Which of the following best describes a difference between an audit and a review of a nonpublic?

Final Exam practice 2

Auditing standards require that the independent auditor's report shall contain either an expression of opinion regarding the financial statements, taken as a whole, or an assertion to the effect that an opinion cannot be expressed. Which of the following

None of the other actions are prohibited
One objective of the auditor in issuing a report is to prevent misinterpretation of the degree of responsibility assumed by the auditor. Disclaiming an opinion on one or all of the statements is acceptable, as is a

Which of the following is true about quality control standards?

A firm that does not have an adequate system of quality control may still have complied with professional standards on a specific engagement.
Even a firm that has inadequate quality control procedures may still have complied with professional standards on

Which of the following would not be considered an attest engagement subject to attestation standards?

An engagement to review the financial statements of a nonpublic company
Attest engagements covered under SSAE specifically exclude services performed in accordance with Statements on Standards for Accounting and REview Services. Since a review of a nonpub

Which of the following are sanctions that my be imposed by the PCAOB?Financial penaltiesSuspention or revocation of PCAOB registration

Required continuing professional education courses

I,II, and III
The Board can impose any sanctions it approves, including financial penalties, suspension or revocation of PCAOB registration and required CPE courses

Kent industries acticipates that its sales revenue will grow by 5% during the coming year based on historical returns but also believes there is a lisght chance for 20% growth if a new product that is currently being developed is launched during the year.

Both the report on the 10% growth financial statement and the report on the 5% growth financial statements are appropriate for limited use
Note that the 5% growth financial statemetns are a financial forecast (based on expected results) whereas the 10% gr

Which of the following best describes a difference between a complication of prospective financial statements and a examination of prospective financial statements?

A compilation does not contemplate the auditor providing any form of assurance whereas an examination does include assurance.
In an examination engagement, an auditor provides positive assurance regarding whether the statements are presented in conformity

An auditor has been asked to assess a client's website to measure transaction integrity, information projection and disclosure of business practices. This engagement is most likely a

Webtrust engagementA webtrust engagement is one in which an auditor is asked to assess a client's website to measure transaction integrity, information protection, and disclosure of business practices.

A systrust engagement is an assurance service relati

Which of the following is not true about the fie components of internal control?

A auditor is required to classify relevant controls into one of the five component categories
The auditor is not required to classify relevant controls into one of the five component categories, but rather should use the component categories as useful fra

Which of the following correctly matches a factor with the related internal control component?

The internal audit function is part of monitoring
(Recording the proper monetary values of transactions is part of information and communication - Incorrect answer)

Which of the following represents an inappropriate segregation of duties?

The cash receipts clerk credits customer accounts when payment is received
The cash receipts clerk should not have both record keeping responsibilities and custody of assets.

Which of the following is the most likely sequence of events an auditor might follow in considering internal control?

An audit performs tests of controls at the same time that he or she is obtaining an understanding of internal control, because it may be more efficient to do so.
An auditor may choose to perform tests of controls at the same time that he or she is obtaini

Which of the following is not true about the international COde of Ethics for assurance engagements?

It includes a set of specific rules designed to encourage compliance with the fundamental principles
The international code of ethics for assurance engagement is based on a conceptual framework approach, rather than a set of specific rules

Adam, CPA, is a staff accountant assigned to audit both the cash account and the fixed asset account for one of his clients. The cash account had many transactions that occurred during the year, while fixed asset account had very few transactions during t

Adam would likely focus on the ending balance for cash but would focus more on the transactions that occurred during the year for fixed assets
Since there are many transactions affecting the cash account, it is more efficient to focus on the ending balanc

Which of the following is not true about audit documentation?

Audit documentation should include a seprate page for each material account balance or transaction class
There is no requirement that documentation related to each material account balance or transaction class be included on a separate page. In fact. It i

WHich of the following is not true about an audit of inventory?

Obtaining confirmation of inventory held at outside locations provide evidence about both the existence assertion and the valuation and allocation assertion
Obtaining confirmation of inventory held at outside locations provides evidence about existence (D

An auditor provides positive assurance in all of the following reports except:

A report on compliance with contractual or regulatory requirements related to audited financial statements
Negative assurance is provided on compliance with contractual or regulatory requirements related to audited financial statements.

A special report on financial statements prepared on the cash basis of accounting should include:

A statement that the audit was conducted in accordance with generally accepted auditing standards
A special report on financial statements prepared on the cash basis of accounting should include, in the auditor's responsibility paragraph, a statemetn that

Management's written representation to the audito in connection with a governmental audit would most likely include:

A statement that management has disclosed any communications from grantos concerning possible non compliance.
The management letter will include a statement that management has disclosed any communications from grantors concerning possible noncompliance.

In which case would an unmodified opinion not be appropriate?

A material related party transaction has occurred and has been accounted for appropriately, but it has not been adequately disclosed in the financial statements.

An uncertainty may result in

An unmodified opinion, a qualified opinion, An adverse opinion, and disclaimer of opinion.
An uncertainty may result in an unmodified opinion if management's analysis is supported and properly recorded or disclosed. An uncertainty for which the auditor's

Which of the following is true about modifications to the independent auditor's unmodified opinion report?

An auditor would modify the same paragraphs when rendering either a qualified opinion due to a departure from GAAP or a qualified opinion due to a scope limitation.
A qualified opinion due to a scope limitation and a qualified opinion due to a GAAP depart

Cyrus, CPA is the continuing auditor of TOpaz, Inc. During the current year's audit. Cyrus becomes aware of evidence that affects the previous year's statements as well as the opinion that was expressed. TOpaz is planning to present comparative financial

Report on both set of financial statements, updating the previous opinion of any changes that have occurred.
The auditor reports on the financial statements "taken as a whole", which applies to all financial statements presented. Since the auditor's repor

Which of the following is true about the timing of predecessor/successor communications?

They can occur both before and after the auditor accepts the engagement.
Before the auditor accetps a new client engagement, he or she must communicate with the predecessor auditor to obtain information that may affect his or her decision. For example, if

Which of the following is not a circumstance that may impair independence, as described in the International Code of Ethics for assurance engagements?

payment of fees for assurance services.
Payment of fees for assurance services does not generally impair independence and is not listed in the international code of Ethics for assurance engagements.

Which of the following could be used to assess control risk sorrounding the purchase of fixed assets?

Select a sample of fixed asset requisitions and inspect them for proper approval
Control activities should include proper authorization of purchase transactions before the commitment of resources

An audit committee should pre approve all of the following services except?

Non audit services that do not exceed five percent of total revenues
Pre approval is not required for non audit services that do not exceed five percent of total revenues from the audit client during the fiscal year when services are provided, as long as

In an engagement related to a nonissuer, an auditor discovers several significant deficiencies in internal control, one of which is deemed to be a material weakness which of the following is true.

If internal control was evaluated as part of an audit, the audiot must restrict use of the report on internal control
If internal control was evaluated as part of an audit, the auditor must restrict use of the report on internal control

An auditor concerned with the completeness of dividend income would most likely

Review dividend record books produced by outside service companies
The auditor would likely choose a sample of companies in which the client owns stock and review dividend record books (such as Moodys') to determine whther such companies declared dividend

Which of the following procedures in an auditor most likely to use to test the completeness assertion for fixed assets?

Review of large items charged to repairs and maintenance
When the auditor reviews large items charged to reparis and maintenance, he/she is looking for items that may have been erroneously expensed instead of capitalized. The completeness assertion focuse

An auditor notes that retained earniong includes an amount appropriate in accordance with a loan covenant. Which procedures would the auditor use to audit retained earnings?

Analyze the retained earnings account since the last auditThe auditor should analyze the retained earnings account since the last audit. Generally this is fairly easy to do, since there are not very many direct entries to retained earnings.

(appropriatio

Which should be the auditors primary focus when considering related party transactions?

The adequacy of the client's disclosure of such transactions
THe audtirps priamry concern with related party transactions is that they are properly disclosed in accordance with GAAP.

Hannah, CPA, has been engageed to compile the financial statemetns of Skippity Industries, a nonpublic company, for the YEar 4, Hannah reviewed Skippity's year 3 financial statemtns. Kippity has decided to present comparative fianncial statemetns includin

Issue a compilation report with an extra paragraph describing the responsibility assumed for the prior period statements and including statement that no review procedures er performed after the date of the review report
Issue two separate reports, a compl

Which of the following procedures generally would not be performed in a review of a public entity's interim financial statements?

Inquire of the client's attorney is generally not required.

Dante, CPA, is auditing the financial statements of Crest Computing. During the previous year, Kratzke and Kratzke, CPA, audited Crest's financial statements. Crest had decided to present comparative financial statements for the current year. Which statem

Kratzke & Kratzke may reissue their report on the previous statements only after performing limited procedures to evaluate to continuing appropriateness of the report.
Kratzke & Kratzke should perform limited procedures, such as reading the current statem

After submitting the audit report, an auditor realizes that a critical step in the audit program was not completed. No other audit procedures already performed compensated for this omission. Which of the following would be the best response?

Perform the audit steps (or suitable alternative procedures) in an attempt to determine whether the results would have affected the previously issued opinion
The auditor would perform the audit procedures (or suitable alternative procedures) in an attempt

Procedures performed by an internal auditor can be used to:Help the external auditor understand internal controlProvide direct assistance to external auditor by performing substantive tests

Provide direct assitance to the external auditor by performing

All of the above
Internal auditors may assist the external auditor in obtaining an understanding of internal control or in performing tests of controls or substantive tests

A report on a nonissuer's internal control based on a separate examination of internal control should include a statement indicating that1) Because there are inherent limitations in internal control, misstatemetns may occur and not be detected

2) Project

I and II
Each of the first two statements would be included in the inherent limitations paragraph of the report. The third statement, indicating restricted use, would not be included as there is no restriction on the use of this report ( A report on inter

Which of the following constitutes a weakness in control related to the revenue cycle?

The cash receipts clerk prepares a credit memo
Allowing the cash receipts clerk to prepare a credit memo constitutes an inadequate segregation of duties, because the clerk can misappropriate cash and cover the theft by issuing a credit memo.

Which of the following documents should be sent to the accounts payable department?

Purchase Order yes) Sales order (no) Signed check (no)

Which of the following would least likely be part of an auditor's procedures with respect to fair values?

Events occurring after the balance sheet date may provide audit evidence regarding year end fair value measurements, but the auditor is only responsible for eavluating such events if they occur prior to the date of the audiotrs report. The auditor would n

Which of the following would least likely be part of an auditor's procedures with respect to fai values?

Review subsequent events occurring after completion of the audit for evidence regarding fair value measurements as the balance sheet date
Events occurring after the balance sheet date may provide audit evidence regarding year end fair value measurements,

in which situations should disagreements with management and significant audit adjustments be communicated to those charged with governance

the auditor should discuss with those charged with governance any significant disagreements with management, whether or not satisfactorily resolved. The auditor should also inform those charged with governance about significant adjustments arising from th

There is a direct relationship between population variability and sample size, so an increase in variability results in an increase in sample size. There is an inverse relationship between desired risk of incorrect acceptance and sample size so a decrease

Which of the following ratios would most likely be used to evaluate an entity's profitability?

net income/net sales
Net income divided by net sales indicates the percentage of every sales dollar that becomes profit

Which is not true about major programs?

Determination of major programs is based on management selection
Major programs are determined by the auditor using a risk based approach, not by management

Task based simulation
Prior to accepting an engagement, auditor should determine whether red hot's accounting records are likely to be sufficient to support opinion on the financial statements

If there is a question asked about a review of interim financial statements (where the annual financial statements are audited) the review would include all the required that apply to a review of annual financial statements and would include:
Obtaining an

Jacob informs you that improper revenue recognition has also been identified as a fraud risk for this engagement. Which of the following would not be an appropriate response.

Confirm deposit cash received from material sales transactions with the appropriate bank
Generally speaking, specific deposits would not be confirmed with the bank. Bank statements, deposit tickets, cash receipts listings, and remittance advice should pro

Pembroke has always had a strong system of internal control in the past, and there is no evidence during the current year of management override of controls. Which of the following statements is true?

The auditor should always address the risk of management override regardless of whether evidence of such override exists
(management override is presumed to be a risk in every audit)

karen the partner assigned to the Pembroke engagement, conducts a thorough review of the audit documentation and signs off on the audit opinion. Mark is also a partner in the firm. Which of the following best describes marks responsibility with respect to

Mark should review the audit documentation during the final review stage of the audit, to focus on the fair presentation of the financial statements.
Such review by a a partner not otherwise involved in the audit is an example of monitoring, which is one