1. 1. An auditor makes separate compliance and substantive tests in the client's accounts payable area, which appears to have good internal control. If the auditor uses statistical sampling for both of these tests, the confidence level established for the substantive tests is normally (Points : 2) The same as that for tests of compliance. Totally independent of that for tests of compliance. Less than that for tests of compliance. Greater than that for tests of compliance. Question 2. 2. Immediately upon receipt of cash, a responsible employee should: (Points : 2) Update the subsidiary accounts receivable records. Prepare a deposit slip in triplicate. Record the amount in the cash receipts journal. Prepare a remittance listing. Question 3. 3. According to the standards of the profession, which of the following events would require a CPA performing a consulting services engagement for a nonaudit client to withdraw from the engagement? I. The CPA has a conflict of interest that is disclosed to the client and the client consents to the CPA continuing the engagement. II. The CPA fails to obtain a written understanding from the client concerning the scope of the engagement. (Points : 2) II only. Both I and II. Neither I nor II. I only. Question 4. 4. A group engagement partner decides not to refer to another CPA who audited a subsidiary of the group engagement partner's client. After making inquiries about the other CPAs professional reputation and independence, the group engagement partner most likely would: (Points : 2) Add an explanatory paragraph in the auditors report indicating that the subsidiarys financial statements are not material to the consolidated financial statements. Obtain written permission from the other CPA to omit the reference in the group engagement partners report. Review the audit programs and audit documents pertaining to the subsidiary in the other CPAs audit files. Document in the engagement letter that the group engagement partner assumes no responsibility for the other CPAs work and opinion. Question 5. 5. A CPA firm feels that a dual-date is needed for an audit report. Which of the following is true? (Points : 2) A dual-date is needed when the CPA firm discovers a potential misstatement and has to extend the final fieldwork to be done. A dual-date is primarily created by going-concern problems that the reporting company is experiencing. A dual-date is needed when the reporting entity decides to make a change in its financial statements after the audit firm has finished its fieldwork and the entity wants the reasonable assurance provided by the CPA firm to extend to the change. A possible dual-date could be written as February 27, Year Two, except for Note R, which is as of February 23, Year Two. Question 6. 6. Which of the following procedures is ordinarily performed by an accountant in a compilation engagement of a privately held entity? (Points : 2) Making inquiries of management concerning actions taken at meetings of the stockholders and the board of directors. Reading the financial statements to consider whether they appear to be appropriate in form and free from obvious material errors. Obtaining written representations from management indicating that the compiled financial statements will not be used to obtain credit. Applying analytical procedures designed to corroborate management's assertions that are embodied in the financial statement components. Question 7. 7. Analytical review procedures are: (Points : 2) Substantive tests designed to evaluate the reasonableness of financial information. Compliance tests designed to evaluate the validity of management's representation letter. Substantive tests designed to evaluate a system of internal control. Risk assessments designed to evaluate the reasonableness of financial information. Question 8. 8. During field work, an auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but containing columns for: (Points : 2) Cash flow increases and decreases. Reconciliations and tickmarks. Audit objectives and assertions. Reclassifications and adjustments. Question 9. 9. Which of the following matters is an auditor required to communicate to an entitys audit committee? I. Disagreements with management about matters significant to the entitys financial statements that have been satisfactorily resolved. II. Initial selection by management of significant accounting policies in controversial or emerging areas that lack authoritative guidance. (Points : 2) II only. Neither I nor II. Both I and II. I only. Question 10. 10. An accountant has been asked to compile the financial statements of a privately held company on a prescribed form that omits substantially all the disclosures required by generally accepted accounting principles. If the prescribed form is a standard pre-printed form adopted by the company's industry trade association and is to be transmitted only to such association, the accountant: (Points : 2) Should disclose the details of the omissions in separate paragraphs of the compilation report. Need not advise the industry trade association of the omission of the disclosures. Should express limited assurance that the financial statements are free of material misstatements. Is precluded from issuing a compilation report when all disclosures have been omitted. Question 11. 11. In meeting the control objective of safeguarding of assets, which department should be responsible for: Distribution of paychecks Custody of unclaimed paychecks (Points : 2) Treasurer Payroll Treasurer Treasurer Payroll Treasurer Payroll Payroll Question 12. 12. The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to: (Points : 2) Satisfy the CPA firm's duty to the public concerning the acceptance of new clients. Anticipate before performing any field work whether an unqualified opinion can be expressed. Minimize the likelihood of association with clients whose management lacks integrity. Enable the CPA firm to attest to the reliability of the client. Question 13. 13. An auditor concludes that a client's noncompliance with laws and regulations, which has a material effect on the financial statements, has not been properly accounted for or disclosed. Because of the materiality of the effect on the financial statements, the auditor should express either a (an): (Points : 2) Disclaimer of opinion or an unmodified opinion with a separate emphasis-of-matter paragraph. Unmodified opinion with a separate emphasis-of-matter paragraph or a qualified opinion. Qualified opinion or an adverse opinion. Adverse opinion or a disclaimer of opinion. Question 14. 14. An auditor should examine minutes of board of directors' meetings: (Points : 2) Through the date of his report. Only at the beginning of the audit. Through the date of the financial statements. On a test basis. Question 15. 15. An auditor's program to examine long-term debt should include steps that require: (Points : 2) Investigating credits to the bond interest income account. Inspecting the accounts payable subsidiary ledger. Examining bond trust indentures. Verifying the existence of the bondholders. Question 16. 16. Which of the following procedures ordinarily should be applied when an independent accountant conducts a review of interim financial information of a publicly held entity? (Points : 2) Read the minutes of the board of directors meetings. Perform cut-off tests for cash receipts and disbursements. Verify changes in key account balances. Inspect the open purchase order file. Question 17. 17. Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going-concern? (Points : 2) Research and development projects are postponed. Quarterly stock dividends have replaced annual cash dividends. Significant related-party transactions are pervasive. Continuing cash flows from operating activities are negative. Question 18. 18. Which of the following actions by a CPA most likely violates the profession's ethical standards? (Points : 2) Retaining client records after the client has demanded their return. Purchasing a segment of an insurance company's business that performs actuarial services for employee benefit plans. Compiling the financial statements of a client that employs the CPA's spouse as a bookkeeper. Arranging with a financial institution to collect notes issued by a client in payment of fees due. Question 19. 19. When there has been a change in accounting principles, but the effect of the change on the comparability of the financial statements is not material, the auditor should: (Points : 2) Explicitly concur that the change is preferred. Refer to the change in an explanatory paragraph. Not refer to consistency in the auditor's report. Refer to the change in the opinion paragraph. Question 20. 20. Which of the following characteristics most likely would heighten an auditors concern about the risk of intentional manipulation of an entitys financial statements? (Points : 2) Several members of management recently purchased additional shares of the entitys stock. Turnover of senior accounting personnel is less than the industry average. The rate of change in the entitys industry is slow. Management places significant emphasis on meeting earnings projections