Auditing and Attestation (AUD) Test

A CPA is required to comply with the provisions of Statements on Standards for Accounting and Review Services (SSARS) when

Working on a compilation engagement

Bell and Co. CPAs complete the 2023 financial statements for a client. A CPA should not submit unaudited financial statements of a nonpublic company to a client or others unless, at a minimum, the CPA complies with the provisions applicable to

Compilation engagements

Julie, a partner at Cole CPAs, invested $2,000 in a business that supplies raw materials to a client.

If requested to perform a review engagement for a nonpublic entity in which an accountant has an immaterial direct financial interest, the accountant is

Not independent and therefore may not issue a review report

A CPA is working on a compilation engagement for a clothing manufacturer. The client has a large inventory balance at year end.

When compiling a nonpublic entity's financial statements, an accountant would be least likely to

Perform analytical procedures designed to identify relationships that appear to be unusual

Skillcorp has dozens of salespeople who spend most of their time on the road and log in remotely.

To obtain evidence that user identification and password controls are functioning as designed, an auditor would most likely

Examine a sample of assigned passwords and access authority to determine whether password holders have access authority incompatible with their other responsibilities

Sturdy Windows and Doors has an ERP information system and is planning to issue credit cards to creditworthy customers. The internal audit department is working with the outside CPA firm on internal controls.

To strengthen internal controls by making it difficult for one to create a valid customer account number, the company's independent auditor has suggested the inclusion of a check digit, which should be placed

Consistently in any position

A CPA firm is performing a test of controls on an automated accounts payable management system.

An auditor may decide not to perform tests of controls related to the computer portion of the client's controls. Which of the following would not be a valid reason for choosing to omit tests of controls?

The controls appear adequate.

Sterling Money Management, a CPA firm’s audit client, has a fully automated accounting process for generating its financial statements.

A primary advantage of using generalized audit software packages to audit the financial statements of a client that uses a computer system is that the auditor may

Access information stored on computer files while having a limited understanding of the client's hardware and software features

A CPA firm is selecting a sample of 25 sales made in the last week of the fiscal year. The CPAs will compare each sales invoice to a shipping document.

Which of the following is included as part of the definition of audit sampling?

Evaluation of some characteristic

A CPA firm is planning an inventory count of a jewelry store on the last day of the company’s fiscal year.

An auditor examining inventory may appropriately apply sampling for attributes in order to estimate the

Percentage of slow‐moving inventory items

A roofing company has a new controller, and the controller is helping the CPA firm with audit planning.

An auditor plans to examine a sample of 20 checks for countersignatures as prescribed by the client's internal control activities. One of the checks in the chosen sample of 20 cannot be found. The auditor should consider the reasons for this limitation and

Treat the missing check as a deviation for the purpose of evaluating the sample

A CPA firm is testing a sample of sales invoices generated during the last two weeks of the fiscal year.

Which of the following statements is correct concerning statistical sampling in tests of controls?

There is an inverse relationship between the sample size and the tolerable rate.

A CPA is planning the audit of a marketing firm.

Which of the following is not a component of engagement planning?

Strategic tax planning considerations

Jones and Co. CPAs is planning the audit of a clothing manufacturer.

The primary responsibility for the adequacy of disclosure in the financial statements of a publicly held company rests with the

Management of the company

A CPA firm is planning the audit of inventory, the largest account balance on the balance sheet.

In considering materiality for planning purposes, an auditor believes that misstatements aggregating $10,000 would have a material effect on an entity's income statement but that misstatements would have to aggregate $20,000 to materially affect the balance sheet. Ordinarily, it would be appropriate to design auditing procedures that would be expected to detect misstatements that aggregate

$10,000

A CPA firm is gathering audit evidence for the accounts receivable balance.

Which of the following statements concerning audit evidence is correct?

A client's accounting data cannot be considered sufficient audit evidence to support the financial statements.

A CPA firm is auditing Peak Retail, a publicly traded company. Sterling Financial is the registrar for Peak’s stock.

When auditing a publicly traded client, the auditor's program for owner's equity is least likely to include a step requiring

Reconciliation of the stock certificate book with the general ledger

Midwest Construction has five bank accounts that are used for business operations.

As one of the year‐end audit procedures, the auditor instructed the client's personnel to prepare a standard bank confirmation request for a bank account that had been closed during the year. After the client's treasurer had signed the request, the controller mailed it. What is the major flaw in this audit procedure?

The request was mailed by the controller.

City Boating sells boats and boating equipment. A CPA firm is auditing City’s inventory.

An auditor will usually trace the details of the test counts made during the observation of the physical inventory to a final inventory schedule. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditor at the time of the physical inventory count are

Included in the final inventory schedule

Seaside Gift Shops does a great deal of retail business using cash. As a result, the CPA firm auditing Seaside is assessing internal control risk for the cash account.

In an audit of financial statements, an auditor's primary consideration regarding a control is whether the control

Affects management's financial statement assertions

Sterling Furniture produces and sells custom furniture pieces to clients. A CPA firm is working on Sterling’s audit.

To verify that all sales transactions for which shipment has occurred have been recorded, a test of transactions should be completed on a representative sample drawn from

The shipping clerk's file of duplicate copies of bills of lading

Century Hardware’s largest asset account balance is inventory. A CPA firm is auditing inventory and is assessing inventory control risks. Century has agreed to perform a physical inventory count with the CPA firm on the balance sheet date.

The safeguarding of inventory most likely includes

Periodic reconciliation of detailed inventory records with the actual inventory on hand by taking a physical count

Prestige Bank has a 10-team internal audit team that performs test work on each accounting function within the bank.

If the independent auditors decide that the work performed by the internal auditor may have a bearing on their own procedures, they should consider the internal auditor's

Competence and objectivity

Standard Equipment sells tractors and other heavy equipment products.

Standard has disclosed an uncertainty due to pending litigation. The auditor's decision to issue a qualified opinion rather than an unmodified opinion with an emphasis‐of‐matter paragraph most likely would be determined by the

Lack of sufficient evidence

Left Bank Fashions has produced its annual report, and the CPA firm that performed the audit is reviewing the annual report.

Which of the following best describes the auditor's responsibility for “other information” included in the annual report to stockholders, which contains financial statements and the auditor's report?

The auditor has no obligation to corroborate the “other information” but should read the “other information” to determine whether it is materially inconsistent with the financial statements.

Sterling Financial completed its final board meeting of the year and has written corporate minutes of the discussion.

When a client will not make essential corporate minutes available to the auditor, the audit report will probably contain a(n)

Disclaimer of opinion

Roman Textiles is discussing several different types of professional services with a CPA firm.

Which of the following professional services would be considered an attest engagement?

An engagement to report on compliance with statutory requirements

In which of the following situations would a CPA firm’s covered members' independence be considered to be impaired?

The CPA has a direct financial interest in an audit client, but the interest is maintained in a blind trust.

A CPA in public practice may not disclose confidential client information regarding auditing services without the client's consent in response to which of the following situations?

A letter to the client from the IRS

A CPA firm is reviewing the services it will provide to a client during the new year.

The AICPA allows an auditor to perform which of the following services for an audit client?

Performance of bookkeeping services for the client