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Free AICPA CPA-Auditing Exam Questions (page: 3)

Page 3 of 130
PDF with 1026 Questions

An auditor of a nonpublic company must conduct the audit in accordance with:

I). ASB standards.
II). PCAOB standards.

  1. I.
  2. Both I and II.
  3. Either I or II, but not both.
  4. II.

Answer(s): A

Explanation:

Choice "a" is correct. An auditor of a nonpublic company must conduct the audit in accordance with ASB standards.
Choice "b" is incorrect. An auditor of a nonpublic company is not required to conduct the audit in accordance with PCAOB standards.
Choice "c" is incorrect.
While an auditor is only required to conduct the audit in accordance with ASB standards, the auditor may choose to follow PCAOB standards as well. Choice "d" is incorrect. An auditor of a nonpublic company is not required to conduct the audit in accordance with PCAOB standards.



Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of:

  1. Objective judgment.
  2. Independent integrity.
  3. Professional skepticism.
  4. Impartial conservatism.

Answer(s): C

Explanation:

Choice "c" is correct. The auditor should plan and perform the audit with an attitude of professional skepticism. This attitude includes a questioning mind and a critical assessment of audit evidence. Choices "a", "b", and "d" are incorrect. Objectivity, independence, integrity, and impartiality are basic ethical characteristics and professional qualities embodied in the general standards.



Which of the following is not an example of the application of professional skepticism?

  1. Designing additional auditing procedures to obtain more reliable evidence in support of a particular financial statement assertion.
  2. Obtaining corroboration of management's Explanations through consultation with a specialist.
  3. Inquiring of prior year engagement personnel regarding their assessment of management's honesty and integrity.
  4. Using third party confirmations to provide support for management's representations.

Answer(s): C

Explanation:

Choice "c" is correct. The auditor should consider that fraud might occur regardless of any past experience with the entity. An assessment of management's honesty and integrity performed during the previous year would not necessarily be relevant to the current year's audit. Choice "a" is incorrect. An auditor might apply professional skepticism by performing additional audit procedures designed to improve the reliability of evidence. Choice "b" is incorrect. Corroborating management's Explanations is an example of the application of professional skepticism, since the auditor is obtaining additional support rather than simply accepting the Explanation as given.
Choice "d" is incorrect. Using third party confirmations to provide support for management's representations is an example of the application of professional skepticism, since the auditor is obtaining additional support rather than simply accepting the Explanation as given.



Which of the following categories is included in generally accepted auditing standards?

  1. Standards of review.
  2. Standards of planning.
  3. Standards of fieldwork.
  4. Standards of evidence.

Answer(s): C

Explanation:

Choice "c" is correct. Generally accepted auditing standards include three categories: general standards, standards of fieldwork, and standards of reporting. Choices "a", "b", and "d" are incorrect, based on the above Explanation.
Reports on Audited Financial Statements



When qualifying an opinion because of an insufficiency of audit evidence, an auditor should refer to the situation in the:

  1. Option A
  2. Option B
  3. Option C
  4. Option D

Answer(s): B

Explanation:

Choice "b" is correct.
When a qualified opinion is issued due to a lack of sufficient audit evidence, the lack of evidence should be disclosed in an explanatory paragraph before the opinion paragraph. Since insufficient evidence is a scope limitation, the scope paragraph should also be modified to refer to the limitation and to the explanatory paragraph that discusses it. Choices "a" and "c" are incorrect. Management (and not the auditor) prepares the notes to the financial statements. The auditor therefore would not refer to this (or any other) situation in the notes to the financial statements.
Choice "d" is incorrect. The auditor does refer to the situation in the scope paragraph.



When an auditor believes there is substantial doubt about the ability of an entity to continue as a going concern, all of the following should be included in the audit documentation, except:

  1. The conditions that gave rise to the substantial doubt.
  2. The auditor's conclusion about whether substantial doubt remains or is alleviated.
  3. Management's conclusion regarding whether substantial doubt remains or is alleviated.
  4. The effect of the auditor's conclusion on the auditor's report.

Answer(s): C

Explanation:

Choice "c" is correct.
Whether substantial doubt remains or is alleviated is a judgment call made by the auditor, and there is no requirement to document management's opinion on the matter. Choices "a", "b", and "d" are incorrect.
When an auditor believes there is substantial doubt about the ability of an entity to continue as a going concern, the conditions that gave rise to the substantial doubt, the auditor's conclusion about whether substantial doubt remains or is alleviated, and the effect of the auditor's conclusion on the auditor's report should all be documented.



After considering an entity's negative trends and financial difficulties, an auditor has substantial doubt about the entity's ability to continue as a going concern. The auditor's considerations relating to management's plans for dealing with the adverse effects of these conditions most likely would include management's plans to:

  1. Increase current dividend distributions.
  2. Reduce existing lines of credit.
  3. Increase ownership equity.
  4. Purchase assets formerly leased.

Answer(s): C

Explanation:

Choice "c" is correct. The auditor considers any of management's plans that might serve to mitigate the adverse effects of particular conditions and events. Typically, plans to increase ownership equity, to borrow money, to restructure debt, to sell assets, and/or to reduce or delay expenditures might all be considered mitigating factors.
Choices "a", "b", and "d" are incorrect. Increasing dividend distributions, reducing lines of credit, and purchasing assets would not improve a weak cash flow situation.



In which of the following situations would an auditor ordinarily choose between expressing a qualified opinion or an adverse opinion?

  1. The auditor did not observe the entity's physical inventory and is unable to become satisfied about its balance by other auditing procedures.
  2. Conditions that cause the auditor to have substantial doubt about the entity's ability to continue as a going concern are inadequately disclosed.
  3. There has been a change in accounting principles that has a material effect on the comparability of the entity's financial statements.
  4. The auditor is unable to apply necessary procedures concerning an investor's share of an investee's earnings recognized on the equity method.

Answer(s): B

Explanation:

Choice "b" is correct. Inadequate disclosure of the substantial doubt about an entity's ability to continue as a going concern is a departure from GAAP, resulting in either a qualified or adverse opinion.
Choices "a" and "d" are incorrect. Scope limitations result in either a qualified opinion or in a disclaimer of opinion, but not in an adverse opinion.
Choice "c" is incorrect. A change in accounting principle results in a modified unqualified report, as long as the change was accounted for properly.



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