CPA Exam Practice
Which of the following statements best describes the primary purpose of Statements on Auditing Standards (SASs)?
a. They are generally accepted auditing standards.
b. They are procedural outlines intended to narrow the areas of inconsistency and divergence of auditor opinion.
c. They are authoritative statements, enforced through the Code of Professional Conduct, and are intended to limit the
degree of auditor judgment.
d. They are guides intended to set forth auditing procedures applicable to a variety of situations.
a
According to AU-C 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with
Generally Accepted Auditing Standards, "presumptively mandatory requirements" in the auditing standards use which
word?
a. May
b. Must
c. Should
d. Can
c
Independent auditing can best be described as
a. A professional activity that measures and communicates financial and business data.
b. A regulatory function that prevents the issuance of improper financial information.
c. A discipline that enhances the degree of confidence that users can place in financial statements.
d. A branch of accounting.
c
Which of the following best describes the reason an independent auditor reports on financial statements?
a. A misstatement of account balances may exist and is generally corrected as the result of the independent auditor's
work.
b. A management fraud may exist, and it is more likely to be detected by independent auditors.
c. The company preparing the statements and the persons using the statements may have different interests.
d. The company preparing the statements may have poorly designed internal control.
c
Which of the following best characterizes an auditor's exercise of professional skepticism?
, CPA Exam Practice
a. Taking into account past relationships and experiences with management.
b. Conducting all fraud-related inquiries in a nonconfrontational manner.
c. Obtaining adequate conclusive evidence in support of the fairness of the financial statements.
d. Having an attitude that includes a questioning mind.
d
Which of the following statements correctly defines the term "reasonable assurance"?
a. A significant level of assurance to allow an auditor to detect a material misstatement.
b. A substantial level of assurance to allow an auditor to detect a material misstatement.
c. An absolute level of assurance to allow an auditor to detect a material misstatement.
d. A high, but not absolute, level of assurance to allow an auditor to detect a material misstatement.
d
An audit of the financial statements of Camden Corporation is being conducted by an external auditor. The external
auditor is expected to:
a. Express an opinion as to the fairness of Camden's financial statements.
b. Make a 100% examination of Camden's records.
c. Certify the correctness of Camden's financial statements.
d. Express an opinion as to the attractiveness of Camden for investment purposes and critique the wisdom and legality of
its business decisions.
a
Notes that are included with financial statements are the responsibility of the
a. Internal auditor.
b. Securities and Exchange Commission.
c. Independent auditor.
d. Company's management.
d
A financial statement audit is designed to:
a. Obtain absolute assurance on the financial statements and express an opinion on the financial statements.
b. Obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
fraud or error.
, CPA Exam Practice
c. Provide assurance on internal control and to identify significant deficiencies and material weaknesses.
d. Detect error or fraud in the financial statements, regardless of whether or not the error or fraud is material.
b
Which of the following statements is true concerning an auditor's responsibilities regarding financial statements?
a. An auditor may not draft an entity's financial statements based on information from management's accounting system.
b. Making suggestions that are adopted about an entity's internal control environment impairs an auditor's independence.
c. The adoption of sound accounting policies is an implicit part of an auditor's responsibilities.
d. An auditor's responsibilities for audited financial statements are confined to the expression of the auditor's opinion.
d
Users of an issuer's financial statements demand independent audits because
a. Management may not be objective in reporting.
b. Management relies on the auditor to improve internal control.
c. Users demand assurance that fraud does not exist.
d. Users expect auditors to correct management errors.
a
Who establishes generally accepted auditing standards?
a. Securities and Exchange Commission.
b. Auditing Standards Board and the Public Company Accounting Oversight Board.
c. Financial Accounting Standards Board and the Governmental Accounting Standards Board
d. State Boards of Accountancy
b
The securities of Donley Corporation are listed on a regional stock exchange and registered with the SEC. The
management of Donley engages a CPA to perform an independent audit of Donley's financial statements. The primary
objective of this audit is to provide assurance to the
a. Securities and Exchange Commission.
b. Regional stock exchange.
c. Board of directors of Donley.
d. Investors in Donley securities.
d
, CPA Exam Practice
At the completion of an audit, which of the following entities has ownership of the audit working papers?
a. The client's stockholders.
b. The client's audit committee.
c. The CPA firm that performed the audit.
d. The client.
c
Which of the following elements ultimately determines the specific auditing procedures that are necessary in the
circumstances to provide a reasonable basis for an opinion?
a. Reasonable assurance.
b. Materiality.
c. Auditor judgment.
d. Audit risk.
c
Which of the following types of evidence generally is the most reliable?
a. Copies of original documents.
b. Review of prior-year audit procedures.
c. Confirmation of account information from third parties.
d. Inquiries made of management.
c
The current file of an auditor's audit documentation most likely would include a copy of the
a. Articles of incorporation.
b. Bank reconciliation.
c. Flowchart of the internal control activities.
d. Pension plan contract.
b
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?
a. 60 days.
Which of the following statements best describes the primary purpose of Statements on Auditing Standards (SASs)?
a. They are generally accepted auditing standards.
b. They are procedural outlines intended to narrow the areas of inconsistency and divergence of auditor opinion.
c. They are authoritative statements, enforced through the Code of Professional Conduct, and are intended to limit the
degree of auditor judgment.
d. They are guides intended to set forth auditing procedures applicable to a variety of situations.
a
According to AU-C 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with
Generally Accepted Auditing Standards, "presumptively mandatory requirements" in the auditing standards use which
word?
a. May
b. Must
c. Should
d. Can
c
Independent auditing can best be described as
a. A professional activity that measures and communicates financial and business data.
b. A regulatory function that prevents the issuance of improper financial information.
c. A discipline that enhances the degree of confidence that users can place in financial statements.
d. A branch of accounting.
c
Which of the following best describes the reason an independent auditor reports on financial statements?
a. A misstatement of account balances may exist and is generally corrected as the result of the independent auditor's
work.
b. A management fraud may exist, and it is more likely to be detected by independent auditors.
c. The company preparing the statements and the persons using the statements may have different interests.
d. The company preparing the statements may have poorly designed internal control.
c
Which of the following best characterizes an auditor's exercise of professional skepticism?
, CPA Exam Practice
a. Taking into account past relationships and experiences with management.
b. Conducting all fraud-related inquiries in a nonconfrontational manner.
c. Obtaining adequate conclusive evidence in support of the fairness of the financial statements.
d. Having an attitude that includes a questioning mind.
d
Which of the following statements correctly defines the term "reasonable assurance"?
a. A significant level of assurance to allow an auditor to detect a material misstatement.
b. A substantial level of assurance to allow an auditor to detect a material misstatement.
c. An absolute level of assurance to allow an auditor to detect a material misstatement.
d. A high, but not absolute, level of assurance to allow an auditor to detect a material misstatement.
d
An audit of the financial statements of Camden Corporation is being conducted by an external auditor. The external
auditor is expected to:
a. Express an opinion as to the fairness of Camden's financial statements.
b. Make a 100% examination of Camden's records.
c. Certify the correctness of Camden's financial statements.
d. Express an opinion as to the attractiveness of Camden for investment purposes and critique the wisdom and legality of
its business decisions.
a
Notes that are included with financial statements are the responsibility of the
a. Internal auditor.
b. Securities and Exchange Commission.
c. Independent auditor.
d. Company's management.
d
A financial statement audit is designed to:
a. Obtain absolute assurance on the financial statements and express an opinion on the financial statements.
b. Obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
fraud or error.
, CPA Exam Practice
c. Provide assurance on internal control and to identify significant deficiencies and material weaknesses.
d. Detect error or fraud in the financial statements, regardless of whether or not the error or fraud is material.
b
Which of the following statements is true concerning an auditor's responsibilities regarding financial statements?
a. An auditor may not draft an entity's financial statements based on information from management's accounting system.
b. Making suggestions that are adopted about an entity's internal control environment impairs an auditor's independence.
c. The adoption of sound accounting policies is an implicit part of an auditor's responsibilities.
d. An auditor's responsibilities for audited financial statements are confined to the expression of the auditor's opinion.
d
Users of an issuer's financial statements demand independent audits because
a. Management may not be objective in reporting.
b. Management relies on the auditor to improve internal control.
c. Users demand assurance that fraud does not exist.
d. Users expect auditors to correct management errors.
a
Who establishes generally accepted auditing standards?
a. Securities and Exchange Commission.
b. Auditing Standards Board and the Public Company Accounting Oversight Board.
c. Financial Accounting Standards Board and the Governmental Accounting Standards Board
d. State Boards of Accountancy
b
The securities of Donley Corporation are listed on a regional stock exchange and registered with the SEC. The
management of Donley engages a CPA to perform an independent audit of Donley's financial statements. The primary
objective of this audit is to provide assurance to the
a. Securities and Exchange Commission.
b. Regional stock exchange.
c. Board of directors of Donley.
d. Investors in Donley securities.
d
, CPA Exam Practice
At the completion of an audit, which of the following entities has ownership of the audit working papers?
a. The client's stockholders.
b. The client's audit committee.
c. The CPA firm that performed the audit.
d. The client.
c
Which of the following elements ultimately determines the specific auditing procedures that are necessary in the
circumstances to provide a reasonable basis for an opinion?
a. Reasonable assurance.
b. Materiality.
c. Auditor judgment.
d. Audit risk.
c
Which of the following types of evidence generally is the most reliable?
a. Copies of original documents.
b. Review of prior-year audit procedures.
c. Confirmation of account information from third parties.
d. Inquiries made of management.
c
The current file of an auditor's audit documentation most likely would include a copy of the
a. Articles of incorporation.
b. Bank reconciliation.
c. Flowchart of the internal control activities.
d. Pension plan contract.
b
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?
a. 60 days.
