WGU D215 Auditing, Pre-test Answered

1. Which type of work performed by a CPA is an attestation service? Risk advisory Website security assurance Data integrity Financial statement review - ANSWER-Financial statement review 2. Which entity may obtain audited financial statements to ensure a company is complying with industry regulations? Lenders Consumers Governments General public - ANSWER-Governments 3. Which group performs an audit and review of financial statements to ensure financial statement users' needs are met? Internal auditors The Internal Revenue Service (IRS) Independent third-party auditors The Financial Accounting Standards Board (FASB) - ANSWER-Independent third-party auditors 4. Which type of report should be issued if an auditor has determined that a company has maintained effective internal controls over financial reporting for the period under audit? Adverse Qualified Disclaimer Unqualified - ANSWER-Unqualified 5. A new CPA is aware of how accounting affects stakeholders. Which characteristic of professionalism is motivating this awareness? Level of expertise Advanced certification Professional judgment Concern for the public interest - ANSWER-Concern for the public interest 6. Which component of the AICPA Code of Professional Conduct provides the tenets of ethical conduct that govern the professional responsibility of its members? Morals Principles Interpretations Rules of conduct - ANSWER-Principles 7. A CPA firm provides tax services for a large automotive client. Over the years, the client has continually pushed for aggressive tax strategies that the CPA does not always agree with. While performing the current year tax return, the client threatens to discontinue the relationship with the CPA firm if they continue to disagree with the strategies presented. Which type of threat to ethical decision-making is demonstrated by this practice? Self-review Self-interest Adverse interest Undue influence - ANSWER-Undue influence 8. A CPA has prepared a couple's joint tax returns for 10 years, but the couple is now experiencing a complicated divorce where both parties wish to claim the same child as a dependent. The CPA agrees to work with both clients on their tax returns. Which standard of the AICPA Code of Professional Conduct is being violated by this CPA's action? Independence Contingent Fees Accounting Principles Integrity and Objectivity - ANSWER-Integrity and Objectivity 9. A large client asks a CPA firm for consulting help with their quarterly sales and use tax reporting. The CPA firm specializes in audit and tax preparation and has not dealt with this type of work in the past but would like to add it. The firm decides to accept the job. Which step is required to maintain compliance with the general standards of the AICPA Code of Professional Conduct? The CPA firm must send the CPAs to a continuing professional education course on sales and use tax reporting. The CPA firm must be independent of the client to perform consulting services on sales and use tax reports. The CPA firm must develop this line of work by adding additional clients who need assistance with sales and use tax reports. The CPA firm must collect sufficient relevant data to complete sales and use tax reports. - ANSWER-The CPA firm must send the CPAs to a continuing professional education course on sales and use tax reporting. 10. A junior accountant is providing tax and audit services to a large company that is pressuring the accountant to reduce the amount of taxes the company owes. The junior accountant decides to use last year's tax laws instead of the current year's laws since the older laws will save the company money. Which general standard of the AICPA Code of Professional Conduct is the junior accountant violating? Due Professional Care Sufficient Relevant Data Planning and Supervision Professional Competence - ANSWER-Due Professional Care 11. A CPA firm has been retained to audit a client's financial statements. The client's bank has requested audited financial statements in order to approve or deny a loan to the client. The client has suggested that the CPA firm will earn a $20,000 bonus if the bank grants the loan to the client. Which statement characterizes the permissibility of this fee structure? The CPA will need to obtain a ruling letter from the AICPA before agreeing to this fee structure. This fee structure is not permitted under ethical standards applicable to the auditing profession. The CPA will need to obtain written permission from the client's bank before agreeing to this fee structure. This fee structure is an acceptable arrangement under ethical standards applicable to the auditing profession. - ANSWER-This fee structure is not permitted under ethical standards applicable to the auditing profession. 12. A CPA is auditing a car dealership and is identifying factors that affect the likelihood of overstated revenue. During which phase of the audit does the CPA take this action? Reporting Regulatory Risk response Risk assessment - ANSWER-Risk assessment 13. After performing risk assessment procedures and tests of controls, an auditor has determined that the risk of a material misstatement (RMM) is high. How should the auditor proceed? Withdraw from the audit engagement Select a substantive approach for the audit strategy Issue a qualified opinion in the auditor's report Select a reliance on a controls approach for the audit strategy - ANSWER-Select a substantive approach for the audit strategy 14. An audit firm is finalizing the acceptance of an audit by sending the client an engagement letter. Which piece of information should be included in this letter? Client's reason for switching audit firms Client's confirmation of management integrity Client's statement that no conflict of interest exists Client's responsibility for the preparation of the financial statements - ANSWER-Client's responsibility for the preparation of the financial statements 15. An audit manager is concerned about a severe economic downturn in the country where its audit client is based. Which component of the audit risk model is of concern to this manager? Control Inherent Detection Quantitative - ANSWER-Inherent 16. A company has been operating with weak internal accounting policies within an industry known for poor accounting practices. The auditor must keep audit risk below 1%. Which situation must be present to ensure this level of audit risk? There must be a low level of inherent risk. There must be a high level of inherent risk. There must be a low level of detection risk. There must be a high level of detection risk. - ANSWER-There must be a low level of detection risk 17. A staff auditor working on a large company's audit has found a red flag that may indicate fraud. Which item was found by the auditor? Simple business structure Strong internal controls Inadequate training programs Basic business transactions - ANSWER-Inadequate training programs 18. An auditor has a new audit engagement of an urgent care clinic with a high turnover of direct care workers in a geographic area that has experienced tremendous population growth. Which procedure should the auditor perform to gain an understanding of the client? Test the client's procedures for recording payroll liabilities Review AICPA industry guides for the healthcare industry Test a sample of wage calculations from a payroll register Review the client's formal procedures for classifying payroll expenses - ANSWER-Review AICPA industry guides for the healthcare industry 19. How does the inclusion of a non-executive individual in the composition of the board of directors affect an auditor's risk assessment? It increases the risk of a material misstatement due to a lack of expertise. It reduces the risk of a material misstatement because they are more impartial. It increases the risk of a material misstatement due to a lack of a vested interest in the company. It reduces the risk of a material misstatement because they are outside of corporate governance. - ANSWER-It reduces the risk of a material misstatement because they are more impartial. 20. A company begins to use a new accounts payable computer system and then realizes a critical data field present in the old system is missing in the new system. Which type of risk is present for this company? Control Inherent Financial Detection - ANSWER-Control 21. During a yearly audit, the audit team becomes aware of the company's pressure to increase next year's profit. Which factor should the audit team be on the lookout for in the near future? Accruals for subsequent year sales in the current year Disposals of inventory during the week before the current year-end Payroll expenses incurred the month after the year-end and recorded in the last month of the year Sales commissions paid to staff incurred during the last week of the year and not recorded in the current year - ANSWER-Payroll expenses incurred the month after the year-end and recorded in the last month of the year 22. Which management assertion states that financial and other information are disclosed fairly and in appropriate amounts? Completeness Accuracy and valuation Classification and understandability Occurrence and rights and obligations - ANSWER-Accuracy and valuation 23. Which factor describes sufficiency of audit evidence gathered? Quantity of evidence Documentation of evidence How the evidence was obtained When the evidence was obtained - ANSWER-Quantity of evidence 24. Which combination of assessed inherent risk and control risk will require the greatest amount of sufficient evidence? Low inherent risk, low control risk High inherent risk, low control risk Low inherent risk, high control risk High inherent risk, high control risk - ANSWER-High inherent risk, high control risk 25. Which type of procedure is being performed when an auditor selects transactions from a sales journal or ledger and then examines the underlying source documents? Tracing Vouching Observing Journaling - ANSWER-Vouching 26. Which dimension of the COSO framework identifies five integrated items of internal control? Objectives Components Information technology Organizational structure - ANSWER-Components 27. Which principle should an organization implement in order to have an effective risk assessment process? The organization should demonstrate a commitment to integrity and ethical values. The organization should select and develop general control activities over technology. The organization should select and develop control activities that contribute to the mitigation of risk. The organization should specify objectives with clarity to enable the identification and assessment of risks. - ANSWER-The organization should specify objectives with clarity to enable the identification and assessment of risks 28. Which action is considered a control activity that helps ensure management's directives are carried out across the entity? Conducting periodic evaluations of internal controls Ensuring there are proper authorization control procedures Committing to attract, develop, and retain competent employees Implementing internal control recommendations when deficiencies are detected - ANSWER-Ensuring there are proper authorization control procedures 29. Which outcome stems from understanding a client's internal control system? The replication of test results An ability to draw conclusions The elimination of analytical procedures An improvement in client customer satisfaction - ANSWER-An ability to draw conclusions 30. Which classification should be used for a deficiency in internal control that would affect the decisions of the users of financial statements? Control outlier Material weakness Significant deficiency Acceptable irregularity - ANSWER-Material weakness 31. Which element has an auditor identified in the client's internal control system when the auditor selects a reliance on controls approach? Threats Strengths Weaknesses Opportunities - ANSWER-Strengths 32. Which level of assurance regarding a private company's internal control over financial reporting is provided in a management letter? None Limited Absolute Reasonable - ANSWER-None 33. An auditor uses financial statement assertions to guide the identification of possible errors or misstatements in the financial statement. Which procedure should the auditor perform next? Perform tests of controls Review the entity-level controls Identify the relevant controls to test Determine the preliminary audit strategy - ANSWER-Identify the relevant controls to test 34.