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2015 AICPA Newly Released QuestionsAuditing


2015 AICPA Auditing Newly Released MCQsMedium (Moderate) Rating
1. CPA-08625
Reporting standards for financial audits under Government Auditing Standards differ from reporting
standards under generally accepted auditing standards in that Government Auditing Standards require
the auditor to:
a.

Describe the scope of the auditors tests of compliance with laws and regulations.

b.

Provide positive assurance that the entitys audit committee is adequately informed about the
effects of any illegal acts.

c.

Present the results of the auditors tests of economy and efficiency regarding the use of the entitys
resources.

d.

Provide negative assurance that the auditor discovered no transactions that were indicative of
illegal acts.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A6
Topic to be assigned to: 4
Page reference (page # and outline point): A6-55 V.D.2.
ANSWER:
Choice a is correct. Reporting standards for financial audits under Government Auditing Standards differ
from reporting standards under generally accepted auditing standards (GAAS) in that Government
Auditing Standards require the auditor to describe the scope of the auditors tests of compliance with laws
and regulations.
Choice b is incorrect. All illegal acts, unless clearly inconsequential, should be reported to those
charged with governance (i.e. the entitys audit committee) under both Government Auditing Standards
and GAAS. However, neither Government Auditing Standards nor GAAS require the auditor to provide
positive assurance that the entitys audit committee is adequately informed about the effects of illegal
acts.
Choice c is incorrect. This question is asking about financial audits. Performance, not financial, audits
may present the results of the auditors tests of economy and efficiency regarding the use of the entitys
resources.
Choice d is incorrect. Government Auditing Standards do not require the auditor to provide negative
assurance that the auditor discovered no transactions that were indicative of illegal acts. However, all
illegal acts, unless clearly inconsequential, should be reported to the officials of the audited entity, those
charged with governance, or external regulators.

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2. CPA-08626
Which of the following procedures would most likely assist an auditor in identifying related party
transactions?
a.

Evaluate the reasonableness of managements accounting estimates that are subject to bias.

b.

Retest ineffective internal control activities for evidence of management override.

c.

Review the minutes of the meetings of the board of directors and its committees.

d.

Send second requests for unanswered positive confirmations of accounts receivable.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A4
Topic to be assigned to: 3
Page reference (page # and outline point): A4-50 I.D.4.
ANSWER:
Choice c is correct. Reviewing the minutes of the meetings of the board of directors and its committees
most likely would assist an auditor in identifying related party transactions.
Choice a is incorrect. Evaluating the reasonableness of managements accounting estimates that are
subject to bias may help the auditor in assessing the reasonableness of an account balance, but most
likely would not assist the auditor in identifying related party transactions.
Choice b is incorrect. Retesting ineffective internal control activities for evidence of management
override may help the auditor identify a control deficiency, but most likely would not assist the auditor in
identifying related party transactions.
Choice d is incorrect. Sending second requests for unanswered positive confirmations of accounts
receivable assists the auditor in obtaining evidence regarding the existence of accounts receivable, but
most likely would not assist the auditor in identifying related party transactions.

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3. CPA-08627
Which of the following factors would most likely influence the form and extent of the auditors
documentation of an entitys internal control environment?
a.

Complexity and size of the entity.

b.

Amount of audit work performed at an interim date.

c.

Amount of audit work performed by the internal auditor.

d.

Results of verifying material account balances.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A6
Topic to be assigned to: 2
Page reference (page # and outline point): A6-37 I.D.1.
ANSWER:
Choice a is correct. The complexity and size of the entity will most likely influence the form and extent of
the auditors documentation of an entitys internal control environment. For example, a smaller, less
complex entity will typically have fewer controls than a larger, complex entity and, therefore, most likely
would result in less audit documentation about the entitys internal control environment.
Choice b is incorrect. The amount of audit work performed at an interim date is not likely to influence the
form and extent of the auditors documentation of the entitys internal control environment. The auditor
must provide documentation proving that sufficient evidence was obtained regarding the internal control
environment, regardless of when audit work is performed.
Choice c is incorrect. The amount of audit work performed by the internal auditor is not likely to
significantly influence the form and extent of the auditors documentation of the entitys internal control
environment. The external auditor must provide documentation to prove that sufficient evidence was
obtained regarding the internal control environment. However, use of the internal auditors work may
create a more efficient audit.
Choice d is incorrect. The results of verifying material account balances is not likely to significantly
influence the form and extent of the documentation of the entitys internal control environment. Typically,
the auditors understanding of the entitys internal control environment influences the nature, timing, and
extent of substantive testing performed, rather than vice versa.

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4. CPA-08629
According to the AICPA Code of Professional Conduct, which of the following actions will impair
independence?
a.

Preparing client financial statements based on information in a trial balance.

b.

Processing payroll for a clients signature based on client record keeping.

c.

Participating in the hiring or termination of a clients employees.

d.

Assisting a client in drafting a stock-offering document or memorandum.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A6
Topic to be assigned to: 1
Page reference (page # and outline point): A6-6 I.C.1.d.
ANSWER:
Choice c is correct. Participating in the hiring or termination of a clients employees impairs
independence because the CPA is performing a management function.
Choice a is incorrect. Preparing client financial statements based on information in a trial balance
represents a preparation engagement, which would not impair the CPAs independence. Management is
still responsible for taking responsibility and approving the financial statements.
Choice b is incorrect. Processing payroll for a clients signature based on client record keeping would
not impair independence and is considered a non-attest service. The CPA is merely processing
information that is the clients and is not making policy decisions.
Choice d is incorrect. Merely assisting a client in drafting a stock-offering document or memorandum
does not impair independence and is considered a non-attest service. However, acting as the underwriter
or promoter of the offering documents would impair independence.

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5. CPA-08630
When an accountant compiles the financial statements of a nonissuer in accordance with Statements on
Standards for Accounting and Review Services, the accountants report should include:
a.

A statement that the accountant is not aware of material modifications that should be made to the
financial statements for them to be in conformity with GAAP.

b.

A statement regarding the accountants assessment of fraud risk.

c.

A statement that the accountant does not express an opinion on the financial statements.

d.

A statement regarding the entitys compliance with laws and regulations.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A2
Topic to be assigned to: 2
Page reference (page # and outline point): A2-36 VI.E.3.
ANSWER:
Choice c is correct. A compilation report includes a statement that the accountant does not express an
opinion on the financial statements.
Choice a is incorrect. A review, not a compilation report, includes a statement that the accountant is not
aware of material modifications that should be made to the financial statements for them to be in
conformity with GAAP.
Choice b is incorrect. An audit, not a compilation, report includes a statement regarding the auditors
assessment of risks of material misstatement due to fraud or error. Assessment of fraud risk is not
required in a compilation engagement.
Choice d is incorrect. A standard compilation report is not required to include a statement regarding the
entitys compliance with laws and regulations.

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6. CPA-08631
In which of the following circumstances is an auditor most likely to rely on work done by internal auditors?
a.

If financial statement amounts are material and the degree of subjectivity in evaluating the audit
evidence is high.

b.

If the internal auditors have concluded that the risk of material misstatement at the overall financial
level is negligible.

c.

For financial statement amounts judged by the auditor to require little or no subjectively evaluated
audit evidence.

d.

For financial statement amounts determined largely or entirely on the basis of estimates made by
management.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A3
Topic to be assigned to: 2
Page reference (page # and outline point): A3-22 V.A.2.
ANSWER:
Choice c is correct. An auditor is most likely to rely on work done by internal auditors for financial
statement amounts judged by the auditor to require little or no subjectively evaluated audit evidence.
Choice a is incorrect. An auditor is unlikely to rely on the work performed by the internal auditor if
financial statement amounts are material and the degree of subjectivity in evaluating the audit evidence is
high.
Choice b is incorrect. An external auditors decision to rely on the work performed by internal auditors is
unlikely to be based on the internal auditors assessment of the risk of material misstatement. Risk of
material misstatement is a highly subjective audit decision. In addition, the auditors determination to use
the work of the internal auditor is based on the external auditors evaluation of the competency of the
internal audit function, objectivity of the internal auditors, and whether the internal audit function applies a
systematic and disciplined approach as well as the external auditors determination of the characteristics
of the audit work (i.e. low degree of subjectivity, low risk of material misstatement, etc.).
Choice d is incorrect. An external auditor is unlikely to rely on the work of the internal auditor for
financial statement amounts that have a high degree of subjectivity, such as estimates made by
management.

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2015 AICPA Newly Released QuestionsAuditing


7. CPA-08632
Which of the following statements is correct regarding a management representation letter?
a.

A representation letter can be used in place of specific, previously identified audit procedures.

b.

A representation letter encompasses a different set of assertions from those inherent in the
financial statements.

c.

The date of the representation letter should typically be the same as the audit report.

d.

The representations made apply until the date of a clients financial statements.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A5
Topic to be assigned to: 4
Page reference (page # and outline point): A5-56 I.B.3.
ANSWER:
Choice c is correct. The date of the representation letter should typically be the same as the audit
report.
Choice a is incorrect. A management representation letter typically does not represent sufficient audit
evidence to substitute a specific, previously identified audit procedure. For example, a management
representation letter cannot be used to substitute the audit procedure of confirming accounts receivable.
Choice b is incorrect. A representation letter encompasses the same set of assertions as those inherent
in the financial statements (i.e., completeness of information).
Choice d is incorrect. The management representation letter includes representations up to the date of
the auditors report, which is after the date of the clients financial statements. For example, management
includes a representation that all events subsequent to the date of the financial statements have been
appropriately accounted for and disclosed in accordance with the requirements of GAAP.

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8. CPA-08634
Which of the following components of internal control would be considered the foundation for the other
components?
a.

Information and communication.

b.

Risk assessment.

c.

Control environment.

d.

Control activities.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A3
Topic to be assigned to: 7
Page reference (page # and outline point): A3-48 I.B.1.
ANSWER:
Choice c is correct. The control environment sets the overall tone of the organization and is considered
the foundation for the other components of internal control. The other components of internal control are
risk assessment, information and communication, control activities, and monitoring.
Choices a, b, and d are incorrect per the above explanation.

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9. CPA-08635
Which of the following activities by small business clients best demonstrates management integrity in the
absence of a written code of conduct?
a.

Emphasizing ethical behavior through oral communication and management example.

b.

Developing and maintaining formal descriptions of accounting procedures.

c.

Documenting internal control procedures using flowcharts rather than narratives.

d.

Reporting regularly to the board of directors about operations and finances.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A3
Topic to be assigned to: 7
Page reference (page # and outline point): A3-49 I.B.2.b.(1)
ANSWER:
Choice a is correct. Emphasizing ethical behavior through oral communication and by example best
demonstrates management integrity in the absence of a written code of conduct.
Choice b is incorrect. Managements development and maintenance of formal descriptions of
accounting procedures demonstrates good documentation of accounting procedures but does not provide
evidence about managements integrity.
Choice c is incorrect. Documenting internal control procedures using flowcharts rather than narratives
demonstrates managements preference in documenting control procedures, but does not provide
evidence about managements integrity.
Choice d is incorrect. Reporting regularly to the board of directors about operations and finances
provides information about managements frequency of communication with the board of directors but
does not demonstrate management integrity.

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10. CPA-08636
Which of the following procedures would be appropriate to test the existence assertion during an audit of
accounts receivable?
a.

Trace transactions from the subsidiary ledger to the general ledger.

b.

Send confirmations to customers.

c.

Trace a sample of invoices to recording in the general ledger.

d.

Determine that all shipments before year-end are recorded as sales.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A4
Topic to be assigned to: 2
Page reference (page # and outline point): A4-23 II.F.1.c.
ANSWER:
Choice b is correct. Sending confirmations to customers is the most appropriate audit procedure to test
the existence of accounts receivable.
Choice a is incorrect. Tracing transactions from the subsidiary ledger to the general ledger tests the
completeness of accounts receivable.
Choice c is incorrect. Tracing a sample of invoices to recording in the general ledger tests the
completeness of accounts receivable.
Choice d is incorrect. Determining that all shipments before year-end are recorded as sales tests the
assertions of cutoff and completeness of accounts receivable.

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11. CPA-8663
A companys management provided its auditors with information concerning litigation, claims, and
assessments. Which of the following is the auditors primary means of corroborating managements
information?
a.

Inquiring of companys outside counsel.

b.

Meeting with the companys audit committee.

c.

Meeting with the companys chairman of the board.

d.

Inquiring of the companys in-house counsel.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A4
Topic to be assigned to: 3
Page reference (page # and outline point): A4-57 IV.C.
ANSWER:
Choice a is correct. The auditors primary means of corroborating managements information concerning
litigation, claims, and assessments is through a letter of inquiry sent to the companys outside counsel.
Choice b is incorrect. Meeting with the companys audit committee or reviewing minutes of the audit
committee may help identify and/or corroborate information provided by management related to litigation,
claims, and assessments; however, the auditors primary means of corroborating managements
information is through a letter of inquiry sent to the companys outside counsel.
Choice c is incorrect. Meeting with the companys chairman of the board or reviewing board meeting
minutes may help identify and/or corroborate information provided by management related to litigation,
claims, and assessments; however, the auditors primary means of corroborating managements
information is through a letter of inquiry sent to the companys outside counsel.
Choice d is incorrect. Inquiring of the companys in-house legal counsel may help identify and/or
corroborate information provided by management related to litigation, claims, and assessments; however,
the auditors primary means of corroborating managements information is through a letter of inquiry sent
to the companys outside counsel.

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12. CPA-8664
Which of the following would cause an auditor of an entitys financial statements to issue either a qualified
opinion or a disclaimer of opinion?
a.

Scope limitation involving a recorded uncertainty.

b.

Inadequate disclosure of an uncertainty.

c.

The use of inappropriate accounting principles.

d.

Unreasonable accounting estimates.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A1
Topic to be assigned to: 3
Page reference (page # and outline point): A1-38 VII.A.
ANSWER:
Choice a is correct. An auditor would issue either a qualified opinion or a disclaimer of opinion when
there is a scope limitation (GAAS issue).
Choice b is incorrect. An auditor would issue either a qualified or an adverse opinion when there is
inadequate disclosure (GAAP issue).
Choice c is incorrect. An auditor would issue either a qualified or an adverse opinion when the entity
uses inappropriate accounting principles (GAAP issue).
Choice d is incorrect. An auditor would issue either a qualified or an adverse opinion when the entity
uses unreasonable accounting estimates (GAAP issue).

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13. CPA-8665
At the completion of an audit, which of the following entities has ownership of the audit working papers?
a.

The client.

b.

The clients audit committee.

c.

The CPA firm that performed the audit.

d.

The clients stockholders.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A6
Topic to be assigned to: 2
Page reference (page # and outline point): A6-35 I.A.
ANSWER:
Choice c is correct. The CPA firm that performed the audit has ownership of the audit working papers.
These workpapers provide support for the audit opinion and contain information detailing the audit work
performed.
Choice a is incorrect. The client has ownership of evidence supplied to the auditor by the client (e.g.,
original invoices, original contracts), but not for audit working papers.
Choice b is incorrect. The clients audit committee has ownership of evidence supplied to the auditor by
the committee (e.g., original meeting minutes), but not for audit working papers.
Choice d is incorrect. The clients stockholders do not have ownership of the audit working papers.

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14. CPA-8666
Which of the following services would constitute a management function under Government Auditing
Standards, and result in the impairment of a CPAs independence if performed by the CPA?
a.

Developing entity program policies.

b.

Providing methodologies, such as practice guides.

c.

Providing accounting opinions to a legislative body.

d.

Recommending internal control procedures.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A6
Topic to be assigned to: 1
Page reference (page # and outline point): A6-4 I.C.1.d.
ANSWER:
Choice a is correct. Developing program policies impairs a CPAs independence because the CPA is
acting in a management capacity.
Choice b is incorrect. Providing information to management, such as practice guides, does not impair
independence. This does not constitute the management function as management is making the final
decision of what methodology to use.
Choice c is incorrect. Providing an accounting opinion does not impair a CPAs independence.
Choice d is incorrect. Merely recommending internal control procedures does not impair a CPAs
independence. This does not constitute the management function as management has the final
determination of whether to implement the internal control procedures.

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15. CPA-8667
Which of the following best characterizes an auditors exercise of professional skepticism?
a.

Conducting all fraud-related inquiries in a nonconfrontational manner.

b.

Obtaining adequate conclusive evidence in support of the fairness of the financial statements.

c.

Having an attitude that includes a questioning mind.

d.

Taking into account past relationships and experiences with management.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A3
Topic to be assigned to: 4
Page reference (page # and outline point): A3-30 II.C.1.
ANSWER:
Choice c is correct. Professional skepticism is an attitude that includes a questioning mind and a critical
assessment of audit evidence.
Choice a is incorrect. Professional skepticism does not require performing fraud inquiries in a certain
manner (i.e. confrontational, nonconfrontational). Professional skepticism is an attitude that includes
asking additional questions and obtaining additional evidence when the reliability of evidence obtained is
questionable.
Choice b is incorrect. Obtaining adequate conclusive evidence in support of the fairness of the financial
statements does not necessarily demonstrate the exercise of professional skepticism. The auditor is
responsible for obtaining sufficient appropriate evidence to determine whether the financial statements
are materially misstated, rather than merely looking for evidence that supports the fairness of the financial
statements.
Choice d is incorrect. Taking into account past relationships and experiences with management does
not necessarily demonstrate the exercise of professional skepticism. Sometimes reliance on past
relationships and experiences impedes, rather than promotes, the exercise of professional skepticism.
The auditor should always verify information and look at evidence with a questioning attitude even if
management has a history of acting honestly.

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16. CPA-8668
Before accepting an engagement to compile or review the financial statements of a nonissuer, which of
the following specific inquiries should a successor accountant consider making to the predecessor
accountant?
a.

How cooperative was the owners lawyer in providing a legal opinion?

b.

How did you assess inherent risk and control risk?

c.

How would you describe the integrity of the owner?

d.

What evaluation did you make of any accounting estimates?

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A2
Topic to be assigned to: 2
Page reference (page # and outline point): A2-26 III.A.1.
ANSWER:
Choice c is correct. An accountant may ask about the integrity of the owner because an accountant
should not accept a compilation or review engagement if there are doubts about management integrity.
Choice a is incorrect. Neither a compilation nor a review of financial statements requires the accountant
to obtain a legal opinion from the owners lawyer and, therefore, this is an unlikely inquiry.
Choice b is incorrect. Neither a compilation nor a review engagement requires the accountant to
evaluate inherent risk or control risk and, therefore, this is an unlikely inquiry.
Choice d is incorrect. A compilation engagement does not include an evaluation of accounting estimates
and, therefore, is an unlikely inquiry.

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17. CPA-8669
An entity has failed to provide documentation for a newly acquired material asset and informs its auditors
that the documentation is lost. According to generally accepted government auditing standards, what
would this situation typically indicate to the auditors?
a.

Fraudulent activity.

b.

Abusive activity.

c.

Misappropriation of assets.

d.

A heightened risk of fraud.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A5
Topic to be assigned to: 1
Page reference (page # and outline point): A5-18 V.F.7.b.
ANSWER:
Choice d is correct. Although documentation that is lost may be a result of error (e.g., the client
misplaced the document), the auditor should approach lost documentation with a heightened risk that
fraud may have occurred (e.g., the client intentionally destroyed the documentation).
Choice a is incorrect. Lost documentation does not necessarily mean that fraud occurred (e.g.,
documents may be misplaced by error). The auditor will need to evaluate the situation with a heightened
sense that fraud could have occurred and will need to obtain other corroborating evidence (e.g., inspect
the actual asset, review payment of item) to get comfortable with the balance.
Choice b is incorrect. Lost documentation does not necessarily indicate that the purchase is abusive.
(An example of an abusive purchase would be an employee buying an asset for personal, not business,
use.) The auditor will need to evaluate the situation with a heightened sense that fraud could have
occurred and will need to obtain other corroborating evidence (e.g., inspect the actual asset, review
payment of item) to get comfortable with the balance.
Choice c is incorrect. Misappropriation of assets involves theft of an entitys assets. Lost documentation
does not necessarily mean the asset was stolen. The auditor should perform additional procedures, such
as inspection of the actual asset, to determine whether the asset was stolen.

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18. CPA-8670
An accountant performing a compilation for a nonissuer believes that the financial statements might be
materially misstated. The client refuses to provide additional or revised information. How should the
accountant respond?
a.

By requesting that the engagement be changed from a compilation to a review or audit.

b.

By issuing a compilation report that is qualified for a scope limitation.

c.

By withdrawing from the compilation engagement.

d.

By issuing an adverse report on the compilation.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A2
Topic to be assigned to: 2
Page reference (page # and outline point): A2-38 VI.E.
ANSWER:
Choice c is correct. If an accountant performing a compilation for a nonissuer believes that the financial
statements might be materially misstated and the client refuses to provide additional or revised
information, then the accountant should withdraw from the engagement.
Choice a is incorrect. Requesting that the engagement be changed from a compilation to a review or
audit is not an appropriate response when the accountant believes that the financial statements might be
materially misstated. Appropriate reasons for changing the engagement include a change in client
requirements or a misunderstanding as to the nature of the service to be rendered.
Choice b is incorrect. An accountant would not issue an opinion in a compilation engagement. An
opinion is issued in an audit report.
Choice d is incorrect. An accountant would not issue an adverse report in a compilation engagement.
The accountant should either disclose the effects of the misstatement (if known) in a separate paragraph
of the compilation report or withdraw from the engagement. Disclosing the effects of the misstatement is
not known as an adverse report. The term adverse is typically used to describe a type of opinion
issued in an audit.

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19. CPA-8671
During an audit of a nonissuers financial statements, an auditor should perform tests of controls to obtain
sufficient appropriate audit evidence about the operating effectiveness of relevant controls if:
a.

The auditor does not presume that client management has committed fraud.

b.

More financial documentation is available through tests of controls.

c.

Substantive procedures alone cannot provide sufficient appropriate audit evidence.

d.

The auditor does not intend to rely on the operating effectiveness of controls.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A3
Topic to be assigned to: 8
Page reference (page # and outline point): A3-69 II.A.1.
ANSWER:
Choice c is correct. The auditor should perform tests of controls when substantive procedures alone
cannot provide sufficient appropriate audit evidence.
Choice a is incorrect. Even though the auditor does not presume that client management committed a
fraud, this does not necessarily mean that the auditor should perform tests of controls. The auditors basis
for testing controls is when the auditors risk assessment is based on the assumption that controls are
operating effectively or when substantive procedures alone are insufficient.
Choice b is incorrect. The determination to test controls is not based on the quantity of financial
information available through tests of controls. An auditor will test controls when the auditors risk
assessment is based on the assumption that controls are operating effectively or when substantive
procedures alone are insufficient.
Choice d is incorrect. If the auditor does not intend to rely on the operating effectiveness of controls,
then the auditor does not need to perform tests of controls.

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20. CPA-8672
In performing interviews and examining documents related to preliminary work in a financial statement
audit of a nonissuer, an auditor identifies a business risk associated with plans for a new product line.
What should the auditor do as a result?
a.

Modify the scope of the engagement to include an analysis of the budget for the new product line
and consider the new risk in conjunction with other risks after the budget items have been
analyzed.

b.

Analyze the newly identified risk in conjunction with economic circumstances related exclusively to
the new product line and consider whether there is an immediate consequence for the risk of
material misstatement for affected classes of transactions.

c.

Modify the financial statement disclosures to include the newly identified risk if it is likely that the
new product line will have an adverse effect on the companys profitability.

d.

Analyze the newly identified risk in conjunction with other known business risks and consider
whether there is an immediate consequence for the risk of material misstatement at various levels
of the audit.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A3
Topic to be assigned to: 8
Page reference (page # and outline point): A3-66 I.A.
ANSWER:
Choice d is correct. An appropriate response to an identified business risk associated with plans for a
new product line is for the auditor to analyze the newly identified risk in conjunction with other known
business risks and consider whether there is an immediate consequence for the risk of material
misstatement at various levels of the audit. Business risks often affect risk of material misstatement at the
financial statement level, which may affect risks of material misstatement at the relevant assertion level.
For example, an unsuccessful new product may affect the risks of material misstatement related to the
valuation of inventory.
Choice a is incorrect. An appropriate response to identified business risks should include evaluation of
the risk of material misstatement at various levels of the audit.
Choice b is incorrect. The identified risk should be analyzed in conjunction with other known business
risks, rather than just the economic risk related to the new product line. In addition, the auditor should
analyze the risk of material misstatement at various levels of the audit (i.e. financial statement and
relevant assertion level) rather than just for the affected classes of transactions. The relevant assertion
level includes classes of transactions, account balances, and disclosures.
Choice c is incorrect. Management, not the auditor, is responsible for the financial statements and
determining whether the financial statement disclosures should include the newly identified risk.

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21. CPA-8673
If interim substantive procedures for an account identified no exceptions, which of the following would the
auditor not perform on that account at year-end?
a.

Tests of details for the entire year under audit.

b.

Tests of details of activity during the period since the interim testing date.

c.

Reconciliation of year-end balances to interim balances.

d.

Substantive analytical procedures of the period since the interim testing date.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A3
Topic to be assigned to: 8
Page reference (page # and outline point): A3-73 III.D.1.
ANSWER:
Choice a is correct. If interim substantive procedures for an account identified no exceptions, then the
auditor does not need to test details for the entire year under audit at year-end.
Choice b is incorrect. If substantive procedures are performed at an interim date, the auditor would
apply substantive procedures, such as testing the details, to the period since the interim testing date.
Note: Substantive procedures include tests of details and substantive analytical procedures.
Choice c is incorrect. An auditor should reconcile year-end balances to interim dates. This procedure is
performed as part of the roll-forward procedures. For example, the client may have a revenue amount at
interim (01/0109/30) of $100,000, and then at year-end (the period of 01/0112/31) the revenue amount
is $150,000. The auditor would verify that the amount related to 01/0109/30 is still $100,000, and then
would apply substantive procedures to the remainder, $50,000, which occurred from 10/0112/31.
Choice d is incorrect. If substantive procedures are performed at an interim date, the auditor would
apply substantive procedures, such as performing substantive analytical procedures, during the period
since the interim testing date. Note: Substantive procedures include tests of details and substantive
analytical procedures.

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22. CPA-8674
In communicating with those charged with governance, the auditor must decide whether to communicate
with the audit committee or the clients entire board of directors. Which of the following considerations will
be least relevant to this decision?
a.

Whether the audit committee will be able to provide further information and explanations that the
auditor may require while performing the audit.

b.

The nature of the matters to be communicated.

c.

Managements preference.

d.

Regulatory requirements related to audit communications with those charged with governance.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A5
Topic to be assigned to: 3
Page reference (page # and outline point): A5-51 II.A.
ANSWER:
Choice c is correct. The auditor, not management, is responsible for determining which matters need to
be communicated to the audit committee or the clients entire board of directors.
Choice a is incorrect. The auditor most likely would consider whether the audit committee will be able to
provide further information and explanations that the auditor may require while performing the audit when
determining whether matters need to be communicated to the audit committee or the clients entire board
of directors.
Choice b is incorrect. The auditor most likely would consider the nature of the matters to be
communicated when determining whether matters need to be communicated to the audit committee or
the clients entire board of directors.
Choice d is incorrect. The auditor most likely would consider the regulatory requirements related to audit
communications with those charged with governance when determining whether matters need to be
communicated to the audit committee or the clients entire board of directors.

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23. CPA-8675
According to the Sarbanes-Oxley Act of 2002, the PCAOB has the legal authority to perform each of the
following, except:
a.

Prosecute suspected criminal violations by registered public accounting firms.

b.

Process, review, and approve the registration of public accounting firms that audit issuers.

c.

Inspect and review selected audit engagements of registered public accounting firms.

d.

Establish auditing, quality control, and independence standards for audits of issuers.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A6
Topic to be assigned to: 1
Page reference (page # and outline point): A6-16 II.A.2.
ANSWER:
Choice a is correct. The U.S. Department of Justice, not the PCAOB, has the legal authority to
prosecute suspected criminal violations by registered public accounting firms. (However, the PCAOB has
the right to impose civil monetary penalties.)
Choice b is incorrect. The PCAOB has the legal authority to process, review, and approve the
registration of public accounting firms that audit issuers.
Choice c is incorrect. The PCAOB has the legal authority to inspect and review selected audit
engagements of registered public accounting firms.
Choice d is incorrect. The PCAOB has the legal authority to establish auditing, quality control, and
independence standards for audits of issuers.

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24. CPA-8676
Which of the following best describes the effect of a contingent fee arrangement on the auditors
independence?
a.

The contingent fee arrangement does not impair independence if it is consistent with the registered
public accounting firms quality control policies.

b.

The contingent fee arrangement impairs independence.

c.

The contingent fee arrangement does not impair independence unless more than half of the fee is
subject to contingencies.

d.

The contingent fee arrangement impairs independence unless approved by the clients audit
committee.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A6
Topic to be assigned to: 1
Page reference (page # and outline point): A6-9 I.C.7.c.
ANSWER:
Choice b is correct. Contingent fee arrangements impair the auditors independence.
Choice a is incorrect. Contingent fee arrangements impair the auditors independence. In addition, a
contingent fee arrangement related to audit fees most likely would be prohibited in the registered public
accounting firms quality control policies.
Choice c is incorrect. Contingent fee arrangements impair the auditors independence even if the
amount is immaterial. A contingent fee is viewed as a direct financial interest.
Choice d is incorrect. Contingent fee arrangements are specifically prohibited for audits, regardless of
whether or not the contingent fees are approved by the clients audit committee.

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25. CPA-8677
An accountant is engaged to perform compilation services for a new client in an industry with which the
accountant has no previous experience. How should the accountant obtain sufficient knowledge of the
industry to perform the compilation service?
a.

By obtaining the most recent letter of credit from the entitys primary financial institution.

b.

By consulting AICPA guides, industry publications, or individuals knowledgeable about the industry.

c.

By researching the entitys Internet site and searching for current press releases.

d.

By reviewing the predecessor accountants workpapers without the knowledge of the entity.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A2
Topic to be assigned to: 2
Page reference (page # and outline point): A2-34 VI.B.1.
ANSWER:
Choice b is correct. An accountant may obtain sufficient knowledge of the industry to perform the
compilation service by consulting AICPA guides, industry publications, or individuals knowledgeable
about the industry.
Choice a is incorrect. A letter of credit from the entitys primary financial institution provides a guarantee
from the bank that the clients payment will be received on time and for the correct amount. This
document is unlikely to provide the accountant with information about the clients industry.
Choice c is incorrect. An accountant may obtain knowledge about the clients business by researching
the entitys Internet site and searching for current press releases. However, this most likely would not
provide comprehensive information of the industry (e.g., accounting rules specific to that industry,
economic trends in the industry).
Choice d is incorrect. An accountants review of the predecessor accountants workpapers most likely
would not provide comprehensive information about the industry (e.g., accounting rules specific to that
industry, economic trends in the industry). In addition, an accountant is unlikely to review the predecessor
accountants workpapers in a compilation engagement.

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2015 AICPA Auditing Newly Released MCQsDifficult (Hard) Rating
26. CPA-8678
Which of the following statements correctly defines the term reasonable assurance?
a.

A substantial level of assurance to allow an auditor to detect a material misstatement.

b.

A significant 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.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A1
Topic to be assigned to: 1
Page reference (page # and outline point): A1-4 I.D.1.
ANSWER:
Choice d is correct. Reasonable assurance is a high, but not absolute, level of assurance to allow an
auditor to detect a material misstatement.
Choice a, b, and c are incorrect, per the explanation above.

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27. CPA-8679
A practitioner may perform an agreed-upon procedures engagement on prospective financial statements
provided that which of the following is met?
a.

Use of the agreed-upon procedures report is not restricted.

b.

The practitioner sets the criteria to be used in the determination of findings.

c.

The client agrees that the practitioner will decide appropriate procedures to be performed.

d.

The prospective financial statements include a summary of significant assumptions.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A2
Topic to be assigned to: 6
Page reference (page # and outline point): A2-90 III.D.3.
ANSWER:
Choice d is correct. A practitioner may perform an agreed-upon procedures engagement on prospective
financial statements provided that the prospective financial statements include a summary of significant
assumptions.
Choice a is incorrect. Agreed-upon procedure reports must be restricted.
Choice b is incorrect. The specified parties should create the criteria to be used in the determination of
findings. The specified parties and the practitioner will then agree on the criteria.
Choice c is incorrect. The specified parties should decide the appropriate procedures to be performed.
The specified parties and the practitioner will then agree on the procedures to be performed by the
practitioner.

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28. CPA-8680
If the predecessor auditor refuses to give the current auditor of a nonissuer access to the documentation,
what should the current auditor do?
a.

Review the risk assessment of the opening balances of the financial statements.

b.

Withdraw from the engagement.

c.

Disclaim an opinion due to a scope limitation.

d.

Discuss the matter with the clients legal counsel.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A3
Topic to be assigned to: 1
Page reference (page # and outline point): A3-8 VI.B.1.
ANSWER:
Choice a is correct. If the predecessor auditor refuses to give the current auditor of a nonissuer access
to the documentation, the current auditor should review the risk assessment of the opening balances of
the financial statements.
Choice b is incorrect. The current auditor may still perform the engagement, even if the predecessor
auditor refuses to give the current auditor access to the prior-year documentation. However, if
management refuses to permit the current auditor to discuss the prior-year engagement with the
predecessor auditor, then the auditor should not accept the engagement.
Choice c is incorrect. Failure to review the predecessors audit documentation does not necessarily
result in a disclaimer of opinion. The auditor may be able to perform alternative procedures to obtain
reasonable assurance about the financial statements that may result in an opinion other than disclaimer
on the financial statements.
Choice d is incorrect. The predecessor auditor is not required by law to provide the current auditor with
access to the predecessors documentation, and therefore, discussion with the clients legal counsel is
not required.

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29. CPA-8681
Analytical procedures used in planning an audit should focus on:
a.

Identifying material weaknesses in internal control.

b.

Enhancing the auditors understanding of the clients business.

c.

Testing individual account balances that depend on accounting estimates.

d.

Evaluating the adequacy of the evidence gathered concerning unusual balances.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A4
Topic to be assigned to: 1
Page reference (page # and outline point): A4-7 IV.B.
ANSWER:
Choice b is correct. Analytical procedures used in planning an audit should focus on enhancing the
auditors understanding of the clients business.
Choice a is incorrect. The focus of analytical procedures is rarely to identify material weaknesses in
internal control. Tests of operating effectiveness of internal control include inquiries, observation,
inspection, and reperformance.
Choice c is incorrect. An auditor may use analytical procedures as a substantive procedure when testing
individual account balances that depend on accounting estimates. Substantive analytical procedures are
performed after the planning phase.
Choice d is incorrect. Analytical procedures performed during the overall review stage of the audit help
aid the auditor in evaluating the adequacy of the evidence gathered concerning unusual balances. The
overall review phase occurs after the planning phase.

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30. CPA-8682
If an auditor is obtaining an understanding of an issuers information and communication component of
internal control, which of the following factors should the auditor assess?
a.

The integrity and ethical values of top management.

b.

The philosophy and operating style of management to promote effective internal control over
financial reporting.

c.

The classes of transactions in the issuers operations that are significant to the issuers financial
statements.

d.

The oversight responsibility over financial reporting and internal control by the board or audit
committee.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A3
Topic to be assigned to: 7
Page reference (page # and outline point): A3-52 I.B.4.b.(1)
ANSWER:
Choice c is correct. The classes of transactions in the issuers operations that are significant to the
issuers financial statements are typically assessed when the auditor is obtaining an understanding of the
information and communication component of internal control.
Choice a is incorrect. The integrity and ethical values of top management are typically assessed when
the auditor is obtaining an understanding of the control environment component of internal control.
Choice b is incorrect. The philosophy and operating style of management to promote effective internal
control over financial reporting are typically assessed when the auditor is obtaining an understanding of
the control environment component of internal control.
Choice d is incorrect. The oversight responsibility over financial reporting and internal control by the
board or audit committee is typically assessed when the auditor is obtaining an understanding of the
control environment component of internal control.

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31. CPA-8683
Which of the following is not a role of the risk assessment in an integrated audit of a nonissuer?
a.

Concluding on the effectiveness of a given control.

b.

Selecting controls to test.

c.

Determining significant accounts and relevant assertions.

d.

Determining evidence necessary to conclude on the effectiveness of a given control.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A5
Topic to be assigned to: 2
Page reference (page # and outline point): A5-33 III.D.2.
ANSWER:
Choice a is correct. The auditors conclusion on the operating effectiveness of a given control is not a
role of the risk assessment process. The auditors conclusion on the operating effectiveness of internal
control occurs after the risk assessment process.
Choice b is incorrect. Selecting controls to test is part of the risk assessment process in an integrated
audit of a nonissuer.
Choice c is incorrect. Determining significant accounts and relevant assertions is part of the risk
assessment process in an integrated audit of a nonissuer.
Choice d is incorrect. Determining evidence necessary to conclude on the effectiveness of a given
control is part of the risk assessment process in an integrated audit of a nonissuer.

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32. CPA-8684
Which of the following situations represents a limitation, rather than a failure, of internal control?
a.

A jewelry store employee steals a small necklace from a display cabinet.

b.

A bank teller embezzles several hundred dollars from the cash drawer.

c.

A purchasing employee and an outside vendor participate in a kickback scheme.

d.

A movie theater cashier sells reduced-price tickets to full-paying customers and pockets the
difference.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A3
Topic to be assigned to: 7
Page reference (page # and outline point): A3-63 II.H.3.
ANSWER:
Choice c is correct. Even a well-designed internal control system has its limitations. One example of a
limitation of internal control includes deliberate circumvention of controls by collusion of two or more
people, such as when a purchasing employee and an outside vendor participate in a kickback scheme.
Other limitations of internal controls include human error and management override of control.
Choice a is incorrect. A failure in internal control occurs when a control does not exist, is not designed
appropriately, or is not operating effectively. An example of a failure of internal control would be a jewelry
store employee stealing a small necklace from a display cabinet. A control could have prevented the
employee from stealing the necklace (e.g.,, require two employees to open a display cabinet by having
different keys assigned to each employee).
Choice b is incorrect. A failure in internal control occurs when a control does not exist, is not designed
appropriately, or is not operating effectively. An example of a failure of internal control is a bank teller
embezzling several hundred dollars from the cash drawer. A control could have prevented the bank teller
from being able to embezzle cash (e.g.,, random cash counts).
Choice d is incorrect. An example of a failure of internal control is a movie theater cashier selling
reduced-price tickets to full-paying customers and pocketing the difference. A control could have
prevented the employee from pocketing the difference (e.g., reconciliation by another employee of sales
to deposits).

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33. CPA-8685
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
departments internal controls?
a.

Perform a review or compilation of the trust department.

b.

Perform tests of controls on a sample of the clients transactions with the trust department.

c.

Rely on the trust departments audit report on internal controls placed in operation and their
operating effectiveness.

d.

Ask management of the trust department to complete a questionnaire about internal controls and
provide flowcharts for related processes.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A3
Topic to be assigned to: 7
Page reference (page # and outline point): A3-64 II.I.2.b.
ANSWER:
Choice c is correct. The most efficient way to obtain information about the trust departments internal
controls is to rely on the trust departments audit report on internal controls placed in operation and their
operating effectiveness.
Choice a is incorrect. A review or compilation of the trust department would not provide information on
the trust departments internal controls. In addition, attestation standards allow only an examination or
agreed-upon procedures to be performed on internal controls.
Choice b is incorrect. An auditor may perform tests of controls on a sample of the clients transactions
with the trust department, which would provide information about the trust departments internal control.
However, this would not be as efficient as relying on the trust departments audit report.
Choice d is incorrect. Asking management of the trust department to complete a questionnaire about
internal controls and to provide flowcharts for related processes would provide information about the trust
departments internal control. However, this would not be as efficient as relying on the trust departments
audit report.

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34. CPA-8686
Which of the following levels would most likely address the risk of material misstatement by the auditors
consideration of an entitys control environment?
a.

Financial statements.

b.

Disclosures.

c.

Classes of transactions.

d.

Specific account balances.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A3
Topic to be assigned to: 8
Page reference (page # and outline point): A3-66 I.B.2.
ANSWER:
Choice a is correct. The control environment is pervasive and reflects the overall tone of the
organization. Therefore, the auditor is most likely to focus on the highest level of risk of material
misstatement, which is risk assessed at the financial statement level.
Choice b, c, and d are incorrect. Specific account balances, classes of transactions, and disclosures
relate to responding to risks at the relevant assertion level, which is lower than the financial statement
level.

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35. CPA-8687
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?
a.

Procedures performed to assess independence and the ability to perform the engagement.

b.

The understanding of the terms of the engagement, including scope, fees, and resource allocation.

c.

Other audit procedures to be performed to comply with generally accepted auditing standards.

d.

Issues with management integrity that could affect the decision to continue the audit engagement.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A3
Topic to be assigned to: 2
Page reference (page # and outline point): A3-18 IV.A.3.
ANSWER:
Choice c is correct. The audit plan should include documentation of specific audit procedures (including
other audit procedures) to be performed to comply with generally accepted auditing standards.
Choice a is incorrect. The auditors assessment of independence is required to be documented, but is
not required to be documented in the audit plan. The audit plan outlines the nature, extent, and timing of
the procedures to be performed during the audit.
Choice b is incorrect. The understanding of the terms of the engagement, including scope, fees, and
resource allocation, should be documented (typically in the form of an engagement letter), but is not
required to be documented in the audit plan. The audit plan outlines the nature, extent, and timing of the
procedures to be performed during the audit.
Choice d is incorrect. Issues with management integrity that could affect the decision to continue the
audit engagement should be documented. However, the specific issues with management integrity
generally are not documented in the audit plan.

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36. CPA-8688
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?
a.

Review the clients control procedures over the safeguarding of inventory, and perform a physical
inventory count on the last day of the current year.

b.

Review the clients control procedures over the safeguarding of inventory, incorporate the use of
substantive analytical procedures, and develop an expectation.

c.

Review the clients control procedures over the safeguarding of inventory, but do not modify
substantive procedures over inventory.

d.

Review the clients control procedures over the safeguarding of inventory, and perform physical
inventory counts throughout the current year.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A3
Topic to be assigned to: 3
Page reference (page # and outline point): A3-27 I.C.5.b.
ANSWER:
Choice a is correct. An appropriate response to an increase in risk of material misstatement is to
perform testing at year-end.
Choice b is incorrect. Test of details, such as observation of inventory, is generally more persuasive
than substantive analytical procedures when obtaining evidence regarding existence of the inventory.
Choice c is incorrect. An auditor should respond to an increased level of risk of material misstatement by
modifying substantive procedures, such as obtaining more persuasive evidence, increasing sample size,
or shifting testing from interim to year-end.
Choice d is incorrect. An appropriate response to an increase in level of risk of material misstatement is
to perform the testing at year-end rather than throughout the year.

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37. CPA-8689
When planning an engagement to examine the effectiveness of the entitys internal control in an
integrated audit of a nonissuer, a practitioner would be least likely to consider which of the following
factors?
a.

Preliminary judgments about the effectiveness of internal control.

b.

The extent of recent changes in the entity and its operations.

c.

The type of available evidential matter pertaining to the effectiveness of the entitys internal control.

d.

The evaluation of the operating effectiveness of the controls.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A5
Topic to be assigned to: 2
Page reference (page # and outline point): A5-31 III.C.
ANSWER:
Choice d is correct. When planning an engagement to examine the effectiveness of the entitys internal
control in an integrated audit of a nonissuer, a practitioner would be least likely to consider the evaluation
of the operating effectiveness of the controls. The evaluation of the operating effectiveness of controls
occurs after the planning stage.
Choice a is incorrect. When planning an engagement to examine the effectiveness of the entitys
internal control in an integrated audit of a nonissuer, a practitioner would likely consider preliminary
judgments about the effectiveness of internal control.
Choice b is incorrect. When planning an engagement to examine the effectiveness of the entitys
internal control in an integrated audit of a nonissuer, a practitioner would likely consider the extent of
recent changes in the entity and its operations.
Choice c is incorrect. When planning an engagement to examine the effectiveness of the entitys
internal control in an integrated audit of a nonissuer, a practitioner would likely consider the type of
available evidential matter pertaining to the effectiveness of the entitys internal control.

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38. CPA-8690
In the audit of a nonissuer, which of the following statements is correct regarding the use of external
confirmations to obtain audit evidence?
a.

Managements refusal to allow an auditor to perform external confirmation procedures is considered


a departure from GAAP sufficient to qualify the opinion.

b.

Negative confirmations provide more persuasive audit evidence than positive confirmations.

c.

Negative confirmations should be used only if a very high exception rate is expected.

d.

A factor for an auditor to consider when designing confirmation requests is the assertion being
tested.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A4
Topic to be assigned to: 2
Page reference (page # and outline point): A4-25 II.G.1.
ANSWER:
Choice d is correct. A factor for an auditor to consider when designing confirmation requests is the
assertion being tested.
Choice a is incorrect. Managements refusal to allow an auditor to perform external confirmation
procedures is considered a departure from GAAS, not GAAP, sufficient to qualify the opinion.
Choice b is incorrect. Negative confirmations provide less, not more, persuasive evidence than positive
confirmations.
Choice c is incorrect. Negative confirmations should be used if there is a low, not high, exception rate
expected.

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39. CPA-8691
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?
a.

The entity spent $5 million in operating expenses that were not approved.

b.

Questioned costs of $5 million for operating expenses have been identified.

c.

The entity spent $5 million of government funds for services that were not required.

d.

The entity submitted unauthorized invoices for expenses.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A6
Topic to be assigned to: 4
Page reference (page # and outline point): A6-67 VII.G.3.
ANSWER:
Choice b is correct. If the entity does not have adequate documentation to support $5 million in
operating expenses paid from federal program funds, then the auditor would conclude that questioned
costs of $5 million for operating expenses have been identified. This will appear on the schedule of
findings and questioned costs for federal awards.
Choice a is incorrect. The question states that the entity does not have adequate documentation to
support money paid from federal program funds. There is no indication that the controls related to
approval were not operating effectively.
Choice c is incorrect. The entity does not have the appropriate documentation; however, this does not
necessarily mean that the funds were for services that were not required.
Choice d is incorrect. The question states that the entity does not have adequate documentation to
support expenses paid from federal program funds. There is no indication that invoices were
unauthorized.

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40. CPA-8692
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:
a.

Changes the companys operating results from a net loss to a net income.

b.

Arises from a transaction cycle with controls that were determined to be operating effectively.

c.

Is the first time a misstatement has arisen from the relevant transaction cycle.

d.

Decreases managements incentive compensation for the period.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A4
Topic to be assigned to: 4
Page reference (page # and outline point): A4-60 II.B.5.b.(1)
ANSWER:
Choice a is correct. 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
companys operating results from a net loss to a net income.
Choice b is incorrect. A misstatement associated with a transaction cycle with controls that were
determined to be operating effectively would most likely not result in the auditor determining that the
misstatement is qualitatively material. However, depending on the circumstances, the auditor may
reassess control risk and modify substantive testing, if necessary.
Choice c is incorrect. A first-time misstatement most likely would not result in the auditor determining
that the misstatement is qualitatively material.
Choice d is incorrect. 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 increases, not
decreases, managements incentive compensation for the period.

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2015 AICPA Newly Released QuestionsAuditing


41. CPA-8693
What is the maximum number of days in which a nonissuers auditor should complete the assembly of the
final audit file following the report release date?
a.

30 days

b.

45 days

c.

60 days

d.

75 days

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A6
Topic to be assigned to: 2
Page reference (page # and outline point): A6-36 I.C.3.a.
ANSWER:
Choice c is correct. A nonissuer auditor should complete the assembly of the audit file within 60 days
following the report release date.
Choice a and d are incorrect, per the above explanation.
Choice b is incorrect. An auditor should complete the assembly of the audit file within 45 days for an
issuer, not a nonissuer.

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2015 AICPA Newly Released QuestionsAuditing


42. CPA-8694
In an integrated audit of a nonissuer, if an auditor concludes that a material weakness exists as of the
date specified in managements assertion, the auditor should take which of the following actions?
a.

Obtain written representations from management relating to such matters.

b.

Communicate, in writing, to the entity3s outside legal counsel that the material weakness exists.

c.

Issue an adverse opinion.

d.

Disclaim an opinion.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A5
Topic to be assigned to: 2
Page reference (page # and outline point): A5-43 III.J.5.a.
ANSWER:
Choice c is correct. The presence of a material weakness in internal control results in an adverse
opinion.
Choice a is incorrect. Management is not required to include a written representation confirming the
auditors conclusion that a material weakness exists. However, management will include a written
representation that management disclosed all significant deficiencies and material weaknesses to the
auditor.
Choice b is incorrect. An auditor should communicate, in writing, to management and to those charged
with governance that the material weakness exists. There is no requirement that the auditor communicate
a material weakness in writing to the entitys outside legal counsel.
Choice d is incorrect. A material weakness results in an adverse opinion. A scope limitation results in a
disclaimer of opinion or withdrawal from the engagement.

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43. CPA-8695
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 accountants review report be modified?
a.

The accountant should issue the review report without mentioning the change in engagement.

b.

The accountant should include in the review report a disclaimer of an audit opinion.

c.

The accountant should include in the review report the circumstances that resulted in the change in
engagement.

d.

The accountant should include in the review report a reference to the original engagement but not
the reason for the change.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A2
Topic to be assigned to: 2
Page reference (page # and outline point): A2-56 XII.A.
ANSWER:
Choice a is correct. If the accountant agrees with the change, the accountant should issue the review
report without mentioning the change in engagement.
Choice b is incorrect. The review report should not include a disclaimer of an audit opinion.
Choice c is incorrect. The review report should not report the circumstances that resulted in the change
in engagement.
Choice d is incorrect. The review report should not include a reference to the original engagement.

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44. CPA-8696
Which of the following procedures regarding notes payable would an accountant most likely perform
during a nonissuers review engagement?
a.

Confirming the year-end outstanding note payable balance with the lender.

b.

Examining records indicating proper authorization of the notes payable.

c.

Making inquiries of management regarding maturities, interest rate, and collateral.

d.

Documenting control procedures for payment calculations of the notes principal and interest.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A2
Topic to be assigned to: 2
Page reference (page # and outline point): A2-43 VII.B.4.
ANSWER:
Choice c is correct. Review procedures include inquiries within the organization. Therefore, the
accountant is most likely to make inquiries of management regarding the maturities, interest rate, and
collateral.
Choice a is incorrect. Substantive testing, such as confirming balances, is performed in an audit, not a
review.
Choice b is incorrect. Control testing, such as examining records for proper authorization, is performed
in an audit, not a review.
Choice d is incorrect. An accountant is not required to document control procedures in a review.

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45. CPA-8697
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 accountants report should include:
a.

Managements justification for its decision to elect to omit substantially all the disclosures.

b.

No modification of the standard compilation report because compilations do not require disclosures
that are required for audited financial statements.

c.

Information alerting readers about omission of the disclosures and notification that the omission
may influence the users conclusions about the financial statements.

d.

A separate paragraph in the compilation report stating that the financial statements are misleading
due to the lack of disclosures by management.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A2
Topic to be assigned to: 2
Page reference (page # and outline point): A2-36 VI.E.5.a.(1)
ANSWER:
Choice c is correct. An accountant may compile financial statements that omit substantially all
disclosures required by GAAP as long as the compilation report includes a separate paragraph which
alerts readers about omission of the disclosures and includes notification that the omission may influence
the users conclusions about the financial statements. In addition, the accountant should be satisfied that
the omission is not intended to mislead users of the financial statements.
Choice a is incorrect. The compilation report for financial statements that omit substantially all
disclosures required by GAAP is not required to include managements justification for its decision to omit
substantially all of the disclosures. However, a separate paragraph should be added that states that if
disclosures were included, they might influence the users conclusions, and should indicate that financial
statements are not designed for those who are uninformed about the omitted disclosures.
Choice b is incorrect. When an entity elects to omit substantially all disclosures required by GAAP, the
standard compilation report is required to be modified by adding a separate paragraph disclosing such
omissions.
Choice d is incorrect. An accountant may not compile financial statements that omit substantially all
disclosures required by GAAP if the accountant believes the omission is intended to mislead the users of
the financial statements.

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46. CPA-8698
The standard accountants report issued after reviewing the financial statements of a nonissuer in
accordance with SSARS should state that the:
a.

Accountant is not aware of any material modifications that should be made to the financial
statements for them to be in accordance with GAAP.

b.

Accountant does not express an opinion or any other form of assurance on the entitys internal
control system.

c.

Accountant has no responsibility to update the report for circumstances occurring after the date of
the report.

d.

Financial statements present fairly the entitys financial position and the results of its operations and
cash flows in conformity with GAAP.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A2
Topic to be assigned to: 2
Page reference (page # and outline point): A2-51 VII.B.10.f.
ANSWER:
Choice a is correct. An accountants standard review report should include a statement that the
accountant is not aware of any material modifications that should be made to the financial statements to
be in accordance with GAAP.
Choice b is incorrect. Although it is true that the standard review report in accordance with SSARS does
not include an opinion or any other form of assurance on the entitys internal control system, this is not
explicitly stated in the report.
Choice c is incorrect. A standard review report in accordance with SSARS does not include the
statement that the accountant has no responsibility to update the report for circumstances occurring after
the date of the report.
Choice d is incorrect. A review report provides only limited assurance. The terms present fairly are
used in an audit report, not a review report.

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47. CPA-8699
According to the AICPA Code of Professional Conduct, which of the following activities results in an act
discreditable to the profession?
a.

A CPA solicits recent Uniform CPA Examination questions without written authorization from the
AICPA.

b.

A CPA signs a document containing immaterial false and misleading information, or permits or
directs another CPA to do so.

c.

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.

d.

A CPA fails to give a client copies of the CPAs workpapers related to a completed and issued work
product upon the clients request because the client has not paid fees payable to the CPA for the
work product.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A6
Topic to be assigned to: 1
Page reference (page # and outline point): A6-10 I.C.8.b.(6)
ANSWER:
Choice a is correct. An act that is considered discreditable to the professions is when a CPA solicits
recent Uniform CPA Examination questions without written authorization from the AICPA.
Choice b is incorrect. A CPA that signs a document containing immaterial false and misleading
information, or permits or directs another CPA to do so, has failed to follow the Integrity and Objectivity
Rule.
Choice c is incorrect. The Compliance with Standards Rule, not Acts Discreditable Rule, describes that
a CPA should comply with the appropriate standards. Note: The CPA may not necessarily have failed to
follow the Compliance with Standards Rule because in extremely rare circumstances, a CPA may depart
from certain government auditing requirements.
Choice d is incorrect. A CPA is not required to give a client copies of the CPAs workpapers. However, a
CPA is required to return the clients records even if the client has not paid the fees to the CPA. Failure to
return client records would result in an act discreditable to the profession.

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2015 AICPA Newly Released QuestionsAuditing


48. CPA-8700
An issuers auditor is prohibited from providing tax services to which of the following individuals?
a.

The chair of the board of directors.

b.

The chair of the audit committee.

c.

The CEO.

d.

The CFO of an affiliate of the issuer audited by another firm.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A6
Topic to be assigned to: 1
Page reference (page # and outline point): A6-24 IV.B.5.
ANSWER:
Choice c is correct. An issuers auditor is prohibited from providing tax services to corporate officers, the
audit client, or to immediate family members of corporate officers. Corporate officers manage the day-today operations of the corporation and include positions such as the CEO, CFO, and COO.
Choice a is incorrect. An issuers auditor is allowed to provide tax services to individuals on the board of
directors, which includes the chair of the board of directors.
Choice b is incorrect. An issuers auditor is allowed to provide tax services to individuals on the board of
directors, which includes the chair of the audit committee.
Choice d is incorrect. An issuers auditor is allowed to provide tax services to the CFO of an affiliate of
the issuer audited by another firm.

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49. CPA-8701
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:
a.

Materiality.

b.

Integrity.

c.

The public interest.

d.

Proper use of government information.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A6
Topic to be assigned to: 4
Page reference (page # and outline point): A6-53 V.A.
ANSWER:
Choice a is correct. The ethical principles that guide the work of auditors in the conduct of audits under
government auditing standards do not include materiality. The ethical principles that guide the work of
auditors in the conduct of audits under government auditing standards include serving the public interest,
integrity, objectivity, proper use of governmental information, resources and positions, and professional
behavior.
Choice b is incorrect. The ethical principles that guide the work of auditors in the conduct of audits under
government auditing standards include integrity.
Choice c is incorrect. The ethical principles that guide the work of auditors in the conduct of audits under
government auditing standards include the public interest.
Choice d is incorrect. The ethical principles that guide the work of auditors in the conduct of audits under
government auditing standards include proper use of government information.

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50. CPA-8702
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?
a.

The fiscal year following the period covered by the financial statements.

b.

The period covered by the financial statements.

c.

The calendar years that include any part of the period covered by the financial statements.

d.

The two years prior to the period covered by the financial statements.

EDITOR ANSWER SECTION BELOW:


Class to be assigned to: A6
Topic to be assigned to: 1
Page reference (page # and outline point): A6-24 IV.B.2.
ANSWER:
Choice b is correct. According to the IFAC Code of Ethics for Professional Accountant (and
AICPA/PCAOB), audit teams are required to be independent of the audit client during the engagement
period and during the period covered by the financial statements.
Choice a is incorrect. IFAC does not include a requirement that the audit teams should be independent
during the entire fiscal year following the period covered by the financial statements. The requirement is
that the audit team is independent during the engagement team period (which may include part of the
following fiscal year) and the period covered by the financial statements.
Choice c is incorrect. The requirement for independence includes the period covered by the financial
statements, not the calendar year covered by the financial statements. Some entities financial statements
have a fiscal year-end (i.e., June 30) rather than a calendar year-end (i.e., December 31).
Choice d is incorrect. IFAC does not include a requirement that the audit teams should be independent
two years prior to the period covered by the financial statements.

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AUDITING
2015 AICPA Newly
Released Sims

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Sampling and Communications


A5, Sim 2, Task 6
Title: Internal Control Report (AICPA Adapted)

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Selection List Column B


Question 1

Question 2

Accountant's Report on Internal Controls

analyzed

Auditor's Report on Agreed-Upon Procedures


Auditor's Report on Internal Controls
Independent Accountant's Report

audited
examined
reviewed

Independent Auditor's Report


Registered Public Accounting Firm Report

tested

Selection List Column B


Question 3
American Institute of Certified Public
Accountants

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Question 4
assessment

Auditing Standards Board


Committee of Sponsoring Organizations of
the Treadway Commission
International Auditing and Assurance Board

attestation

Public Company Accounting Oversight Board


Securities and Exchange Commission

examination
inspection
review

audit
evaluation

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Selection List Column B


Question 5

Question 6

American Institute of Certified Public


Accountants

Legitimate

Auditing Standards Board


Committee of Sponsoring Organizations of
the Treadway Commission
International Auditing and Assurance Board

Logical
Reasonable
Reliable

Public Company Accounting Oversight Board


Securities and Exchange Commission

Sufficient
Valid

Selection List Column B


Question 7

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Question 8
Cost considerations

American Institute of Certified Public Accountants

Design limitations
Distinct limitations
Inherent limitations

Auditing Standards Board


Committee of Sponsoring Organizations of the
Treadway Commission
International Auditing and Assurance Board

Operational considerations
Unique conditions

Public Company Accounting Oversight Board


Securities and Exchange Commission

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Title: Internal Control Report (AICPA Adapted) Solution


This question is testing the student's knowledge of the nonissuer report expressing an opinion directly on
the company's internal controls over financial reporting. An example of this report may be found in A-5
Topic 2, "Internal Control Communications."
#1: Independent Auditor's Report
#2: examined
#3: Committee of Sponsoring Organizations of the Treadway Commission
#4: examination
#5: American Institute of Certified Public Accountants
#6: reasonable
#7: inherent limitations
#8: Committee of Sponsoring Organizations of the Treadway Commission

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Draft Report

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Other Professional Engagements


A2, Sim 1, Task 7
Title: Review Engagement Procedures (AICPA Adapted)

Selection List Column B

Selection List Column B

Questions 1&2

Questions 3&4

Are any investments encumbered?


Are there compensating balances or other
restrictions on the availability of funds?
Has there been a proper cutoff of sales
transactions?
Please prepare and sign confirmations as of
year-end for mailing.
Please provide an outstanding list as of April
30, Year 1, in order to trace the subsequent
bank statements.
Please provide the following sample of
account reconciliations for reperformance.
Please provide the interest income report for
recalculation.

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Please prepare and sign confirmations as of yearend for mailing.


Please provide copies of the following sample of
purchase invoices to voucher current year additions.
Please provide the following sample of account
reconciliations for reperformance.
Were consignments in or out considered in taking a
physical count?
What are the company's capitalization policies, and
have those policies been consistently and
appropriately applied?
When will the physical inventory count and fixed
asset reviews occur so that I may coordinate our
observation.

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Selection List Column B


Question 5&6
Are there assets that have been pledged as collateral?
Have all liabilities been appropriately accrued?
Please prepare and sign confirmations as of year-end for mailing.
Please provide an explanation for why the load amortization schedule does not
recalculate.
Please provide the following sample of account reconciliations for
reperformance.
Please provide the following sample of invoices to perform the search for
unrecorded liabilities.

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Title: Review Engagement Procedures (AICPA Adapted) Solution


Account
Cash
Accounts receivable
Inventory
Fixed assets
Accounts payable
Debt

Question or request
Are there compensating balances or other
restrictions on the availability of funds?
Has there been a proper cutoff of sales
transactions?
Were consignments in or out considered in taking
a physical inventory count?
What are the company's capitalization policies,
and have those policies been consistently and
appropriately applied?
Have all liabilities been appropriately accrued?
Are there assets that have been pledged as
collateral?

This question may be answered by process of elimination. Many answer choices relate to control or
substantive procedures, which are performed in an audit but not in a review. (Examples of control
procedures and substantive procedures are provided in A4.)

Question #1 (CashAre there compensating balances or other restrictions on the availability of funds?)
and Question #2 (Accounts receivableHas there been a proper cutoff of sales transactions?)
The following answer choices are unlikely inquiries to be made in a review and may be eliminated as
answer choices. These answer choices are asking for management to provide additional corroborating
evidence. Generally, in a review, the accountant merely inquires of management and does not need
additional detailed evidence to substantiate management's responses.

Please prepare and sign confirmations as of year-end for mailing.


o Sending out confirmations is a substantive procedure performed in an audit, not a review.
Please provide an outstanding check list as of April 30, Year 1 in order to trace to subsequent
bank statements.
o Substantive procedures, such as tracing checks to subsequent bank statements, are
performed in an audit, not a review.
Please provide the following sample of account reconciliations for reperformance.
o Reperformance, which is a procedure to test controls, is not typically performed in a
review.
Please provide the interest income report for recalculation.
o Evidence of the interest income report is a substantive procedure more likely to be
performed in an audit rather than in a review.

The remaining answer choices are:

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Are investments encumbered?


o This question may be asked in a review, but it does not directly relate to the cash or
accounts receivable account. Determining whether investments are encumbered
typically relates to disclosures for investments.

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Are there compensating balances or other restrictions on the availability of funds?


o This relates to cash. If cash is used as a compensating balance or has restrictions on the
availability of funds, then appropriate disclosure and presentation of the cash balance
(e.g., current or non-current) can be verified.

Has there been a proper cutoff of sales transactions?


o This relates to accounts receivable. The accountant is verifying that sales made on credit
are recorded in the correct period.
o Note: This is also a question that could be related to cash. However, this is not the "best"
response for cash. The cash balance is related to more items than just sales
transactions. For example, cash may decrease as a result of payment of accounts
payable or increase as a result of sale of stock. One concern related specifically to cash
is whether it is used as a compensating balance or has other restrictions on the
availability of the funds, which is why that response is the "best" choice for the cash
inquiry.

Question #3 (InventoryWere consignments in or out considered in taking a physical inventory count?)


and Question #4 (Fixed assetsWhat are the company's capitalization policies, and have those policies
been consistently and appropriately applied?)
The following answer choices may be eliminated:

Please prepare and sign confirmations as of year-end for mailing.


o Sending out confirmations is a substantive procedure performed in an audit, not a review.
Please provide copies of the following sample of purchase invoices to vouch current year
additions.
o Substantive procedures, such as vouching purchase invoices to current year additions,
are performed in an audit, not a review.
Please provide the following sample of account reconciliations for reperformance.
o Reperformance, which is a procedure to test controls, is not typically performed in a
review.
When will the physical inventory count and fixed asset reviews occur so that I may coordinate our
observation.
o Observation of inventory is performed in an audit, not a review.

The remaining answer choices are:

Were consignments in or out considered in taking a physical count?


o This answer choice relates to inventory. The accountant is verifying that the appropriate
amount of inventory is recorded. Specifically, if the client is the consignor, that inventory
should be included in the count, even if off-site. If the client is the consignee, that
inventory should be excluded from the count, even if on-site.
What are the company's capitalization policies, and have those policies been consistently and
appropriately applied?
o This answer choice relates to fixed assets. The accountant is verifying the accounting
polices used and the method used in applying them.

Question #5 (Accounts payableHave all liabilities been appropriately accrued?) and Question #6
(DebtAre there assets that have been pledged as collateral?)
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The following answer choices may be eliminated:

Please prepare and sign confirmations as of year-end for mailing.


o Sending out confirmations is a substantive procedure performed in an audit, not a review.
Please provide an explanation for why the loan amortization schedule does not recalculate.
o Typically, in a review, the accountant does not perform detailed substantive testing, such
as recalculation procedures, on individual account balances.
Please provide the following sample of account reconciliations for reperformance.
o Reperformance, which is a procedure to test controls, is not typically performed in a
review.
Please provide the following sample of invoices to perform the search for unrecorded liabilities.
o The search for unrecorded liabilities is a substantive procedure that is typically performed
in an audit, but not a review.

The remainder answer choices are:

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Are there assets that have been pledged as collateral?


o This question relates to debt. Sometimes when a company obtains debt, the company
has to provide collateral for the debt. This provides more security for the creditor loaning
the money. Assets that have been pledged as collateral should be disclosed in the
financial statements.
Have all liabilities been accrued?
o This question relates to accounts payable. The accountant is verifying that all the
liabilities (e.g., accounts payable) have been recorded.
o Note: This is also a question that could be related to debt, because debt is a liability.
However, this is not the "best" response for debt. Debt represents money that must be
paid back. Liability is a broader term that refers to an economic obligation (which
includes wages payable, unearned revenue, etc.) Therefore, the question "Are there
assets that have been pledged as collateral?" is the best response for debt because it
relates directly to debt rather than "have all liabilities been accrued," which is a question
that could relate to several liability accounts.

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Other Professional Engagements


A2, Sim 1, Task 11
Title: Research (AICPA Adapted)

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Title: Research (AICPA Adapted) Solution


Source of answer for this question:
AT 601.52
Keyword search: subsequent events
Step 1: The question is asking about an attest engagement. Search just the attestation standards by
clicking on the Attestation Standards [AT] folder (located on the left hand side of the screen).
Step 2: Enter "compliance with law" and click "search within." You will find the majority of your results in
AT 601, "Compliance Attestation."
Step 3: Search just AT 601 "Compliance Attestation" by clicking on the AT 601 folder on the left-hand side
of the screen.
Step 4: Search for "Subsequent event"
AT 601.52 is the "best" response because it addresses this question directly:

The subsequent event of noncompliance occurs subsequent to Year 1 (noncompliance occurred


during the first week of February Year 2), which is prior to the date of the examination report of
February 10.
It describes the effect on the examination reportan explanatory paragraph should be added.

Note: AT 601.23 is an incorrect response because it relates to subsequent noncompliance in an agreedupon procedures engagement.

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