Wiley CPA Excel Exam Review Study Guide Auditing And Attestation 2015 14th Edition O. Ray Whittington - Solutions

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A CPA in public practice is required to comply with the provisions of the Statements on Standards for Accounting and Review Services when Advising a client regarding the selection of computer software Advocating a client’s position before the IRSa. Yes Yesb. Yes Noc. No Yesd. No No
Under which of the following circumstances would the expression of a disclaimer of opinion be inappropriate?a. The chief financial officer and the chief executive officer are unwilling to sign the management representation letter.b. The auditor is unable to determine the extent of or the amounts
Which of the following strategies most likely could improve the response rate of the confirmation of accounts receivable?a. Including a list of items or invoices that constitute the account balance.b. Restricting the selection of accounts to be confirmed to those customers with relatively large
A nonissuer has asked an accountant to compile its financial statements that omit substantially all disclosures required by generally accepted accounting principles (GAAP). The accountant may comply with the entity’s request provided that thea. Financial statements are compiled in conformity with
During an audit of the financial statements of a company, the CFO provides a spreadsheet to the audit team that contains a number of errors that are material to the financial statements.Under what circumstances would this situation be a violation of the rules of the Sarbanes-Oxley Act of 2002 on
Each of the following statements is correct regarding the likely sources of potential misstatements in an integrated audit of a nonissuer, except:a. An evaluation of the entity’s information technology risk and controls should be performed separately from the top-down approach.b. The controls
Which of the following procedures regarding accounts payable would an accountant most likely perform during a nonissuer’s review engagement?a. Obtaining an understanding of the entity’s internal control over accounts payable.b. Assessing fraud risk within the accounts payable function.c.
In order to obtain an initial understanding of internal control sufficient to assess the risk of material misstatement of the financial statements, an auditor would most likely perform which of the following procedures?a. Tests of key controls to determine whether they are effective.b. Expanded
In an integrated audit of a nonissuer, an auditor should issue an adverse opinion on the effectiveness of an entity’s internal control in which of the following situations?a. The financial statements are misstated.b. A material weakness exists.c. The entity may not continue as a going concern.d.
To ensure that the audit report for an issuer is prepared in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, the report musta. Be prepared within 60 days of the end of the issuer’s fiscal year end unless extenuating circumstances, as outlined in the act, are publicly disclosed.b.
Section 404 of the Sarbanes-Oxley Act of 2002 requires each annual report of an issuer to include which of the following?a. Representations from the company’s external auditors that the company has effective internal control over operations.b. Management representations that the company’s
In an engagement to examine management’s discussion and analysis (MD&A), which of the following best defines control risk?a. The risk that an assertion within the MD&A will lead to a material misstatement.b. The risk of detecting misstatements that are material to the MD&A presentation taken as a
According to the AICPA Code of Professional Conduct, under which of the following circumstances may a CPA receive a contingent fee for services?a. Examining a client’s prospective financial information.b. Preparing a client’s federal income tax return.c. Representing a client in an IRS
Which of the following statements is least likely to be included in a practitioner’s report on agreed-upon procedures?a. The use of the report is subject to specified restrictions.b. The report has provided limited assurance.c. The subject matter is the responsibility of the responsible party.d.
Generally accepted government auditing standards use which of the following terms to describe a professional requirement to comply with a standard or provide a special explanation for not doing so?a. Explanatory requirement.b. Conditional requirement.c. Unconditional requirement.d. Presumptively
How would an auditor of a nonissuer most appropriately respond to a heightened assessed risk of material misstatement?a. By obtaining a management representation letter.b. By performing analytical procedures, but not substantive procedures, at period end.c. By assigning more experienced staff or
The degree of audit risk always present in an audit engagement is referred to as a combination of nonsampling and sampling risk. Which of the following is an example of nonsampling risk?a. The auditor selecting inappropriate auditing procedures.b. The internal control being more effective than the
Which of the following characteristics of prospective financial statements would require the practitioner to include in a report on the prospective financial statements a paragraph that restricts the use and distribution of the report?a. They are considered a financial projection.b. They are
A CPA firm has decided to rely on the audit work performed by another audit firm. Which of the following procedures should the CPA firm perform when taking responsibility for the other firm’s audit work?a. Review the other firm’s audit workpapers and reperform a subset of audit testing to
According to the PCAOB, which of the following tax services may be provided jointly with the audit of an issuer’s financial statements without impairing independence?a. Planning and issuing an opinion in favor of the tax treatment of an aggressive tax position.b. Reviewing a proposed transaction
Which of the following statements is correct regarding the predictability of analytical procedures in a financial statement audit?a. Relationships involving only balance sheet accounts tend to be more predictable than relationships involving income statement accounts.b. Relationships involving
Which of the following is a component of internal control?a. Financial reporting.b. Operating effectiveness.c. Risk assessment.d. Organizational structure.
A CPA is required to comply with the provisions of Statements on Standards for Attestation Engagements when engaged toa. Provide assurance on investment performance statistics prepared by an investment company on established criteria.b. Issue a letter for an underwriter, also known as a comfort
Which of the following procedures would an accountant most likely perform when reviewing the financial statements of a nonissuer?a. Ask management about the entity’s procedures for recording transactions.b. Obtain an understanding of the entity’s internal control components.c. Send a letter of
Which of the following procedures would an auditor most likely perform in searching for unrecorded payables?a. Reconcile receiving reports with related cash payments made just prior to the year end.b. Review the responses of accounts receivable confirmations for indications of disputes with
For which of the following judgments may an independent auditor share responsibility with an entity’s internal auditor who is assessed to be both competent and objective?Evaluation of significant accounting estimates Materiality of misstatementsa. Yes Yesb. Yes Noc. No Yesd. No No
In the integrated audit of an issuer, which of the following would not be considered an entity-level control?a. Management’s established controls to monitor results of operations.b. The executive committee’s process for assessing business risk.c. The board of directors’ controls to monitor
In accordance with Office of Management and Budget audit requirements for audits of non-Federal entities expending Federal awards, which of the following statements is accurate regarding Federal awards expended?a. Donated surplus property cannot be valued at the assessed value provided by the
According to the AICPA Code of Professional Conduct, which of the following disclosures of client information by a member CPA to an outside party would normally require client consent?a. Disclosure of confidential client information to a thirdparty service provider when the member does not enter
West, CPA, is engaged to compile the financial statements of Lake Co., a nonissuer. Lake’s financial statements are prepared in conformity with the cash basis of accounting.If Lake’s financial statements do not disclose the basis of accounting used, which of the following statements best
Each of the following is a required attribute of an issuer’s audit committee financial expert, excepta. The ability to assess the application of accounting principles in connection with estimates, accruals, and reserves.b. Significant audit experience as a certified public accountant.c. An
When a former partner of a registered public accounting firm who left the firm two years ago accepts a financial reporting oversight role at an issuer audit client, the independence of the registered public accounting firm is considered impaired unless which of the following is true?a. The former
Each of the following broker-dealer relationships impairs auditor independence with respect to a broker-dealer issuer audit client, except:a. The auditor has a brokerage account that holds both U.S. securities and assets other than cash or securities.b. The auditor has a brokerage account that
Which of the following statements is true with regard to review services performed under Statements on Standards for Accounting and Review Services?a. To perform a review, an accountant need not be independent but should disclose that fact.b. In a review, an accountant will express limited
Which of the following would an auditor most likely consider in evaluating the control environment of an audit client?a. Overall employee satisfaction with assigned duties.b. The number of CPAs in the accounting department.c. Management reviews of monthly financial statements.d. Management’s
Which of the following is correct regarding the communication between successor and predecessor auditors?a. The successor and predecessor auditors should communicate with each other in writing regarding potential problems.b. The successor auditor should contact the predecessor auditor prior to
Analytical procedures are required for which of the following?a. Audit planning.b. Tests of balances.c. Client retention decision.d. Internal control evaluation.
Which of the following circumstances most likely would require an auditor to apply an omitted procedure after the audit report issuance date?a. The auditor’s report is unsupported as a result of the omitted procedure.b. Generally accepted accounting principles are violated.c. The client has
Which of the following parties should an auditor notify first when discovering an immaterial fraud is committed by an accounting clerk?a. The audit committee.b. An appropriate level of management.c. The client’s legal counsel.d. The client’s internal auditor.
Which of the following statements is correct regarding an independent auditor’s reliance on a client’s internal audit staff?a. An independent auditor should not reduce the amount of audit testing based on the work of internal auditors.b. An independent auditor should assess the organizational
Which of the following types of risks most likely would increase if accounts receivable are confirmed three months before year end?a. Inherent.b. Control.c. Detection.d. Business.
Which of the following circumstances would generally require an accountant to decline to perform a compilation of financial statements under Statements on Standards for Accounting and Review Services?a. A substantial portion of generally accepted accounting principles disclosures was omitted.b.
Which of the following items is an example of an inherent limitation in an internal control system?a. Segregation of employee duties.b. Human error in decision making.c. Ineffective board of directors.d. Understaffed internal audit functions.
Which of the following actions is an analytical procedure that an auditor most likely would use while auditing a company’s notes payable?a. Multiplying the average outstanding loan balance by the interest rate and comparing the result to interest expense actually recorded.b. Performing
Which of the following steps should be performed first in applying analytical procedures?a. Determine whether the difference between the expectation and the recorded amount is reasonable.b. Investigate and evaluate significant differences from the expectation.c. Develop an expectation of a balance
When performing an audit, a CPA notes that bad-debt expense is unusually high relative to similar firms in the industry. The CPA should recommend which of the following controls?a. Use approved price lists for customer billing.b. Send monthly statements of account to customers with outstanding
Which of the following procedures most likely would be performed in an engagement to review financial statements of a nonissuer?a. Analytical review of payroll tax expense.b. Testing of internal controls over cash receipts.c. Testing the aging of accounts payable.d. Confirmation of notes receivable.
Under which of the following circumstances would using the blank form of confirmation of accounts receivable most likely be preferable to other types of positive confirmations?a. The auditor’s combined assessed level of control risk and inherent risk is low.b. Prior years’ audits indicate a
Which of the following events occurring after the issuance of the auditor’s report most likely would cause the auditor to make further inquiries about the previously issued financial statements?a. The auditor discovers that the entity intends to present comparative financial statements in
Which of the following would be considered an analytical procedure?a. Examining a sample of paid vendors’ invoices for proper approval by an authorized supervisor.b. Developing the current year’s expected net sales based on the entity’s sales trend of prior years.c. Projecting a deviation
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
Violation of which of the following is most likely to be considered a “direct effect” illegal act?a. Environmental protection laws.b. Occupational safety and health law violations.c. Securities trading laws.d. Tax laws.
Wilson, CPA, has been engaged to review the financial statements of Roland Company, a nonissuer company. The management of Roland Company has refused to sign a representation letter for the engagement. What should be Wilson’s response?a. Not issue a review report.b. Issue a standard review report
An accountant should establish an understanding with management regarding the services to be performed and document in writing for a Compilation Reviewa. Yes Yesb. Yes Noc. No Yesd. No No
According to the ethical standards for the profession, which of the following is not acceptable advertising content?a. The fees for services.b. The qualifications of professional staff.c. Implications regarding the ability to inuence regulatory bodies.d. Implications regarding the value of the
A significant circumstance-caused scope limitation in a Sarbanes/Oxley 404 internal control audit is more likely to result in a(n)a. Adverse opinion.b. Qualified opinion.c. Unmodified (unqualified) opinion with an emphasis-ofmatter paragraph.d. Scope reduction opinion.
A change from one accounting principle to another with which the auditor concurs is likely to result in a report with a(n)Qualified opinion Adverse opiniona. Yes Yesb. Yes Noc. No Yesd. No No
When an auditor has a question concerning a client’s ability to continue as a going concern, the auditor considers management’s plans for dealing with the situation. That consideration is most likely to include consideration of management’s plans toa. Decrease ownership equity.b. Dispose of
Which of the following is not ordinarily performed in response to the risk of management override?a. Evaluating the rationale for significant unusual transactions.b. Observe counts of inventory at all locations.c. Review accounting estimates for bias.d. Test appropriateness of journal entries and
Prior to or in conjunction with obtaining information to identify risks of fraud, which of the following is required?a. A brainstorming session among team members about where financial statements may be susceptible to fraud.b. A discussion with the client’s legal counsel as to contingent
After the audit documentation completion date, the auditora. May not delete any audit documentation.b. May not make changes in audit documentation.c. May not add new information to audit documentation.d. May make changes or deletions to audit documentation providing that the fact that alterations
Processing data through the use of simulated files provides an auditor with information about the reliability of controls. One of the techniques involved in this approach makes use ofa. Controlled reprocessing.b. Integrated test facility.c. Input validation.d. Program code checking
In estimation sampling for attributes, which one of the following must be known in order to appraise the results of the auditor’s sample?a. Estimated dollar value of the population.b. Standard deviation of the values in the population.c. Actual occurrence rate of the attribute in the
How are management’s responsibility and the auditor’s responsibility represented in the standard auditor’s report?Management’s responsibility Auditor’s responsibilitya. Explicitly Explicitlyb. Implicitly Implicitlyc. Implicitly Explicitlyd. Explicitly Implicitly
Kane, CPA, concludes that there is substantial doubt about Lima Co.’s ability to continue as a going concern for a reasonable period of time. If Lima’s financial statements adequately disclose its financial difficulties, Kane’s auditor’s report is required to include a paragraph that
Which of the following is not considered by the PCAOB as an indicator of the existence of a material weakness in internal control?a. Identification of a material fraud committed by senior management in the areas of sales.b. Restatement of previously issued financial statements to reect correction
Which of the following procedures is not included in a review engagement of a nonissuer (nonpublic) entity?a. Inquiries of management.b. Inquiries regarding events subsequent to the balance sheet date.c. Any procedures designed to identify relationships among data that appear to be unusual.d. Tests
According to the ethical standards for the profession, which of the following fee arrangements is prohibited?a. A fee for a review of financial statements that is based on time spent on the engagement.b. A fee for a review of financial statements that is based on time spent and a premium for the
When providing limited assurance that the financial statements of a nonissuer (nonpublic) entity require no material modifications to be in accordance with generally accepted accounting principles, the accountant shoulda. Understand internal control.b. Test the accounting records that identify
Lott and Lott, CPAs, recently acquired a public company as an audit client. With respect to this client, the Sarbanes-Oxley Act of 2002 requiresa. Rotation of accounting firms every five years.b. Joint audits by two auditing firms.c. Rotation of the partner in charge of the audit every five
The primary reason an auditor requests letters of inquiry be sent to a client’s attorneys is to provide the auditor witha. A description and evaluation of litigation, claims, and assessments that existed at the date of the balance sheet.b. An expert opinion as to whether a loss is possible,
Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory items provide assurance about management’s assertion ofa. Completeness.b. Existence.c. Presentation.d. Valuation.
Which of the following is an effective control over cash payments?a. Signed checks should be mailed under the supervision of the check signer.b. Spoiled checks that have been voided should be disposed of immediately.c. Checks should be prepared only by persons responsible for cash receipts and cash
In properly designed internal control, the same employee should not be permitted toa. Sign checks and cancel supporting documents.b. Receive merchandise and prepare a receiving report.c. Prepare disbursement vouchers and sign checks.d. Initiate a request to order merchandise and approve merchandise
In considering internal control, the auditor is basically concerned that it provides reasonable assurance thata. Operational efficiency has been achieved in accordance with management plans.b. Material misstatements due to errors and fraud have been prevented or detected.c. Controls have not been
Audit evidence on the proper segregation of duties ordinarily is best obtained bya. Preparation of a owchart of duties performed by available personnel.b. Inquiring whether control activities operated consistently throughout the period.c. Reviewing job descriptions prepared by the personnel
Under the ethical standards of the profession, which of the following investments in a client is not considered to be a direct financial interest?a. An investment held through a nonclient regulated mutual fund.b. An investment held through a nonclient investment club.c. An investment held in a
For purposes of an audit of internal control performed under Public Company Accounting Oversight Board standards, a significant deficiency is a control deficiency thata. Is at least as severe as a material weakness.b. Is probable of occurring in an amount that is material.c. Must be communicated to
Prior to beginning the fieldwork on a new audit engagement in which a CPA does not possess expertise in the industry in which the client operates, the CPA shoulda. Reduce audit risk by lowering the preliminary levels of materiality.b. Design special substantive tests to compensate for the lack of
Which of the following is an audit least likely to detect?a. Theft of cash received from collection of accounts receivable.b. Intentional omission of transactions relating to equipment purchases.c. Intentional violations of occupational safety and health laws.d. Misapplication of accounting
The risk that an auditor’s procedures will lead to the conclusion that a material misstatement does not exist in an account balance when, in fact, such misstatement does exist is referred to asa. Audit risk.b. Inherent risk.c. Control risk.d. Detection risk.
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.
A limitation on the scope of an auditor’s procedures is likely to result in a report with a(n)Qualified opinion Adverse opiniona. Yes Yesb. Yes Noc. No Yesd. No No
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?a. A review of financial statements.b. An examination of prospective financial statements.c.
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?The measure of tolerable misstatement is Misstatement frequency is expected to bea. Large Lowb. Small Highc.
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
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,

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Wiley CPA Excel Exam Review Study Guide Auditing And Attestation 2015 14th Edition O. Ray Whittington - Solutions

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