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AUD Mock Final Exam Actual Solution!!
Shelly's Bank has loaned money to Pete's Auto Supply. The loan is collateralized by inventory. The loan also requires a CPA to observe the count of the inventory and trace sampled items to the vendor invoices in order to determine the value of inventory is not misstated. This service would be: A) an assurance service engagement. B) an attestation engagement. C) a review engagement. D) a compilation engagement. - Answers B) an attestation engagement. The primary difference between a financial forecast and a financial projection is: A) The extent of financial information included in the presentation. B) The level of accountant involvement with the financial information. C) The accounting principles used to generate the financial information. D) The nature of the assumptions used to generate the financial information. - Answers D) The nature of the assumptions used to generate the financial information.
Which of the following is not addressed in an SOC 1 Type 1 report? a) Description of the service organization's internal controls. b) Design of the service organization's internal controls. c) Operating effectiveness of the service organization's internal controls. d) All of these choices are addressed in an SOC 1 Type 1 report. - Answers c) Operating effectiveness of the service organization's internal controls. An accountant's examination report on a financial forecast expresses: a) An opinion on the presentation of the financial information and the reasonableness of the assumptions. b) An opinion on the presentation of the financial information and limited assurance on the reasonableness of the assumptions. c) Limited assurance on the presentation of the financial information and an opinion on the reasonableness of the assumptions. d) Limited assurance on the presentation of the financial information and the reasonableness of the assumptions. - Answers a) An opinion on the presentation of the financial information and the reasonableness of the assumptions. Which of the following is not a condition that must be met for an attestation engagement related to compliance: a) Management must accept responsibility for compliance.
d) An indication that the accountant is not responsible to update the report for subsequent events and occurrences. - Answers c) A limitation on the use of the accountant's report. Which of the following is NOT included in the Integrity and Objectivity Rule? a) Prudent assessment of facts b) Free of conflict of interests c) Not knowingly misrepresent facts d) Not subordinate judgment to others - Answers a) Prudent assessment of facts Which of the following forms of organization would NOT be allowed under the Form of Organization and Name Rule of the Professional Code of Conduct? a) Limited liability partnership; all partners are CPAs. b) Limited liability partnership; 70 percent of partners are CPAs. c) Limited liability corporation; all shareholders are CPAs. d) Partnership; 40 percent of partners are CPAs. - Answers d) Partnership; 40 percent of partners are CPAs. The AICPA Council has designated the following bodies to pronounce accounting principles under the Accounting Principles Rule except the
a) Financial Accounting Standards Board. b) Auditing Procedures Board. c) Federal Accounting Standards Advisory Board. d) Governmental Accounting Standards Board. - Answers b) Auditing Procedures Board. An interpretation of the Independence Rule allows members to a) hold a material indirect interest in a client. b) have loans from a client that are collateralized by cash deposits held by the client. c) have home mortgages with a client even if they are on the engagement. d) be a trustee of a client pension or profit sharing trust. - Answers b) have loans from a client that are collateralized by cash deposits held by the client. According to the Accounting Principles Rule requires the auditor to adhere to official pronouncements except when a) complying would violate client confidentiality. b) pending legislation may change the reporting requirements of the client. c) adherence to a pronouncement would be misleading. d) it has been established that financial statement users prefer an alternative presentation of information. - Answers c) adherence to a pronouncement would be misleading.
If an audit is performed for the benefit of a specific person or organization, that person or organization is known as a(n) a) party to the contract. b) primary beneficiary. c) foreseeable third party. d) prime benefactor. - Answers b) primary beneficiary. How does the Securities Act of 1933, which imposes civil liability on auditors for misrepresentations or omissions of material facts in a registration statement, expand auditors' liability to purchasers of securities beyond that of common law? a) Purchasers only have to prove loss caused by reliance on audited financial statements. b) Privity with purchasers is not a necessary element of proof. c) Purchasers have to prove either fraud or gross negligence as a basis for recovery. d) Auditors are held to a standard of care described as professional skepticism. - Answers b) Privity with purchasers is not a necessary element of proof. Which of the following is not a valid defense for auditors' liability to third parties for ordinary negligence under common law?
a) The loss was caused by factors other than the materially misstated financial statements. b) Lack of proper standing (relationship) to bring suit in that jurisdiction. c) Lack of a privity relationship with auditors. d) Third parties did not rely upon the financial statements. - Answers c) Lack of a privity relationship with auditors. Which of the following claims concerning the quality of auditors' work would least likely result in civil liability for damages? a) Gross negligence amounting to constructive fraud. b) Failure to investigate possible fraud when other entities in the industry have experienced frauds. c) Reckless disregard of evidence that the financial statements do not conform to generally accepted accounting principles. d) Issuing an unqualified auditors' opinion when evidence suggests that the financial statements were not prepared according to generally accepted accounting principles. - Answers b) Failure to investigate possible fraud when other entities in the industry have experienced frauds. Lauren hires Humphrey, a CPA, to audit her financial statements. The engagement letter includes a statement acknowledging that audited financial statements are needed for a filing with a regulatory body. Humphrey completes the audit and issues an unqualified opinion. Based on the audited financial statements, Key Largo Bank approves a loan to Lauren. Four months later, Lauren files for bankruptcy. Key Largo Bank would most likely sue Humphrey claiming:
Your organization has selected you to develop an internal audit activity. Your approach will most likely be to hire: a) internal auditors each of whom possess the skills required to handle all engagements. b) inexperienced personnel and train them the way the organization wants them trained. c) degreed accountants because most internal audit work is accounting related. d) internal auditors who collectively have the knowledge and skills needed to perform the responsibilities of the internal audit activities. - Answers d) internal auditors who collectively have the knowledge and skills needed to perform the responsibilities of the internal audit activities. In performing a financial statement audit in accordance with government auditing standards, an auditor is required to report on the entity's compliance with laws and regulations. This report should: a) state that compliance with laws and regulations is the responsibility of the entity's management. b) describe the laws and regulations with which the entity must comply. c) provide an opinion on overall compliance with laws and regulations. d) indicate that the auditor does not possess legal skills and cannot make legal judgments. - Answers a) state that compliance with laws and regulations is the responsibility of the entity's management. The fundamental principle behind Benford's Law is:
a) Numbers occur in normal distribution about a mean value for account numbers. b) Naturally occurring numbers are not randomly distributed. c) Given a sufficient sample size the population of an account can be accurately approximated. d) Accounts with large balances are more significant to account balances. - Answers b) Naturally occurring numbers are not randomly distributed. Fraud examiners have four main objectives in performing an investigation. Which of the following is not one of those objectives? a) Determine whether a fraud exists. b) Determine who was involved in the fraud. c) Determine how the fraud occurred. d) Determine the effect on financial statement users. - Answers b) Determine who was involved in the fraud. In an audit of a municipality the auditor is most important audit objective is: a) the municipality is in compliance with laws, regulations, and the municipality's policy and procedures. b) the municipality's internal controls are operating effectively. c) the municipality as sufficient documentation to support all purchases.
a) internal control policies and procedures are functioning as prescribed. b) the extent of further audit procedures can be reduced. c) errors and irregularities are prevented or detected in a timely manner. d) the auditor has an understanding of internal control. - Answers a) internal control policies and procedures are functioning as prescribed. Which of the following sampling risks is associated with the use of attributes sampling? a) Risk of underreliance: Yes; Risk of incorrect rejection: Yes b) Risk of underreliance: Yes; Risk of incorrect rejection: No c) Risk of underreliance: No; Risk of incorrect rejection: Yes d) Risk of underreliance: No; Risk of incorrect rejection: No - Answers b) Risk of underreliance: Yes; Risk of incorrect rejection: No As part of the assessment of control risk, the auditor decided to use audit sampling. After specifying the audit objectives, what would the auditor most likely do next? a) Determine the sample size. b) Select the sample. c) Perform tests of control procedures. d) Define the deviation conditions. - Answers d) Define the deviation conditions.
Which of the following statements is correct regarding nonstatistical sampling? a) Nonstatistical sampling must use random selection techniques. b) The sample size when using nonstatistical sampling methods is generally not comparable to that determined using statistical sampling methods. c) Nonstatistical sampling does not use a formal process to mathematically estimate the allowance for sampling risk. d) When using nonstatistical sampling, the audit team is not required to select a sample that is representative of the population. - Answers c) Nonstatistical sampling does not use a formal process to mathematically estimate the allowance for sampling risk. Which of the following is not true with respect to the use of nonstatistical sampling? a) The use of nonstatistical sampling generally results in a smaller sample size. b) The use of nonstatistical sampling is permissible under generally accepted auditing standards. c) Auditors may use block and haphazard selection methods when using nonstatistical sampling. d) The use of nonstatistical sampling does not permit the auditor to control exposure to the risk of overreliance. - Answers a) The use of nonstatistical sampling generally results in a smaller sample size.
SCA is auditing a client's accounts receivable balance recorded at $ million using MUS. The following parameters have been established for this account: Tolerable misstatement = $500, Expected misstatement = $100, Risk of incorrect acceptance = 10 percent Which of the following statements would not be true with respect to the sample size in this situation? a) The correct sample size is 69 customer accounts. b) Decreasing tolerable misstatement from $500,000 to $200,000 (holding all other factors constant) will reduce the sample size by 331 accounts. c) If SCA wishes to reduce its exposure to the risk of incorrect acceptance to 5 percent (holding all other factors constant), sample size will be increased by 24 accounts. d) Increasing expected misstatement to $200,000 (holding all other factors constant) will increase the sample size to 115 customer accounts. - Answers b) Decreasing tolerable misstatement from $500,000 to $200,000 (holding all other factors constant) will reduce the sample size by 331 accounts. Which of the following is not an acceptable course of action the audit team can choose when sample evidence suggests that the account balance is materially misstated?
a) Increase the tolerable misstatement and examine additional items. b) Increase the sample size and examine additional items. c) Recommend adjustment of the client's account balance. d) All of these choices are acceptable courses of action. - Answers a) Increase the tolerable misstatement and examine additional items. Jones, CPA, used a classical variables sampling application to examine the inventory balance of XYZ Company. The recorded balance of the inventory was $240,000, and Jones determined a tolerable misstatement of $12,000. Jones' sampling procedures resulted in a precision interval of $224,000 to $236,000. As a result, Jones should conclude that the a) inventory balance is fairly stated. b) inventory balance is materially misstated. c) tolerable misstatement should be increased. d) risk of incorrect acceptance is below the desired level. - Answers b) inventory balance is materially misstated. The audit team is using monetary unit sampling to examine an entity's accounts receivable balance, which is recorded at $500,000. The team has determined the tolerable misstatement to be $25,000, the risk of incorrect acceptance to be 5 percent, and the expected misstatement to be 2 percent. Using the monetary unit sampling sample size table, what is the appropriate sample size? a) 75 b) 162
d) Option D - Answers Audit Data Analytics (ADA) allow the auditor to test/analyze 100% of the data rather than a sample. What is the benefit of being able to test the entire population of data? a) Option A b) Option B c) Option C d) Option D Through the evaluation of the results of an Audit Data Analytic (ADA), the auditor concludes that the original objectives of the ADA were not reached. What should the auditor do next? a) Issue an adverse opinion b) Adjust the original objective c) Plan and perform alternative procedures d) Issue a disclaimer of opinion - Answers c) Plan and perform alternative procedures Which of the following is not important when considering the reliability of client data? a) The source reliability b) Client controls over data preparation c) If the auditor's information system has been subject to reliability testing
d) All of the above are important - Answers c) If the auditor's information system has been subject to reliability testing Data from which of the following sources is most likely to be unreliable? a) Data obtained directly from the client with strong internal controls b) Data obtained from a third-party sent directly to the auditor c) Data obtain through direct personal observation of the auditor d) Data obtained directly from the client with weak internal controls - Answers d) Data obtained directly from the client with weak internal controls As part of assessing the risk of material misstatement, the audit team must assess the control risk in the computerized processing system. Initially, the audit team must identify the overall processing scope of the system(s), which would include each of the following considerations except a) the types of transactions that are processed through the system. b) the specific control procedures that have been implemented by the client to prevent or detect misstatements that could occur based on the audit team's analysis. c) the programs and files that are accessed by the system in processing transactions. d) the type of output that is created as a result of processing transactions through the system. - Answers b) the specific control procedures that have been implemented by the client to prevent or detect misstatements that could occur based on the audit team's analysis.
