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Wiley CPA Exam Review Problems And Solutions Vol 2 2011-2012 38th Edition O. Ray Whittington, Patrick R. Delaney - Solutions
Kent is auditing an entity’s compliance with requirements governing a major federal financial assistance program in accordance with the Single Audit Act. Kent detected noncompliance with requirements that have a material effect on that program. Kent’s report on compliance should express a(n)a.
In auditing compliance with requirements governing major federal financial assistance programs under the Single Audit Act, the auditor’s consideration of materiality differs from materiality under generally accepted auditing standards.Under the Single Audit Act, materiality isa. Calculated in
In reporting under Government Auditing Standards, an auditor most likely would be required to communicate management’s misappropriation of assets directly to a federal inspector general when the fraudulent activities area. Concealed by management by circumventing specific internal controls
In performing a financial statement audit in accordance with Government Auditing Standards, an auditor is required to report on the entity’s compliance with laws and regulations. This report shoulda. State that compliance with laws and regulations is the responsibility of the entity’s
Which of the following is a specific documentation requirement that an auditor should follow when auditing in accordance with Government Auditing Standards?a. The auditor should obtain written representations from management acknowledging responsibility for correcting instances of fraud, abuse, and
Wolf is auditing an entity’s compliance with requirements governing a major federal financial assistance program in accordance with Government Auditing Standards.Wolf detected noncompliance with requirements that have a material effect on the program. Wolf’s report on compliance should
An auditor most likely would be responsible for communicating significant deficiencies in the design of internal controla. To the Securities and Exchange Commission when the client is a publicly held entity.b. To specific legislative and regulatory bodies when reporting under Government Auditing
Although the scope of audits of recipients of federal financial assistance in accordance with federal audit regulations varies, these audits generally have which of the following elements in common?a. The auditor is to determine whether the federal financial assistance has been administered in
In reporting under Government Auditing Standards, an auditor most likely would be required to report a falsification of accounting records directly to a federal inspector general when the falsification isa. Discovered after the auditor’s report has been made available to the federal inspector
Which of the following statements is a standard applicable to financial statement audits in accordance with Government Auditing Standards (the “Yellow Book”)?a. An auditor should report on the scope of the auditor’s testing of internal controls.b. All instances of abuse, waste, and
Which of the following statements is a standard applicable to financial statement audits in accordance with Government Auditing Standards (the “Yellow Book”)?a. An auditor should report on the scope of the auditor’s testing of compliance with laws and regulations.b. An auditor should assess
When auditing an entity’s financial statements in accordance with Government Auditing Standards (the “Yellow Book”), an auditor is required to report on I. Recommendations for actions to improve operations.II. The scope of the auditor’s tests of compliance with laws and regulations.a. I
When auditing an entity’s financial statements in accordance with Government Auditing Standards (the “Yellow Book”), an auditor is required to report on I. Noteworthy accomplishments of the program.II. The scope of the auditor’s testing of internal controls.a. I only.b. II only.c. Both I
A governmental audit may extend beyond an examination leading to the expression of an opinion on the fairness of financial presentation to include Program results Compliance Economy &efficiencya. Yes Yes Nob. Yes Yes Yesc. No Yes Yesd. Yes No Yes
Hill, CPA, is auditing the financial statements of Helping Hand, a not-for-profit organization that receives financial assistance from governmental agencies. To detect misstatements in Helping Hand’s financial statements resulting from violations of laws and regulations, Hill should focus on
In auditing a not-for-profit entity that receives governmental financial assistance, the auditor has a responsibility toa. Issue a separate report that describes the expected benefits and related costs of the auditor’s suggested changes to the entity’s internal control.b. Assess whether
When reporting on an examination of a company’s compliance with requirements of specified laws, the practitioner has identified an instance of material noncompliance.Management has agreed to include this instance in its written assertion. The examination report should includea. No modification
A CPA’s report on agreed-upon procedures related to an entity’s compliance with specified requirements should containa. A statement of limitations on the use of the report.b. An opinion about whether management’s assertion is fairly stated.c. Negative assurance that control risk has not been
Mill, CPA, was engaged by a group of royalty recipients to apply agreed-upon procedures to financial data supplied by Modern Co. regarding Modern’s written assertion about its compliance with contractual requirements to pay royalties. Mill’s report on these agreed-upon procedures should contain
Which of the following types of engagements is not permitted under the professional standards for reporting on an entity’s compliance?a. Agreed-upon procedures on compliance with the specified requirements of a law.b. Agreed-upon procedures on the effectiveness of internal control over compliance
A client’s refusal to provide a written assertion in a Trust Services engagement is most likely to result in which of the following types of opinions?a. Adverse.b. Disclaimer.c. Qualified.d. Unqualified with explanatory language.
An engagement in which a CPA considers security, availability, processing integrity, online privacy, and/or confidentiality over any type of defined electronic system is most likely to considered which of the following types of engagements?a. Internal control over financial reporting.b. SysTrust.c.
A CPA’s examination report relating to a WebTrust engagement is most likely to includea. An opinion on whether the site is “hackproof.”b. An opinion on whether the site meets the Web-Trust criteria.c. Negative assurance on whether the site is electronically secure.d. No opinion or other
The WebTrust seal of assurance relates most directly toa. Financial statements maintained on the Internet.b. Health care facilities.c. Risk assurance procedures.d. Web sites.
Trust Service engagements are performed under the provisions ofa. Statements on Assurance Standards.b. Statements on Standards for Attestation Engagements.c. Statements on Standards for Trust Engagementsd. Statements on Auditing Standards.
Which of the following is a term for an attest engagement in which a CPA assesses a client’s commercial Internet site for predefined criteria such as those over online privacy?a. ElectroNet.b. EDIFACT.c. TechSafe.d. WebTrust.
Which of the following statements is correct relating to an auditor’s review engagements on an entity’s management discussion and analysis (MD&A)?a. A review consists principally of applying analytical procedures and search and verification procedures.b. The review report of a public entity
Which of the following is an assertion embodied in management’s discussion and analysis (MD&A)?a. Valuation.b. Reliability.c. Consistency with the financial statements.d. Rights and obligations.
Which of the following is not an objective of a CPA’s examination of a client’s management discussion and analysis(MD&A) prepared pursuant to Securities and Exchange Commission rules and regulations?a. The historical amounts have been accurately derived, in all material respects, from the
An accountant’s report on a review of pro forma financial information should include aa. Statement that the entity’s internal control was not relied on in the review.b. Disclaimer of opinion on the financial statements from which the pro forma financial information is derived.c. Caveat that it
When an accountant examines a financial forecast that fails to disclose several significant assumptions used to prepare the forecast, the accountant should describe the assumptions in the accountant’s report and issue a(n)a. “Except for” qualified opinion.b. “Subject to” qualified
An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided thata. The prospective financial statements are also examined.b. Responsibility for the adequacy of the procedures performed is taken by the accountant.c. Negative assurance is
Given one or more hypothetical assumptions, a responsible party may prepare, to the best of its knowledge and belief, an entity’s expected financial position, results of operations, and changes in financial position. Such prospective financial statements are known asa. Pro forma financial
Which of the following is a prospective financial statement for general use upon which an accountant may appropriately report?a. Financial projection.b. Partial presentation.c. Pro forma financial statement.d. Financial forecast.
An accountant’s compilation report on a financial forecast should include a statement that thea. Compilation does not include evaluation of the support of the assumptions underlying the forecast.b. Hypothetical assumptions used in the forecast are reasonable.c. Range of assumptions selected is
A CPA in public practice is required to comply with the provisions of the Statements on Standards for Attestation Engagements (SSAE) when Testifying as an expert witness in accounting and auditing matters given stipulated facts Compiling a client’s financial projection that presents a
Accepting an engagement to examine an entity’s financial projection most likely would be appropriate if the projection were to be distributed toa. All employees who work for the entity.b. Potential stockholders who request a prospectus or a registration statement.c. A bank with which the entity
An accountant’s compilation report on a financial forecast should include a statement thata. The forecast should be read only in conjunction with the audited historical financial statements.b. The accountant expresses only limited assurance on the forecasted statements and their assumptions.c.
An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided thata. Use of the report is restricted to the specified parties.b. The prospective financial statements are also examined.c. Responsibility for the adequacy of the procedures
When an accountant examines projected financial statements, the accountant’s report should include a separate paragraph thata. Describes the limitations on the usefulness of the presentation.b. Provides an explanation of the differences between an examination and an audit.c. States that the
Which of the following is not correct concerning“specified parties” of an agreed-upon procedures report under either the auditing or attestation standards?a. They must agree on the procedures to be performed.b. They must take responsibility for the adequacy of the procedures performed.c. They
A summary of findings rather than assurance is most likely to be included ina. Agreed-upon procedures report.b. Compilation report.c. Examination report.d. Review report.
Which of the following is least likely to be included in an agreed-upon procedures attestation engagement report?a. The specified party takes responsibility for the sufficiency of procedures.b. Use of the report is restricted.c. Limited assurance on the information presented.d. A summary of
Which of the following is least likely to result in a restricted use attest report?a. Criteria suitable only for a limited number of parties.b. Subject matter available only to specified parties.c. A written assertion has not been obtained.d. Criteria developed by an industry association.
Suitable criteria in an attestation engagement may be available Publicly In CPA’s reporta. Yes Yesb. Yes Noc. No Yesd. No No
When performing an attestation engagement, which of the following is least likely to be present?a. Assertion.b. Practitioner independence.c. Subject matter.d. Suitable criteria.
Conditions exist that result in a material deviation from the criteria against which the subject matter was evaluated during an examination. The CPA’s conclusion may be on Subject matter Written assertiona. Yes Yesb. Yes Noc. No Yesd. No No
A practitioner is issuing a standard unqualified examination report under the attestation standards. The CPA’s conclusion may be on Subject matter Management’s written assertiona. Yes Yesb. Yes Noc. No Yesd. No No
An unqualified attestation report ordinarily may refer toa. Only the assertion.b. Only the subject matter to which the assertion relates.c. Either the assertion or the subject matter to which the assertion relates.d. Neither the assertion nor the subject matter to which the assertion relates.
Which of the following services would be most likely to be structured as an attest engagement?a. Advocating a client’s position in tax matter.b. A consulting engagement to develop a new database system for the revenue cycle.c. An engagement to issue a report addressing an entity’s compliance
Which of the following statements is not included in an accountant’s report on the application of accounting principles?a. The engagement was performed following standards established by the American Institute of Certified Public Accountants.b. The report is based on a hypothetical transaction
Blue, CPA, has been asked to render an opinion on the application of accounting principles to a specific transaction by an entity that is audited by another CPA. Blue may accept this engagement, but shoulda. Consult with the continuing CPA to obtain information relevant to the transaction.b. Report
In connection with a proposal to obtain a new client, an accountant in public practice is asked to prepare a written report on the application of accounting principles to a specific transaction. The accountant’s report should include a statement thata. Any difference in the facts, circumstances,
In connection with a proposal to obtain a new audit client, a CPA in public practice is asked to prepare a report on the application of accounting principles to a specific transaction. The CPA’s report should include a statement thata. The engagement was performed in accordance with Statements on
When unaudited financial statements are presented in comparative form with audited financial statements in a document filed with the Securities and Exchange Commission, such statements should be Withheld Referred to in Marked as until the auditor’s“unaudited” audited reporta. Yes No Nob. Yes
Which of the following matters is covered in a typical comfort letter?a. Negative assurance concerning whether the entity’s internal control procedures operated as designed during the period being audited.b. An opinion regarding whether the entity complied with laws and regulations under
When an independent audit report is incorporated by reference in a SEC registration statement, a prospectus that includes a statement about the independent accountant’s involvement should refer to the independent accountant asa. Auditor of the financial reports.b. Management’s designate before
When an accountant issues to an underwriter a comfort letter containing comments on data that have not been audited, the underwriter most likely will receivea. Negative assurance on capsule information.b. Positive assurance on supplementary disclosures.c. A limited opinion on pro forma financial
Comfort letters ordinarily are addressed toa. Creditor financial institutions.b. The client’s audit committee.c. The Securities and Exchange Commission.d. Underwriters of securities.
Comfort letters ordinarily are signed by the client’sa. Independent auditor.b. Underwriter of securities.c. Audit committee.d. Senior management.
Which of the following statements is correct concerning letters for underwriters, commonly referred to as comfort letters?a. Letters for underwriters are required by the Securities Act of 1933 for the initial public sale of registered securities.b. Letters for underwriters typically give negative
A registration statement filed with the SEC contains the reports of two independent auditors on their audits of financial statements for different periods. The predecessor auditor who audited the prior period financial statements generally should obtain a letter of representation from thea.
Financial information is presented in a printed form that prescribes the wording of the independent auditor’s report. The form is not acceptable to the auditor because the form calls for statements that are inconsistent with the auditor’s responsibility. Under these circumstances, the auditor
A CPA is permitted to accept a separate engagement(not in conjunction with an audit of financial statements) to audit an entity’s Schedule of Schedule of accounts receivable royaltiesa. Yes Yesb. Yes Noc. No Yesd. No No
Delta Life Insurance Co. prepares its financial statements on an accounting basis insurance companies use pursuant to the rules of a state insurance commission. If Wall, CPA, Delta’s auditor, discovers that the statements are not suitably titled, Wall shoulda. Disclose any reservations in an
An auditor’s report would be designated a special report when it is issued in connection witha. Interim financial information of a publicly held company that is subject to a limited review.b. Compliance with aspects of regulatory requirements related to audited financial statements.c. Application
An auditor’s special report on financial statements prepared in conformity with the cash basis of accounting should include a separate explanatory paragraph before the opinion paragraph thata. Justifies the reasons for departing from generally accepted accounting principles.b. States whether the
Helpful Co., a nonprofit entity, prepared its financial statements on an accounting basis prescribed by a regulatory agency solely for filing with that agency. Green audited the financial statements in accordance with generally accepted auditing standards and concluded that the financial statements
When an auditor reports on financial statements prepared on an entity’s income tax basis, the auditor’s report shoulda. Disclaim an opinion on whether the statements were examined in accordance with generally accepted auditing standards.b. Not express an opinion on whether the statements are
Field is an employee of Gold Enterprises. Hardy, CPA, is asked to express an opinion on Field’s profit participation in Gold’s net income. Hardy may accept this engagement only ifa. Hardy also audits Gold’s complete financial statements.b. Gold’s financial statements are prepared in
The financial statements of KCP America, a US entity, are prepared for inclusion in the consolidated financial statements of its non-US parent. These financial statements are prepared in conformity with the accounting principles generally accepted in the parent’s country and are for use only in
Before reporting on the financial statements of a US entity that have been prepared in conformity with another country’s accounting principles, an auditor practicing in the US shoulda. Understand the accounting principles generally accepted in the other country.b. Be certified by the appropriate
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. Be limited to data derived from the audited financial statements.b. Be distributed
An auditor may report on condensed financial statements that are derived from complete financial statements if thea. Condensed financial statements are distributed to stockholders along with the complete financial statements.b. Auditor described the additional procedures performed on the condensed
An accountant’s review report on interim financial information of a public entity is most likely to include aa. Statement that the interim financial information was examined in accordance with standards of the Public Company Accounting Oversight Board.b. Statement that the interim financial
Which of the following is least likely to be a procedure included in an accountant’s review of interim financial information of a public entity?a. Compare disaggregated revenue data by month to that of the previous interim period.b. Read available minutes of meetings of stockholders.c. Observe
Which of the following procedures ordinarily should be applied when an independent accountant conducts a review of interim financial information of a publicly held entity?a. Verify changes in key account balances.b. Read the minutes of the board of directors’ meetings.c. Inspect the open purchase
A modification of the CPA’s report on a review of the interim financial statements of a publicly held company would be necessitated by which of the following?a. An uncertainty.b. Lack of consistency.c. Reference to another accountant.d. Inadequate disclosure.
An independent accountant’s report is based on a review of interim financial information. If this report is presented in a registration statement, a prospectus should include a statement clarifying that thea. Accountant’s review report is not a part of the registration statement within the
The objective of a review of interim financial information of a public entity (issuer) is to provide an accountant with a basis for reporting whethera. Material modifications should be made to conform with generally accepted accounting principles.b. A reasonable basis exists for expressing an
Green, CPA, is aware that Green’s name is to be included in the interim report of National Company, a publicly held entity. National’s quarterly financial statements are contained in the interim report. Green has not audited or reviewed these interim financial statements. Green should request
When an independent CPA is associated with the financial statements of a publicly held entity but has not audited or reviewed such statements, the appropriate form of report to be issued must include a(n)a. Regulation S-X exemption.b. Report on pro forma financial statements.c. Unaudited
When an independent CPA assists in preparing the financial statements of a publicly held entity, but has not audited or reviewed them, the CPA should issue a disclaimer of opinion. In such situations, the CPA has no responsibility to apply any procedures beyonda. Documenting that internal control
An auditor should disclose the substantive reasons for expressing an adverse opinion in an explanatory paragrapha. Preceding the scope paragraph.b. Preceding the opinion paragraph.c. Following the opinion paragraph.d. Within the notes to the financial statements.
When an auditor expresses an adverse opinion, the opinion paragraph should includea. The principal effects of the departure from generally accepted accounting principles.b. A direct reference to a separate paragraph disclosing the basis for the opinion.c. The substantive reasons for the financial
March, CPA, is engaged by Monday Corp., a client, to audit the financial statements of Wall Corp., a company that is not March’s client. Monday expects to present Wall’s audited financial statements with March’s auditor’s report to 1st Federal Bank to obtain financing in Monday’s attempt
An auditor may express an opinion on an entity’s accounts receivable balance even if the auditor has disclaimed an opinion on the financial statements taken as a whole provided thea. Report on the accounts receivable discloses the reason for the disclaimer of opinion on the financial
An auditor may not issue a qualified opinion whena. An accounting principle at variance with GAAP is used.b. The auditor lacks independence with respect to the audited entity.c. A scope limitation prevents the auditor from completing an important audit procedure.d. The auditor’s report refers to
A scope limitation sufficient to preclude an unqualified opinion always will result when managementa. Prevents the auditor from reviewing the working papers of the predecessor auditor.b. Engages the auditor after the year-end physical inventory is completed.c. Requests that certain material
An auditor decides to issue a qualified opinion on an entity’s financial statements because a major inadequacy in its computerized accounting records prevents the auditor from applying necessary procedures. The opinion paragraph of the auditor’s report should state that the qualification
When disclaiming an opinion due to a client-imposed scope limitation, an auditor should indicate in a separate paragraph why the audit did not comply with generally accepted auditing standards. The auditor should also omit the Scope Opinion paragraph paragrapha. No Yesb. Yes Yesc. No Nod. Yes No
Harris, CPA, has been asked to audit and report on the balance sheet of Fox Co. but not on the statements of income, retained earnings, or cash flows. Harris will have access to all information underlying the basic financial statements. Under these circumstances, Harris maya. Not accept the
An auditor who qualifies an opinion because of an insufficiency of evidential matter should describe the limitations in an explanatory paragraph. The auditor should also refer to the limitation in the Scope Opinion Notes to the paragraph paragraph financial statementsa. Yes No Yesb. No Yes Noc. Yes
Park, CPA, was engaged to audit the financial statements of Tech Co., a new client, for the year ended December 31, 2009. Park obtained sufficient audit evidence for all of Tech’s financial statement items except Tech’s opening inventory. Due to inadequate financial records, Park could not
Due to a scope limitation, an auditor disclaimed an opinion on the financial statements taken as a whole, but the auditor’s report included a statement that the current asset portion of the entity’s balance sheet was fairly stated. The inclusion of this statement isa. Not appropriate because it
In which of the following circumstances would an auditor not express an unqualified opinion?a. There has been a material change between periods in accounting principles.b. Quarterly financial data required by the SEC has been omitted.c. The auditor wishes to emphasize an unusually important
In the first audit of a client, an auditor was not able to gather sufficient evidence about the consistent application of accounting principles between the current and the prior year, as well as the amounts of assets or liabilities at the beginning of the current year. This was due to the
In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion or an adverse opinion?a. The auditor did not observe the entity’s physical inventory and is unable to become satisfied about its balance by other auditing procedures.b. Conditions that
In which of the following situations would an auditor ordinarily choose between expressing an “except for” qualified opinion or an adverse opinion?a. The auditor did not observe the entity’s physical inventory and is unable to become satisfied as to its balance by other auditing procedures.b.
If a publicly held company issues financial statements that purport to present its financial position and results of operations but omits the statement of cash flows, the auditor ordinarily will express a(n)a. Disclaimer of opinion.b. Qualified opinion.c. Review report.d. Unqualified opinion with a
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