AUD Sim Exam 2 Incorrect MCQs

According to the profession’s ethical standards, a CPA would be considered independent in which of the following instances?

The CPA belongs to a country club client in which membership requires the acquisition of a pro rata share of equity

When auditing a client’s related party transactions (relationships), certain audit objectives should be met. Which of the following does not represent a primary audit objective pertaining to related party transactions?

Determine which of the client’s related party transactions were not completed on an arm’s length transactions basis

The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the:

Results are consistent with the conclusions to be presented in the auditor’s report

In using the work of a specialist, an auditor of a nonissuer may refer to the specialist in the auditor’s report if, as a result of the specialist’s findings, the auditor:

Modifies the opinion

A letter issued on significant deficiencies relating to an entity’s internal control observed during an audit of the financial statements of a nonissuer should include a:

Restriction on the use of the report

Which of the following factors would most likely cause an auditor to question the integrity of management?

Audit tests detect material fraud that was known to management, but not disclosed to the auditor

A practitioner’s report on agreed-upon procedures should contain which of the following statements?

The engaging party acknowledged that the procedures performed were appropriate to meet the intended purpose of the engagement

An auditor uses substantive analytical procedures as the primary means to test a financial statement assertion. While performing the analytical procedures, the auditor is required to document all of the following with the exception of which item?

A comparison of the results obtained from the current year’s audit to the prior year’s audit

Digit Co., a nonissuer, uses the FIFO method of costing for its international subsidiary’s inventory and LIFO for its domestic inventory. Under these circumstances, the auditor’s report on Digit’s financial statements should express an:

Unmodified opinion

Management philosophy and operating style most likely would have a significant influence on an entity’s control environment when:

Management is dominated by one individual

A CPA started to audit the financial statements of a nonissuer. After completing certain audit procedures, the client requested the CPA to change the engagement to a review because of a scope limitation. The CPA concludes that there is reasonable justification for the change. Under these circumstances, the CPA’s review report should include a:

Statement that a review is substantially less in scope than an audit

The client asked the auditor to audit financial statements covering the current year. The auditor did not observe the prior year’s physical inventory count. Which of the following actions would the auditor most likely take?

Audit the prior year inventory using alternative substantive procedures

Which of the following entity-level controls is specifically identified in the professional standards as a control of importance that should be evaluated?

Period-end financial reporting controls

Pell, CPA, decides to serve as group engagement partner in the audit of the financial statements of Tech Consolidated, Inc., a nonissuer. Smith, CPA, audits one of Tech’s subsidiaries. In which situation(s) should Pell make reference to Smith’s audit under U.S. GAAS?

I.	Pell reviews Smith's audit documentation and assumes responsibility for Smith's work, but expresses a qualified opinion on Tech's financial statements.
II.	Pell is unable to review Smith's audit documentation; however, Pell's inquiries indicate that Smith has an excellent reputation for professional competence and integrity.

II only

An auditor may reasonably issue an “except for” qualified opinion for an

Scope limitation

Yes

Unjustified accounting change

Yes

Reporting on internal control to meet the requirements of Government Auditing Standards differs from reporting under other generally accepted auditing standards in that Government Auditing Standards requires a:

Report describing the scope of the auditor’s testing of compliance and of internal control

Which of the following items should be included in an auditor’s report for financial statements prepared in conformity with another comprehensive basis of accounting (OCBOA)?

A title that includes the word “independent”

An auditor usually determines whether dividend income from publicly-held investments is reasonable by computing the amounts that should have been received by referring to:

Records produced by investment services

Janus Company, a client of Peterman, CPA, has recently automated its accounting system. While Peterman has been the auditor of Janus for several years, this will be the first audit encompassing the new system. Which of the following is most likely a result of this change?

I.	Peterman will need to take courses to develop an appropriate level of IT skill.
II.	Peterman will need to revise his audit objectives from prior years to reflect the new situation.
III.	Peterman will need to revise his audit program from prior years to reflect the new situation.

III only

An auditor would most likely apply analytical procedures in the overall review stage of an audit to:

Determine whether additional audit evidence may be needed

How should differences of opinion between the engagement partner and the quality reviewer be resolved?

By following the firm’s policies and procedures

Proper authorization of write-offs of uncollectible accounts should be approved in which of the following departments?

Treasurer

Which of the following would a successor auditor ask the predecessor auditor to provide after accepting an audit engagement?

Matters that may facilitate the evaluation of financial reporting consistency between the current and prior years

Jacob, an auditor for Green CPAs, is auditing XYZ Co. Green CPAs uses an average method for calculating materiality, in which equal weight is given to each of the following materiality calculations: 5 percent of pretax income, 0.5 percent of total assets, 2 percent of equity, and 1 percent of revenue. Select financial information from XYZ’s financial statements is provided below:

Revenue	$505,000
Pretax income	$150,000
Assets	$350,000
Liabilities	$75,000

Based on the facts above, what is the overall materiality that Jacob should use for XYZ Co.?

$4,950

In a probability-proportional-to-size sample with a sampling interval of $5,000, an auditor discovered that a selected account receivable with a recorded amount of $10,000 had an audit amount of $8,000. If this were the only error discovered by the auditor, the projected error of this sample would be:

$2,000

In planning an audit of a new client, an auditor most likely would consider the methods used to process accounting information because such methods:

Influence the design of controls