry is experiencing declining customer demand.b. Employees who handle cash receipts are not bonded.c. Bank
According to the profession’s ethical standards, an auditor would be considered independent in which of the following instances?a. The auditor is the officially appointed stock transfer agent of a client.b. The auditor’s checking account that is fully insured by a federal agency is held at a
Which of the following is used to obtain evidence that the client’s equipment accounts are not understated?a. Analyzing repairs and maintenance expense accounts.b. Vouching purchases of plant and equipment.c. Recomputing depreciation expense.d. Analyzing the miscellaneous revenue account
Which of the following is an accurate statement of the nature of the modification of report on a compilation of financial statements of nonissuer company when the accountant is not independent?a. The report need not be modified.b. The report must include a statement that the accountant is not
Which of the following is most likely to result in modification of a compilation report?a. A departure from generally accepted accounting principles.b. A lack of consistency in application of generally accepted accounting principles.c. A question concerning an entity’s ability to continue as a
A proper report on the compilation of the financial statements that omit notes disclosurea. Includes an adverse opinion.b. Indicates that management has omitted such note disclosures.c. Includes a qualification or disclaimer of opinion on the accuracy of such note disclosures.d. Indicates that note
Which of the following is least likely to be considered when assessing inherent risk?a. Nonroutine transactions.b. Estimation transactions.c. Susceptibility to theft.d. Expected effectiveness of controls.
Hart, CPA, is concerned about the type of fee arrangements that are permissible under the profession’s ethical standards. Which of the following professional services may be performed for a contingent fee?
Which of the following factors is generally not considered in determining the sample size for a test of controls?a. Risk of incorrect acceptance.b. Tolerable rate.c. Risk of assessing control risk too low.d. Expected population deviation rate.
In which of the following cases would the auditor be most likely to conclude that all of the items in an account under consideration should be examined rather than tested on a sample basis?
An auditor was unable to obtain audited financial statements or other evidence supporting an entity’s investment in a foreign subsidiary. Between which of the following opinions should the entity’s auditor choose?a. Adverse and unmodified (unqualified) with an emphasis-of-matter paragraph
An accountant has been asked to issue a review report on the balance sheet of a nonissuer (nonpublic) company but not to report on the other basic financial statements.The accountant may not do soa. Because compliance with this request would result in an incomplete review.b. Because compliance with
The objective of auditing procedures applied to segment information is to provide the auditor with a reasonable basis for concluding whethera. The information is useful for comparing a segment of one enterprise with a similar segment of another enterprise.b. Sufficient evidential matter has been
Information accompanying the basic financial statements should not includea. An analysis of inventory by location.b. A statement that the allowance for doubtful accounts is adequate.c. A statement that the depreciable life of a new asset is twenty years.d. An analysis of revenue by product line.
When the audited financial statements of the prior year are presented together with those of the current year, the continuing auditor’s report should covera. Both years.b. Only the current year.c. Only the current year, but the prior year’s report should be presented.d. Only the current year,
According to the ethical standards for the profession, which of the following would impair the independence of an auditor in providing an audit for First State Bank, a nonpublic financial institution?a. The accountant has an automobile loan with the bank collateralized by the automobile.b. The
All corporate capital stock transactions should ultimately be traced to thea. Minutes of the Board of Directors.b. Cash receipts journal.c. Cash disbursements journal.d. Numbered stock certificates.
The auditor’s program for the examination of long-term debt should include steps that require thea. Verification of the existence of the bondholders.b. Examination of any bond trust indenture.c. Inspection of the accounts payable subsidiary ledger.d. Investigation of credits to the bond interest
If the objective of a test of details is to detect overstatements of sales, the auditor should trace transactions from thea. Cash receipts journal to the sales journal.b. Sales journal to the cash receipts journal.c. Source documents to the accounting records.d. Accounting records to the source
Morgan, CPA, is the group engagement partner (principal auditor) for the audit of a nonpublic corporation. Jones, CPA, has audited and reported on the financial statements of a significant subsidiary of the corporation. Morgan is satisfied with the independence and professional reputation of Jones,
What body has the responsibility for issuing auditing standards for auditors of issuer (public) companies?a. The AICPA’s Auditing Standards Board.b. The Chief Accountant of the Securities and Exchange Commission.c. The Public Company Accounting Oversight Board.d. The Financial Accounting
Which of the following situations would most likely require special audit planning by the auditor?a. Some items of factory and office equipment do not bear identification numbers.b. Depreciation methods used on the client’s tax return differ from those used on the books.c. Assets costing less
Before applying substantive tests to the details of asset and liability accounts at an interim date, the auditor shoulda. Assess the difficulty in controlling incremental audit risk.b. Investigate significant fluctuations that have occurred in the asset and liability accounts since the previous
The accounts payable department receives the purchase order form to accomplish all of the following except:a. Compare invoice price to purchase order price.b. Ensure the purchase had been properly authorized.c. Ensure the goods had been received by the party requesting the goods.d. Compare quantity
Which of the following is a control weakness for a company whose inventory of supplies consists of a large number of individual items?a. Supplies of relatively little value are expensed when purchased.b. The cycle basis is used for physical counts.c. The storekeeper is responsible for maintenance
Which of the following controls may prevent the failure to bill customers for some shipments?a. Each shipment should be supported by a prenumbered sales invoice that is accounted for.b. Each sales order should be approved by authorized personnel.c. Sales journal entries should be reconciled to
Under the ethical standards of the profession, which of the following situations involving independent members of an auditor’s family is most likely to impair the auditor’s independence?
On the audit of a nonissuer (nonpublic) company, the purpose of performing risk assessment procedures is toa. Obtain an understanding of the entity and its environment.b. Reduce detection risk.c. Evaluate management ability.d. Determine the operating effectiveness of controls.
A difference of opinion concerning accounting and auditing matters relative to a particular phase of the audit arises between an assistant auditor and the auditor responsible for the engagement. After appropriate consultation, the assistant auditor asks to be disassociated from the resolution of
When one auditor succeeds another, the successor auditor should request thea. Client to instruct its attorney to send a letter of audit inquiry concerning the status of the prior year’s litigation, claims, and assessments.b. Predecessor auditor to submit a list of internal control weaknesses that
Which of the following is least likely to be a test of a control?a. Inquiries of appropriate personnel.b. Inspection of management’s engagement letter.c. Observation of the application of a policy.d. Reperformance of the application of a policy.
When performing a review of an issuer company, which is least likely to be included in the CPA’s inquires of management members with responsibility for financial and accounting matters?a. Subsequent events.b. Significant journal entries and other adjustments.c. Communications with related
A CPA who is not independent may perform which of the following services for a nonissuer company?
If information is for management’s use only, which of the following forms of CPA association with financial information is most likely to result in no report being issued?a. An agreed-upon procedures engagement.b. An audit.c. A compilation.d. A review.
Which of the following is not typically performed when accountants are performing a review of the financial statements of a nonissuer?a. Analytical procedures applied to financial data.b. Inquiries about significant subsequent events.c. Inquiries of the client’s attorney about legal matters.d.
Which of the following is always present in an attestation engagement?a. Assertion about the subject matter.b. Generally accepted assurance principles.c. Subject matter.d. An examination report.
Confirmations of accounts receivable address which assertion most directly?a. Completeness.b. Existence.c. Valuation.d. Classification.
Which is least likely to be a response when an auditor has obtained evidence indicating a risk of material misstatement in the area of inventory?a. Discuss questions of inventory valuation with any other auditors involved with the audit.b. Make oral inquiries of major suppliers in addition to
Accounting control procedures within computer processing may leave no visible evidence indicating that the procedures were performed. In such instances, the auditor should test these controls bya. Making corroborative inquiries.b. Observing the separation of duties of personnel.c. Reviewing
Which of the following is not a covered member for purposes of application of the independence requirements of the AICPA Code of Professional Conduct?a. A staff person on the attest team.b. A staff person that performs tax services for the attest client.c. The partner in charge of the firm office
When an auditor reissues in 20X7 the auditor’s report on the 20X5 financial statements at the request of the client without revising the 20X5 wording, the auditor shoulda. Use the date of the original report.b. Use the date of the client’s request.c. Use the date of the current period report.d.
A company has changed its method of inventory valuation from an unacceptable one to one in conformity with generally accepted accounting principles. The auditor’s report on the financial statements of the year of the change should includea. No reference to consistency.
A note to the financial statements of the First Security Bank indicates that all of the records relating to the bank’s business operations are stored on magnetic disks, and that there are no emergency back-up systems or duplicate disks stored since the First Security Bank and their auditors
Burrow & Co., CPAs, have provided annual audit and tax compliance services to Mare Corp. for several years. Mare has been unable to pay Burrow in full for services Burrow rendered nineteen months ago. Burrow is ready to begin fieldwork for the current year’s audit. Under the ethical standards of

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Wiley Cpa Exam Review 2013 Auditing And Attestation 10th Edition O Ray Whittington - Solutions

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