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CPA Exam AUD 2024 AICPA Newly Released Questions 2024/2025 Review Solution
Each of the following is a required characteristic of a review engagement of management's discussion and analysis (MD&A), EXCEPT:
A) It consists principally of applying tests of details through inspection, observation, and confirmation.
B) The practitioner applies analytical procedures.
C) An objective is to report if any information came to the practitioner's attention that the MD&A is NOT reasonably presented.
D) The practitioner makes inquiries of individuals responsible for financial matters - ANS-โโA) It consists principally of applying tests of details through inspection, observation, and confirmation.
Banister, a CPA, is approached by Wagner, a client. Wagner requests that Banister return the records provided to Banister by Wagner during an audit. Wagner still owes Banister the fees associated with the audit. According to the AICPA Code of Professional Conduct, what should Banister do?
A) Banister should return the records to Wagner.
B) Banister should return the records to Wagner only after the fee has been paid.
C) Banister should NOT return the records to Wagner because the records now belong to Banister.
D) Banister should NOT return the records to Wagner without a court order. - ANS-โโA) Banister should return the records to Wagner.
An accountant's working papers for an engagement to review the financial statements of a nonpublic entity would be LEAST likely to include which of the following forms of documentation?
A) Study and evaluation of internal control.
B) Explanation of analytical procedures performed.
C) A copy of the engagement letter.
D) Copies of representation letters from client management. - ANS-โโA) Study and evaluation of internal control.
If differences of opinion arise between the engagement partner and the engagement quality control reviewer, then the engagement partner should:
A) Follow the firm's policies and procedures for resolving differences of opinion.
B) Issue a disclaimer of opinion and report the issue to the entity's audit committee.
C) Discuss the differences of opinion with the entity's management and issue a modified auditor's report.
D) Withdraw from the engagement when permissible under law or regulation. - ANS-โโA) Follow the firm's policies and procedures for resolving differences of opinion.
An accountant is reviewing the financial statements of a nonpublic entity in accordance with Statements on Standards for Accounting and Review Services (SSARS). The accountant most likely would perform which of the following procedures?
A) Obtain an understanding of the internal control structure.
B) Make inquiries about subsequent events.
C) Send bank account confirmations.
D) Perform limited tests of controls. - ANS-โโB) Make inquiries about subsequent events.
Which of the following factors would an auditor most likely consider in evaluating the control environment for an audit client?
A) Monthly bank reconciliations with supervisor sign-offs.
B) The ethical values demonstrated by management.
C) Organizational structure used for tax purposes.
Which of the following applications of sampling to test controls is most appropriate?
A) Testing a sample of customer orders for evidence fo credit approval.
B) Testing a sample of controls to determine segregation of duties between inventory control and sales processing duties.
C) Testing a sample of accounts receivable confirmations.
D) Testing a sample of the budget center directors' allocation of annual budget to sales units. - ANS-โโ A) Testing a sample of customer orders for evidence fo credit approval.
When evaluating the impact of potential litigation, an auditor of a non issuer should obtain audit evidence about each of the following, EXCEPT:
A) the period in which the underlying cause for legal action occurred.
B) The probability of an unfavorable outcome.
C) The probability that the matter will require a trial in court.
D) the amount or range of potential loss.. - ANS-โโC) The probability that the matter will require a trial in court.
If a subsequent event occurs after the report date but prior to the release date of an audit report, resulting in management's revision of the financial statements of a non issuer, then the auditor may do any of the following, EXCEPT:
A) Maintain the original date of the report and state that the opinion is limited to the financial statements as they existed prior to the subsequent event.
B) Perform audit procedures necessary to obtain assurance about the revised financial statements.
C) Include an additional date in the audit report that is limited to the revision to the financial statements.
D) Revise the date of the audit report to reflect the necessity of additional audit procedures. - ANS-โโ A) Maintain the original date of the report and state that the opinion is limited to the financial statements as they existed prior to the subsequent event.
A client holds a debt security that is actively traded in the market. Which of the following indicators would be the preferable guide to the security's fair market value?
A) Published price quotations in the market.
B) The price at which the debt security was purchased.
C) The cash flow model using discounted future cash flows.
D) Matrix pricing, in which published price quotations of similar debt securities are used to compute the fair market value. - ANS-โโA) Published price quotations in the market.
Which of the following most likely would be considered a mitigating condition concerning an entity's ability to continue as a growing concern?
A) Plans to increase ownership equity.
B) Recent strong showing of the stock market.
C) Positive comments about the company form industry analysts.
D) A decreasing unemployment rate in the entity's industry. - ANS-โโA) Plans to increase ownership equity.
Whose signatures should be included in the management representation letter to the auditor?
A) President and chief financial officer.
B) Chairman of the audit committee and chief operating officer.
C) Corporate secretary and treasurer.
Under which of the following circumstances would an auditor most likely issue either a qualified or disclaimer of opinion?
A) the financial statements contain an immaterial departure from generally accepted accounting principles (GAAP)
B) The auditor performed alternate substantive procedures to provide adequate assurance due to missing documentation.
C) There is substantial doubt about the entity's ability to continue as a going concern.
D) The client's attorney refused to respond to the letter of audit inquiry. - ANS-โโD) The client's attorney refused to respond to the letter of audit inquiry.
Each of the following is normally performed while conducting a review of interim financial information, EXCEPT:
A) Comparing disaggregated revenue data.
B) Making inquiries of financial management.
C) Reading minutes of the meetings of the board of directors.
D) Obtaining litigation updates from external legal counsel. - ANS-โโD) Obtaining litigation updates from external legal counsel.
According to the SEC, which of the following best describes a non-audit service that, when jointly provided with the audit of an issuer, would result in the accountant's loss of independence?
A) Preparing the client's tax returns based on information prepared by management.
B) Providing a comfort letter in regard to the client's meeting the debt covenant requirements.
C) Issuing a report on management's assessment of the client's internal controls.
D) Preparing the client's footnote disclosure of significant accounting policies. - ANS-โโD) Preparing the client's footnote disclosure of significant accounting policies.
In connection with an audit of a non issuer, the auditor would ordinarily use an engagement letter to:
A) Mutually agree upon contingent fees between the company and the auditor.
B) Assert that a properly planned audit will detect and identify all material misstatements.
C) Specify any arrangements concerning the involvement of the company's internal auditors on the audit.
D) Determine which of the company's financial statement notes will be compiled by the auditor during the audit. - ANS-โโC) Specify any arrangements concerning the involvement of the company's internal auditors on the audit.
Which of the following correctly identifies the deadline for the completion of audit documentation of a non issuer?
A) Within 60 days after the report release date.
B) Within 45 days after the report release date.
C) Within 90 days after the last day of field work.
D) Within 45 days after the last day of field work. - ANS-โโA) Within 60 days after the report release date.
An accountant has a work program that consists entirely of the following steps:
1 - Obtain knowledge of the accounting principles and practices of the client's industry.
2 - Obtain knowledge of the client.
3 - Make inquiries of the client's management about accounting procedures, the consistent application of generally accepted accounting principles (GAAP) in the preparation of the financial statements, and actions taken at meetings of stockholders and the board of directors.
4 - Perform analytical procedures.
5 - Obtain a letter of representation from management.
For which of the following assertions related to accounts receivable would an auditor's initial assessment of risk of material misstatement of a non issuer be increased if the auditor discovers that client management does NOT regularly review the collectability of accounts receivable balances?
A) Valuation.
B) Existence.
C) Rights and obligations.
D) Completeness. - ANS-โโA) Valuation.
In response to an increased level of assessed risk of material misstatement, an auditor of a non issuer would generally:
A) Not make changes to the nature, timing, or extent of further audit procedures.
B) Increase the emphasis on professional skepticism when gathering and evaluating audit evidence with the audit team.
C) Perform more substantive audit procedures at an interim date instead of at period end.
D) Perform additional tests of controls at an interim date to eliminate the need for substantive tests at period end. - ANS-โโB) Increase the emphasis on professional skepticism when gathering and evaluating audit evidence with the audit team.
Which of the following conditions necessitates a larger sample size?
A) A high level of detection risk.
B) A low frequency of misstatement.
C) A low level of tolerable misstatement.
D) A low assessed level of control risk. - ANS-โโC) A low level of tolerable misstatement.
Which of the following procedures best addresses the adequacy of presentation and disclosure for inventory of a non issuer?
A) Obtaining confirmation of inventories that are pledged under loan agreements.
B) Observing the company's physical inventory-taking procedures.
C) Tracing the test counts during the physical inventory to the final inventory listing.
D) Examining the inventory turnover ration and determining whether it is in line with similar companies in the industry. - ANS-โโA) Obtaining confirmation of inventories that are pledged under loan agreements.
The auditor of a non issuer would most appropriately use reperformance to obtain audit evidence for which of the following purposes?
A) To test the operating effectiveness of a bank reconciliation control.
B) To test whether the amount of FICA tax withheld from an employee's paycheck is appropriate.
C) To determine whether the aging categories on the aged accounts payable trial balance are accurate.
D) To determine the mathematical accuracy of the extended cost amount shown on an invoice sent to a customer. - ANS-โโA) To test the operating effectiveness of a bank reconciliation control.
In planning an audit, an auditor established materiality at $40,000. The auditor received an attorney's letter indicating that it was probable that each of three lawsuits would be settled for $30,000. Which of the following actions should the auditor take?
A) Add a separate paragraph to the audit report disclosing the contingencies and their amounts.
B) Ask the client to disclose the contingencies in the notes to the financial statements.
C) Ask the client to record the liability for the three contingencies.
D) Add a paragraph to the auditor's opinion disclosing a scope limitation. - ANS-โโC) Ask the client to record the liability for the three contingencies.
D) Indicates that management is responsible for the fair presentation of the financial statements. - ANS- โโC) Identifies the applicable financial reporting framework and its origin.
When an accountant is engages to prepare financial statements, each of the following requirements apples, EXCEPT:
A) The accountant should verify the completeness of information provided by management for the financial statements.
B) The engagement documentation should include the engagement letter and a copy of the prepared financial statements.
C) The agreed-upon terms of the engagement should include identification of the applicable financial framework to be used.
D) The accountant should include a statement on each page of the financial statements indicating that NO assurance is provided. - ANS-โโA) The accountant should verify the completeness of information provided by management for the financial statements.
Which of the following should a predecessor auditor perform before reissuing a report on financial statements when those financial statements are to be presented on a comparative basis with financial statements audited by another auditor?
A) Obtain representation letters from management of the former client and the successor auditor.
B) Change the date of the reissued report to match the date on which additional procedures were performed.
C) Request attorney's responses to identify any significant litigation subsequent to the original date of the report.
D) Review minutes of board meetings held since the original date of the audit report. - ANS-โโA) Obtain representation letters from management of the former client and the successor auditor.
