AUD HARD 2019

Question 1

Which of the following cognizant agencies is most likely to be assigned to an auditee?

Answer 1

The federal agency that provides the most funding to the auditee.

Question 2

A CPA in charge of the external audit of a non-issuer received an unexpected inheritance that includes 100 shares of the audit client’s common stock. Which of the following actions should the CPA take to avoid violating independence rules.

Answer 2

Sell or donate the stock within 30 days after receipt of ownership rights.

Question 3

Which of the following matters should an accountant include when establishing an understanding with a client regarding the services to be performed for a compilation engagement?

Answer 3

The effect that independence impairements, if present, will have on the expected form of the accountant’s report.

Question 4

A group engagement team of a non-issuer should ask a component auditor to communicate whether it complied with

Answer 4

Ethical requirements relevant to the group audit.

Question 5

An auditor decides to perform substantive tests on a client’s property and equipment balance as of an interim date. The auditor has not obtained evidence about the operating effectiveness of relevant controls. What additional work must be performed to extend the audit conclusions from the interim date to the balance sheet date?

Answer 5

Substantive procedures for the period between the interim date and the balance sheet date.

Question 6

which of the following components of internal control contributes most to a strong control environment?

Answer 6

Management adheres to internal control policies.

Question 7

Which of the following statements indicates that the auditor has gained a sufficient understanding of a client’s internal controls related to the sales order process?

Answer 7

The auditor noted in a narrative that the documentation for the sales order system showed the printing of a shipment exception report listing noninvoiced shipments.

Question 8

While performing procedures in planning an audit, the auditor’s comparison of expectations with recorded amounts yield unusual and unexpected relationships. The auditor should consider the results of the analytical procedures in which of the following?

Answer 8

Identifying the risks of material misstatement due to fraud.

Question 9

While testing a sample of an audit client’s bank reconciliations during the year under audit, an auditor notices that several immaterial deposits in transit did not clear the bank in a timely manner. The auditor suspects there may be fraud. Which of the following audit responses is most appropriate in this situation?

Answer 9

The auditor should consider the implications for the integrity of management or employees and the possible effect on other aspects of the audit.

Question 10

Which of the following is a sampling risk that is associated with the efficiency of an audit?

Answer 10

Risk of assessing control risk too high.

Question 11

Which of the following disclaimers of liability included within a response to an auditor’s confirmation request would allow the auditor to rely on the confirmation as appropriate audit evidence for an audit of a nonissuer?

Answer 11

Information is furnished as a matter of courtesy without a duty to do so and without responsibility, liability, or warranty, expressed or implied.

Question 12

Which of the following statements in an attorney’s legal letter requires further investigation?

Answer 12

“It is our opinion that the company will be able to assert meritorious defenses to this action. “

Question 13

An auditor has set the materiality level for the financial statement as a whole at $125.000. Which of the following misstatements would the auditor most likely consider material?

Answer 13

The client did not disclose $45,000 of related party transactions in the footnotes.

Question 14

If a service auditor is unable to obtain a written assertion from the service organization’s management regarding its system and the suitability of the design and operating effectiveness of controls, it would be the most appropriate for the auditor to

Answer 14

Withdraw from the engagement unless prohibited by law.

Question 15

On February 17, year 2, a company had a fire that destroyed a plant. The building and equipment had a net carrying amount of $550,000 as of December 31, year 1. The company anticipates that insurance proceeds of $300,000 will be received. The audit of the financial statements dated December 31, Year 1, was completed February 25, year 2. How should the fire be reported in the financial statements for the year ended December 31, year 1?

Answer 15

The December 31, year 1, financial statements should disclose the effect of the fire with no financial statement adjustment.

Question 16

If an auditor of a nonissuer concludes that reasonable justification exists to change an audit engagement to an agreed-upon procedures engagement, then the report should

Answer 16

Not include a reference to the original audit engagement but may include a reference to procedures that have been performed.

Question 17

Each of the following statements concerning compilation of financial statements on certain prescribed forms is correct, except:

Answer 17

A prescribed form cannot depart from generally accepted accounting principles or fail to include all required disclosures.

Question 18

Which of the following should the auditor of a nonissuer do when reporting on supplementary information that is required by a designated accounting standard setter, presented with the basic financial statements?

Answer 18

Include a paragraph after the opinion paragraph that references the required supplementary information.

Question 19

For financial statement audits performed in accordance with generally accepted government auditing standards, auditors should report which of the following?

Answer 19

Significant deficiencies in internal control.

Question 20

An auditor has determined a materiality threshold of $100,000 for a client. The auditor has accumulated audit evidence that supports an allowance for bad debts in the range of $1.5 million to $1.8 million. The client recorded $800,000 as the allowance for bad debts and declines to record any additional allowance. What proposed adjustment will the auditor include in the summary or unadjusted differences?

Answer 20

Debit bad debt expense $700,000; credit allowance for bad debts $750,000