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AICPA-Code of Professional Standards
which of the following is an indirect Financial interests:
1.) An investment held in a retirement plan
2.) An investment held in a blind trust
3.) An investment held in a mutual fund

3

An auditor may express an opinion on an entity's accounts receivable balance even if the auditor has disclaimed an opinion on the financial stmt taken as a whole provided the

if the special report on the accounts receivables is presented seperately from the disclaimer on the opinion on the FS

An accountant's standard report on a compilation of a project should not include a stmt that:


1.) there will usually be differences bt the forecasted n actual results
2.) the hypothetical assumption used in the projection are reasonable in the projection are reasonable in the circumstances
3.) the accountant has no responsibility to update the report for future events and circumstances
4.) the compilation of a projection is limited in scope

b

An accountant's report on a review of pro forma Financial information should include a:

1.)Reference to the financial statements from which the historical Fiancial information is derived.
2.) caveat that it is uncertain whether the transaction or event reflected in the pro forma financial information will ever occur

1. (not 2, bc 2 is projection)

Before reissuing a compilation report on the financial statements of a nonissuer for the prior year, the predecessor accountant is required to

1.) review the sucessor accountant's working papers for matters affecting the prior year
2.) compare the prior years Financial Statements with those of current year

2..
(not 1 because why do you need to read other ppl's workpapers?)

A CPA is permitted to accept a separate engagement (not in conjunction with an audit of FS) to audit and entity's

a.) schedule of accounts receivable
b.) scheduele of royalties

both

Financial info is presented in a printed form that prescribes the wording of the independent auditor's report. the form is not acceptable to the auditor because the form calls for statement that are inconsistent with the auditor's responsibility, the auitor most likely would:
1.) Withdraw from the engagement
2.)revise the wording
3.) issue qualifed opinion

2

An accountant's standard report on a compilation of a project should not include a stmt that:

1.) there will usually be differences bt the forecasted n actual results
2.) the hypothetical assumption used in the projection are reasonable in the projection are reasonable in the circumstances
3.) the accountant has no responsibility to update the report for future events and circumstances
4.) the compilation of a projection is limited in scope

b

A successor auditor ordinarily should request to review the predecessor's audit documentation relating to:

1.) Contigencies
2.) Internal Control

both

in planning an audit of a new client, an auditor most likely would consider the methods used to process accounting information because such methods
1.) influence the design of internal control
2.)affect the auditor's preliminary judgement about materiality level

1.

in assessing the competence and objectivity of an entity's internal auditor, an independent auditor least likely would consider information obtained from
1.) discussions with mgmt personnel
2.) the results of analytical procedures

2

which of the following would an auditor most likely used in determining the auditor's preliminary judgment about materiality?
1.) the results of the initial assessment of control risk
2.) the entity's financial statements of the prior year

2 ( not 1, because 1 is affects the design of audit procedures but is not relevant in determining materiality)

in designing an written audit plan, the auditor should establish specific audit objectives that relate primarily to

1.) Timing
2.) selected audit procedures
3.) mgmt assertions

3

when an auditor increases the assessed level of control risk because certain control activities were determined to be ineffective, the auditor most likely would increase the
1.) extent of tests of details
2.) extent of tests of controls
3.) level of inherent risk

1

control risk should be assessed in terms of
1,) specific controls
2.) financial statement assertions
3.) control environment factor

2

the acceptable level of detection risk is inversely related to the
1.) assurance provided by substantive tests
2.) risk of misapplying auditing procedures

1

in a financial statement audit, inherent risk is evaluated to help an auditor assess which of the following
1.) the risk that the audit procedures implemented will not detect a material misstatement of a financial statement assertion
2.) the susceptibility of a financial statement assertion to a material misstatement assuming there are no related controls

2 (1 is detection risk)

inherent risk and control risk differ from detection risk in that they

1.) maybe assessed in either quantitative or nonquantitative terms
2,) exist independently of the financial statement audit

2(whereas detection risk is related to the auditor's procedures and can be changed at the auditor's sole discretion

if Jones, CPA, determined that illegal political controbutions had been made during the past 7 yr even under audit. But the BOAD refused to take any action b/c the amounts involved are immaterial to the FS. Jones should reconsider the intended degree of reliance to be placed on:
1.) Mgmt Representation Letter
2.) preliminary judgement about materiality level

1

auditor should provide what level of assurance on the following events (Reasonable or none)

1.) direct effect illegal acts on FS that are material
2.) indirect effect illegal acts on FS that are material

1-reasonable
2-none

An auditor concludes that a client has comitted an illegal act that has not been properly accounted for or disclosed. the auditor should withdraw from the engagement if the:
1.) auditor is precluded from obtaining sufficient appropriate evidence about the illegal act
2.)the client refuses to accept the auditor's modifed report...

2

T/F:
The disclosure of fraudulent activities to parties other than the client's senior mgmt and those charged with governance is NOT ordinarily part of the auditor's responsibility

T

T/R: Reviewing an internal control questionnaire can uncover illegal acts

F

which of the following procedures most likely would provide an auditor with evidence about whether an entity's internal control activities are suitably designed to prevent or detect material misstatements

1.) observe an inspect
2.) reperform
3.) analytical procedures

1

which of the following is a mgmt control method that most likely could improve mgmt's ability to supervise company activities effectively?
1.) monitoring compliance with internal control
2.) establishing budgets and forecasts to identify variances from expectations
3.) supporting employees with the resources necessary to discharge their responsibities

2

which of the following factors would most likely be considered an inherent limitation to an entity's internal control?
1.) the complexity of the info processing system
2.) human judgment in decision making process

2

in planning the audit, the auditor obtains a sufficient understanding of the existing internal control. which one of the following is not among the auditor's primary objectives for obtaining such knowledge?
1.)identify types of material misstatements
2.) make constructive suggestions to the client for improvements

2

in obtaining an understanding of an entity's internal control, an auditor is required to obtain knowledge about the (both, neither or either)
1.) operating effectiveness of controls
2.) design of controls

only 2 (design and implement of controls)

objectives of an entity include:
1.) information and communication systems
2.) reliable financial reporting
3.) effective and efficient operatons

2 &3 (1 is part of the internal control)

inherent limitations of internal control includes
1.) collusion
2.) human error
3.) mgmt override

b

which of the following factors is most likely to affect the extent of the documentation of the auditor's understanding of a client's system of internal control?
1.) the industry and the business and regulatory environments in which the client operates
2.) the degree to which info technology is used in the accounting function

2. (the more complex the IT system, the more extensive the documentation

T/F: in considering whether the service auditor's report is satisfactory, the user auditor should

1.) make inquiries concnerning the service auditor's reputation
2)Review the audit programs of service auditor

1 (the user auditor has access to the report issued by the service auditor, but would not have access to the audit program of the service auditor)

T/F: The lower the assessed level of control risk, the less assurance the evidence must provide that the controls are operating effectively

F ( the lower the assessed level of control risks means the greater the reliance placed on the control so the more assurance the auditor must gather the controls are operating effectively.

which of the following stmt is correct concerning an auditor's assessment of control risk?
1.) assessing control risk may be performed concurrently during an audit with obtaining an understanding of the entity's internal control
2.) the lower the assessed level of control risk, the less assurance the evidence must provide that the controls are operating effectively

1

T/F:
1.) When an analytical prcedure is used during the overall review stage of the audit, the auditor is required to document the auditor's expectation and any additional procedures performed to investigate significant unexplained differences
2.)when an analytical procedure is used as the principal substantive test of a significant financial statement assertion, the auditor is required to document both the auditor's expectation and the factors considered in developing that expectation.

1 is incorrect because no documentation requirement when analytical procedure is performed during an overall review stage

which of the following types of audit evidence generally is the most reliable
1.)analytical procedure
2.)confirmation of account info

2

T/F :income statement accounts tend to be more predictable than balance sheet, and therefore interest expense would likely yield a higher level of evidence than the allowance for doubtful accounts, accounts receivable, or accounts payable

T

the objective of tests of details of transactions performed as substantive tests is to
1.) attain assurance about the reliability of the information system relevant to financial reporting
2.) detect material misstatements in the financial statements

2

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