AUD 2015 AICPA Released Questions Testlet Level: Difficult Please Note: These questions are released to the CPA Review providers
with the letter answer only (i.e. no explanation given).
This document contains copyrighted material from the American Institute of
Certified Public Accountants and is licensed to NINJA CPA Review for use
by its customers only.
Answers are on page 14.
1. Which of the following statements correctly defines the term reasonable
assurance?
A substantial level of assurance to allow an auditor to detect a material
misstatement.
A significant level of assurance to allow an auditor to detect a material
misstatement.
An absolute level of assurance to allow an auditor to detect a material
misstatement.
A high, but not absolute, level of assurance to allow an auditor to detect
a material misstatement.
AUD 2015: Difficult 1 www.another71.com 2. A practitioner may perform an agreed-upon procedures engagement on
prospective financial statements provided that which of the following is
met?
Use of the agreed-upon procedures report is not restricted.
The practitioner sets the criteria to be used in the determination of
findings.
The client agrees that the practitioner will decide appropriate
procedures to be performed.
The prospective financial statements include a summary of significant
assumptions.
3. If the predecessor auditor refuses to give the current auditor of a
nonissuer access to the documentation, what should the current auditor
do?
Review the risk assessment of the opening balances of the financial
statements.
Withdraw from the engagement.
Disclaim an opinion due to a scope limitation.
Discuss the matter with the client's legal counsel.
AUD 2015: Difficult 2 www.another71.com 4. Analytical procedures used in planning an audit should focus on:
Identifying material weaknesses in internal control.
Enhancing the auditor's understanding of the client's business.
Testing individual account balances that depend on accounting
estimates.
Evaluating the adequacy of the evidence gathered concerning unusual
balances.
5. If an auditor is obtaining an understanding of an issuer's information and
communication component of internal control, which of the following factors
should the auditor assess?
The integrity and ethical values of top management.
The philosophy and operating style of management to promote
effective internal control over financial reporting.
The classes of transactions in the issuer's operations that are
significant to the issuer's financial statements.
The oversight responsibility over financial reporting and internal control
by the board or audit committee.
AUD 2015: Difficult 3 www.another71.com 6. Which of the following is not a role of the risk assessment in an
integrated audit of a nonissuer?
Concluding on the effectiveness of a given control.
Selecting controls to test.
Determining significant accounts and relevant assertions.
Determining evidence necessary to conclude on the effectiveness of a
given control.
7. Which of the following situations represents a limitation, rather than a
failure, of internal control?
A jewelry store employee steals a small necklace from a display
cabinet.
A bank teller embezzles several hundred dollars from the cash drawer.
A purchasing employee and an outside vendor participate in a kickback
scheme.
A movie theater cashier sells reduced-price tickets to full-paying
customers and pockets the difference.
AUD 2015: Difficult 4 www.another71.com 8. An audit client has substantial assets held in a trust that is managed by
the trust department of a bank. Which of the following actions by the auditor
is the most efficient way to obtain information about the trust department's
internal controls?
Perform a review or compilation of the trust department.
Perform tests of controls on a sample of the client's transactions with
the trust department.
Rely on the trust department's audit report on internal controls placed in
operation and their operating effectiveness.
Ask management of the trust department to complete a questionnaire
about internal controls and provide flowcharts for related processes.
9. Which of the following levels would most likely address the risk of
material misstatement by the auditor's consideration of an entity's control
environment?
Financial statements.
Disclosures.
Classes of transactions.
Specific account balances.
AUD 2015: Difficult 5 www.another71.com 10. In addition to descriptions of the nature, timing, and extent of planned
risk assessment procedures and planned further audit procedures, which of
the following additional pieces of information should be documented in the
audit plan?
Procedures performed to assess independence and the ability to
perform the engagement.
The understanding of the terms of the engagement, including scope,
fees, and resource allocation.
Other audit procedures to be performed to comply with generally
accepted auditing standards.
Issues with management integrity that could affect the decision to
continue the audit engagement.
11. An audit team has concluded that inventory is highly susceptible to
misappropriation and that a potential misstatement would be material to the
financial statements. How should the audit team address the audit
procedures to the increased risk?
Review the client's control procedures over the safeguarding of
inventory, and perform a physical inventory count on the last day of the
current year.
Review the client's control procedures over the safeguarding of
inventory, incorporate the use of substantive analytical procedures, and
develop an expectation.
Review the client's control procedures over the safeguarding of
inventory, but do not modify substantive procedures over inventory.
Review the client's control procedures over the safeguarding of
inventory, and perform physical inventory counts throughout the current
year.
AUD 2015: Difficult 6 www.another71.com 12. When planning an engagement to examine the effectiveness of the
entity's internal control in an integrated audit of a nonissuer, a practitioner
would least likely consider which of the following factors?
Preliminary judgments about the effectiveness of internal control.
The extent of recent changes in the entity and its operations.
The type of available evidential matter pertaining to the effectiveness of
the entity's internal control.
The evaluation of the operating effectiveness of the controls.
13. In the audit of a nonissuer, which of the following statements is correct
regarding the use of external confirmations to obtain audit evidence?
Management's refusal to allow an auditor to perform external
confirmation procedures is considered a departure from GAAP sufficient to
qualify the opinion.
Negative confirmations provide more persuasive audit evidence than
positive confirmations.
Negative confirmations should be used only if a very high exception
rate is expected.
A factor for an auditor to consider when designing confirmation
requests is the assertion being tested.
AUD 2015: Difficult 7 www.another71.com 14. After performing a compliance audit of an entity that received federal
funds, what conclusion would the auditor draw if the entity does not have
adequate documentation to support $5 million in operating expenses paid
from federal program funds?
The entity spent $5 million in operating expenses that were not
approved.
Questioned costs of $5 million for operating expenses have been
identified.
The entity spent $5 million of government funds for services that were
not required.
The entity submitted unauthorized invoices for expenses.
15. An auditor of a nonissuer is most likely to conclude that a misstatement
identified during an audit that is below the quantitative materiality limit is
qualitatively material if it
Changes the company's operating results from a net loss to a net
income.
Arises from a transaction cycle with controls that were determined to be
operating effectively.
Is the first time a misstatement has arisen from the relevant transaction
cycle.
Decreases management's incentive compensation for the period.
AUD 2015: Difficult 8 www.another71.com 16. What is the maximum number of days in which a nonissuer's auditor
should complete the assembly of the final audit file following the report
release date?
30 days.
45 days.
60 days.
75 days.
17. In an integrated audit of a nonissuer, if an auditor concludes that a
material weakness exists as of the date specified in management's
assertion, the auditor should take which of the following actions?
Obtain written representations from management relating to such
matters.
Communicate, in writing, to the entity's outside legal counsel that the
material weakness exists.
Issue an adverse opinion.
Disclaim an opinion.
AUD 2015: Difficult 9 www.another71.com 18. A nonissuer requests that a CPA change an audit engagement to a
review engagement. If the accountant agrees to the change, how, if at all,
should the accountant's review report be modified?
The accountant should issue the review report without mentioning the
change in engagement.
The accountant should include in the review report a disclaimer of an
audit opinion.
The accountant should include in the review report the circumstances
that resulted in the change in engagement.
The accountant should include in the review report a reference to the
original engagement but not the reason for the change.
19. Which of the following procedures regarding notes payable would an
accountant most likely perform during a nonissuer's review engagement?
Confirming the year-end outstanding note payable balance with the
lender.
Examining records indicating proper authorization of the notes payable.
Making inquiries of management regarding maturities, interest rate, and
collateral.
Documenting control procedures for payment calculations of the notes'
principal and interest.
AUD 2015: Difficult 10 www.another71.com 20. When financial statements that an accountant has compiled in
accordance with Statements on Standards for Accounting and Review
Services omit substantially all disclosures required by generally accepted
accounting principles, the accountant's report should include
Management's justification for its decision to elect to omit substantially
all the disclosures.
No modification of the standard compilation report because
compilations do not require disclosures that are required for audited
financial statements.
Information alerting readers about omission of the disclosures and
notification that the omission may influence the user's conclusions about
the financial statements.
A separate paragraph in the compilation report stating that the financial
statements are misleading due to the lack of disclosures by management.
21. The standard accountant's report issued after reviewing the financial
statements of a nonissuer in accordance with SSARS should state that the
Accountant is not aware of any material modifications that should be
made to the financial statements for them to be in conformity with GAAP.
Accountant does not express an opinion or any other form of
assurance on the entity's internal control system.
Accountant has no responsibility to update the report for circumstances
occurring after the date of the report.
Financial statements present fairly the entity's financial position and the
results of its operations and cash flows in conformity with GAAP.
AUD 2015: Difficult 11 www.another71.com 22. According to the AICPA Code of Professional Conduct, which of the
following activities results in an act discreditable to the profession?
A CPA solicits recent Uniform CPA Examination questions without
written authorization from the AICPA.
A CPA signs a document containing immaterial false and misleading
information, or permits or directs another CPA to do so.
A CPA who is engaged to perform a government audit neglects to
follow certain government auditing requirements and discloses in the audit
report the fact that such requirements were not followed and the reasons
for it.
A CPA fails to give a client copies of the CPA's workpapers related to a
completed and issued work product upon the client's request because the
client has not paid fees payable to the CPA for the work product.
23. An issuer's auditor is prohibited from providing tax services to which of
the following individuals?
The chair of the board of directors.
The chair of the audit committee.
The CEO.
The CFO of an affiliate of the issuer audited by another firm.
AUD 2015: Difficult 12 www.another71.com 24. Each of the following is an ethical principle that should guide the work
of auditors in the conduct of audits under government auditing standards,
except
Materiality.
Integrity.
The public interest.
Proper use of government information.
25. According to the IFAC Code of Ethics for Professional Accountants,
audit teams are required to be independent of the audit client during the
engagement period and during which other period?
The fiscal year following the period covered by the financial statements.
The period covered by the financial statements.
The calendar years that include any part of the period covered by the
financial statements.
The two years prior to the period covered by the financial statements.
AUD 2015: Difficult 13 www.another71.com Answers:
1. Which of the following statements correctly defines the term reasonable
assurance?
A substantial level of assurance to allow an auditor to detect a material
misstatement.
A significant level of assurance to allow an auditor to detect a material
misstatement.
An absolute level of assurance to allow an auditor to detect a material
misstatement.
A high, but not absolute, level of assurance to allow an auditor to
detect a material misstatement.
2. A practitioner may perform an agreed-upon procedures engagement on
prospective financial statements provided that which of the following is
met?
Use of the agreed-upon procedures report is not restricted.
The practitioner sets the criteria to be used in the determination of
findings.
The client agrees that the practitioner will decide appropriate
procedures to be performed.
The prospective financial statements include a summary of
significant assumptions.
AUD 2015: Difficult 14 www.another71.com 3. If the predecessor auditor refuses to give the current auditor of a
nonissuer access to the documentation, what should the current auditor
do?
Review the risk assessment of the opening balances of the
financial statements.
Withdraw from the engagement.
Disclaim an opinion due to a scope limitation.
Discuss the matter with the client's legal counsel.
AUD 2015: Difficult 15 www.another71.com 4. Analytical procedures used in planning an audit should focus on:
Identifying material weaknesses in internal control.
Enhancing the auditor's understanding of the client's business.
Testing individual account balances that depend on accounting
estimates.
Evaluating the adequacy of the evidence gathered concerning unusual
balances.
5. If an auditor is obtaining an understanding of an issuer's information and
communication component of internal control, which of the following factors
should the auditor assess?
The integrity and ethical values of top management.
The philosophy and operating style of management to promote
effective internal control over financial reporting.
The classes of transactions in the issuer's operations that are
significant to the issuer's financial statements.
The oversight responsibility over financial reporting and internal control
by the board or audit committee.
AUD 2015: Difficult 16 www.another71.com 6. Which of the following is not a role of the risk assessment in an
integrated audit of a nonissuer?
Concluding on the effectiveness of a given control.
Selecting controls to test.
Determining significant accounts and relevant assertions.
Determining evidence necessary to conclude on the effectiveness of a
given control.
7. Which of the following situations represents a limitation, rather than a
failure, of internal control?
A jewelry store employee steals a small necklace from a display
cabinet.
A bank teller embezzles several hundred dollars from the cash drawer.
A purchasing employee and an outside vendor participate in a
kickback scheme.
A movie theater cashier sells reduced-price tickets to full-paying
customers and pockets the difference.
AUD 2015: Difficult 17 www.another71.com 8. An audit client has substantial assets held in a trust that is managed by
the trust department of a bank. Which of the following actions by the auditor
is the most efficient way to obtain information about the trust department's
internal controls?
Perform a review or compilation of the trust department.
Perform tests of controls on a sample of the client's transactions with
the trust department.
Rely on the trust department's audit report on internal controls
placed in operation and their operating effectiveness.
Ask management of the trust department to complete a questionnaire
about internal controls and provide flowcharts for related processes.
9. Which of the following levels would most likely address the risk of
material misstatement by the auditor's consideration of an entity's control
environment?
Financial statements.
Disclosures.
Classes of transactions.
Specific account balances.
AUD 2015: Difficult 18 www.another71.com 10. In addition to descriptions of the nature, timing, and extent of planned
risk assessment procedures and planned further audit procedures, which of
the following additional pieces of information should be documented in the
audit plan?
Procedures performed to assess independence and the ability to
perform the engagement.
The understanding of the terms of the engagement, including scope,
fees, and resource allocation.
Other audit procedures to be performed to comply with generally
accepted auditing standards.
Issues with management integrity that could affect the decision to
continue the audit engagement.
11. An audit team has concluded that inventory is highly susceptible to
misappropriation and that a potential misstatement would be material to the
financial statements. How should the audit team address the audit
procedures to the increased risk?
Review the client's control procedures over the safeguarding of
inventory, and perform a physical inventory count on the last day of
the current year.
Review the client's control procedures over the safeguarding of
inventory, incorporate the use of substantive analytical procedures, and
develop an expectation.
Review the client's control procedures over the safeguarding of
inventory, but do not modify substantive procedures over inventory.
Review the client's control procedures over the safeguarding of
inventory, and perform physical inventory counts throughout the current
year.
AUD 2015: Difficult 19 www.another71.com 12. When planning an engagement to examine the effectiveness of the
entity's internal control in an integrated audit of a nonissuer, a practitioner
would least likely consider which of the following factors?
Preliminary judgments about the effectiveness of internal control.
The extent of recent changes in the entity and its operations.
The type of available evidential matter pertaining to the effectiveness of
the entity's internal control.
The evaluation of the operating effectiveness of the controls.
13. In the audit of a nonissuer, which of the following statements is correct
regarding the use of external confirmations to obtain audit evidence?
Management's refusal to allow an auditor to perform external
confirmation procedures is considered a departure from GAAP sufficient to
qualify the opinion.
Negative confirmations provide more persuasive audit evidence than
positive confirmations.
Negative confirmations should be used only if a very high exception
rate is expected.
A factor for an auditor to consider when designing confirmation
requests is the assertion being tested.
AUD 2015: Difficult 20 www.another71.com 14. After performing a compliance audit of an entity that received federal
funds, what conclusion would the auditor draw if the entity does not have
adequate documentation to support $5 million in operating expenses paid
from federal program funds?
The entity spent $5 million in operating expenses that were not
approved.
Questioned costs of $5 million for operating expenses have been
identified.
The entity spent $5 million of government funds for services that were
not required.
The entity submitted unauthorized invoices for expenses.
15. An auditor of a nonissuer is most likely to conclude that a misstatement
identified during an audit that is below the quantitative materiality limit is
qualitatively material if it
Changes the company's operating results from a net loss to a net
income.
Arises from a transaction cycle with controls that were determined to be
operating effectively.
Is the first time a misstatement has arisen from the relevant transaction
cycle.
Decreases management's incentive compensation for the period.
AUD 2015: Difficult 21 www.another71.com 16. What is the maximum number of days in which a nonissuer's auditor
should complete the assembly of the final audit file following the report
release date?
30 days.
45 days.
60 days.
75 days.
17. In an integrated audit of a nonissuer, if an auditor concludes that a
material weakness exists as of the date specified in management's
assertion, the auditor should take which of the following actions?
Obtain written representations from management relating to such
matters.
Communicate, in writing, to the entity's outside legal counsel that the
material weakness exists.
Issue an adverse opinion.
Disclaim an opinion.
AUD 2015: Difficult 22 www.another71.com 18. A nonissuer requests that a CPA change an audit engagement to a
review engagement. If the accountant agrees to the change, how, if at all,
should the accountant's review report be modified?
The accountant should issue the review report without mentioning
the change in engagement.
The accountant should include in the review report a disclaimer of an
audit opinion.
The accountant should include in the review report the circumstances
that resulted in the change in engagement.
The accountant should include in the review report a reference to the
original engagement but not the reason for the change.
19. Which of the following procedures regarding notes payable would an
accountant most likely perform during a nonissuer's review engagement?
Confirming the year-end outstanding note payable balance with the
lender.
Examining records indicating proper authorization of the notes payable.
Making inquiries of management regarding maturities, interest
rate, and collateral.
Documenting control procedures for payment calculations of the notes'
principal and interest.
AUD 2015: Difficult 23 www.another71.com 20. When financial statements that an accountant has compiled in
accordance with Statements on Standards for Accounting and Review
Services omit substantially all disclosures required by generally accepted
accounting principles, the accountant's report should include
Management's justification for its decision to elect to omit substantially
all the disclosures.
No modification of the standard compilation report because
compilations do not require disclosures that are required for audited
financial statements.
Information alerting readers about omission of the disclosures
and notification that the omission may influence the user's
conclusions about the financial statements.
A separate paragraph in the compilation report stating that the financial
statements are misleading due to the lack of disclosures by management.
21. The standard accountant's report issued after reviewing the financial
statements of a nonissuer in accordance with SSARS should state that the
Accountant is not aware of any material modifications that should
be made to the financial statements for them to be in conformity with
GAAP.
Accountant does not express an opinion or any other form of
assurance on the entity's internal control system.
Accountant has no responsibility to update the report for circumstances
occurring after the date of the report.
Financial statements present fairly the entity's financial position and the
results of its operations and cash flows in conformity with GAAP.
AUD 2015: Difficult 24 www.another71.com 22. According to the AICPA Code of Professional Conduct, which of the
following activities results in an act discreditable to the profession?
A CPA solicits recent Uniform CPA Examination questions without
written authorization from the AICPA.
A CPA signs a document containing immaterial false and misleading
information, or permits or directs another CPA to do so.
A CPA who is engaged to perform a government audit neglects to
follow certain government auditing requirements and discloses in the audit
report the fact that such requirements were not followed and the reasons
for it.
A CPA fails to give a client copies of the CPA's workpapers related to a
completed and issued work product upon the client's request because the
client has not paid fees payable to the CPA for the work product.
23. An issuer's auditor is prohibited from providing tax services to which of
the following individuals?
The chair of the board of directors.
The chair of the audit committee.
The CEO.
The CFO of an affiliate of the issuer audited by another firm.
AUD 2015: Difficult 25 www.another71.com 24. Each of the following is an ethical principle that should guide the work
of auditors in the conduct of audits under government auditing standards,
except
Materiality.
Integrity.
The public interest.
Proper use of government information.
25. According to the IFAC Code of Ethics for Professional Accountants,
audit teams are required to be independent of the audit client during the
engagement period and during which other period?
The fiscal year following the period covered by the financial statements.
The period covered by the financial statements.
The calendar years that include any part of the period covered by the
financial statements.
The two years prior to the period covered by the financial statements.
AUD 2015: Difficult 26 www.another71.com