CPA Auditing and Attestation Practice Questions

1. Projecting an expected total for the current year's sales 6. Which of the following has the goal of evaluating the
based on sales figures and trends over past years is an effectiveness and efficiency of an entity's operations
example of what? with the goal of finding areas that need improvement?
a. Assessing risk a. Financial statement auditing
b. An analytical procedure b. Internal control examination
c. Creating an internal control c. Operational auditing
d. Establishing quality control d. Analytical procedures

2. Which of the following is true regarding securities? 7. CPA Sheryl Smith audited the December 31, 2007
a. People who have accounting responsibilities for financial statements of Capstone, completing the
securities should also have custody of the fieldwork on March 12, 2008. A later event occurred on
securities. March 23, 2008 that required her to adjust Capstone's
b. People who have accounting responsibilities for 2007 financial statement. The event came to Smith's
securities should never have custody of the attention on April 1, 2008, and she corrected the
securities. statement on April 7, 2008. Smith made the
c. Only one person should have access to the adjustment without disclosure of the event. Under
securities. most circumstances, what would the report be dated?
d. It is not necessary to register the securities in the a. December 31, 2007
name of the owner. b. March 12, 2008
c. April 1, 2008
3. Which of the following statements about using systems d. April 7, 2008
flowcharts to document internal controls are correct?
I. They provide a visual explanation of the activities of 8. When auditing a nonpublic company, which of the
clients. following is true about performing tests of controls?
II. They help auditors quickly grasp the design of the I. It should be done if the auditor relies on the
internal controls system. controls.
III. They make it easy to identify weaknesses in the II. It should be done if substantive tests alone are not
internal controls. sufficient to the audit needs.
IV. They are always better than using internal control a. I only
questionnaires. b. II only
a. I and II c. I and II
b. II and III d. Neither I nor II
c. III and IV
d. I, II, III, and IV 9. Which of the following statements is most correct
about the standard financial statement report by an
4. How would you determine the record count for the auditor?
invoices in this entity's batch? a. The scope paragraph includes the generally
accepted auditing standards (GAAS) followed
Invoice Quantity Price Discount Product during the audit.
b. The opinion paragraph includes the generally
3107 20 $5.00 N/A 01-F-1015 accepted auditing standards (GAAS) followed
during the audit.
3108 40 $20.00 N/A 02-G-1015 c. The scope paragraph explains that the financial
statements comply with generally accepted
3109 50 $10.00 N/A 01-B-1070 auditing principles (GAAP) followed during the
audit.
3110 25 $5.00 N/A 01-F-2010 d. The opinion paragraph explains that the financial
statements comply with the generally accepted
3111 5 $20.00 N/A 02-G-1090
auditing principles (GAAP).
3112 15 $35.00 N/A 02-V-1085
10. Which statement about batch processing transactions
a. Add all the items in the quantity column and online transaction processing is most accurate?
b. Multiply the quantity by the price in each row, and a. Batch processing transactions creates an audit trail
then add those figures to create a total that is generally easier to follow than online
c. Count the number of invoices transaction processing does.
d. Add all the items in the price column b. Online transaction processing creates an audit trail
that is generally easier to follow than batching
5. What is the principal that states that the internal processing transactions does.
controls of an entity should not be greater than the c. There is no difference in the audit trail created by
benefits those controls can be expected to deliver? either method.
a. Reasonable assurance d. The ease of following the audit trail cannot be
b. Quality control predicted by knowing the transaction processing
c. Segregation of duties method.
d. Risk assessment
 CPA Auditing and Attestation Practice Questions
11. Amp Co. determines the cost of its domestic inventory c. Read the pertinent sections of the registration
using LIFO, and determines the cost of the inventory of statement and obtain a letter of representation
its international subsidiary using LIFO. from the successor auditor.
Given the information above, which of the following d. Neither read the pertinent sections of the
statements is true? registration statement nor obtain a letter of
a. There is an inherent lack of consistency between representation from the successor auditor.
accounting periods.
b. Using both methods creates a deviation from 17. An auditor is considering materiality for planning
generally accepted accounting principles (GAAP). purposes. The auditor should design auditing
c. The auditor's report on Amp Co. should express an procedures to detect misstatements that aggregate
unqualified opinion. which amount?
d. The auditor's report should express an adverse a. The smallest amount that would have a material
opinion. effect on the entity's income statement
b. The largest amount that would have a material
12. During a financial statement audit, an auditor is effect on the entity's income statement
required to explicitly assess the risk of material c. The smallest amount that would have a material
misstatements that arise as a result of: effect on the balance sheet
a. Human error d. The combined total of the smallest amounts that
b. Software error would affect the income statement and the
c. Fraud balance sheet
d. Criminal acts
18. The expected rate of errors in an accounting record is
13. As a result of inadequate disclosure, an auditor usually:
expresses a qualified opinion in a financial statement a. Higher than the tolerable rate of deviations for a
report. Which of the following should the auditor do? test of a related control.
I. Include an explanation of the omission in a separate b. The same as the tolerable rate of deviations for a
explanatory paragraph test of a related control.
II. Modify the opinion paragraph c. Lower than the tolerable rate of deviations for a
a. I only test of a related control.
b. II only d. Twice as high as the tolerable rate of deviations
c. I and II for a test of a related control.
d. Neither I nor II
19. At which points of an audit is an auditor prohibited
14. Which of the following is intended to provide assurance from identifying risk factors?
of the privacy, security, business practices/transaction a. Planning
integrity, availability, and confidentiality of a website? b. Conducting fieldwork
a. TechZone c. Considering acceptance of clients and
b. WebTrust engagements
c. WebSafe d. None of the above
d. TechTrust
20. Which of the following is true of deviations from
15. If the tolerable rate is greater than the deviation rate control procedures?
in a population, and if the auditor estimates-based on I. They necessarily result in errors.
sample results-that the tolerable rate is greater than II. They increase the risk of material misstatements.
the deviation rate, which of the following statements is a. I only
most accurate? b. II only
a. The control risk is above the planned assessed c. I and II
level. d. Neither I nor II
b. The control risk is below the planned assessed
level.
c. The control risk is above or equal to the planned
assessed level.
d. The control risk is below or equal to the planned
assessed level.

16. A registration statement filed with the SEC includes

audit reports on financial statements for different
periods by two different, independent auditors-the
predecessor auditor and the successor auditor. The
predecessor auditor must:
a. Read the pertinent sections of the registration
statement.
b. Obtain a letter of representation from the
successor auditor.
 CPA Auditing and Attestation Practice Questions
1. Correct: b
Explanation: An analytical procedure is a comparison of
reported financial information with expected results using
real data. In this case, using past sales figures and trends
to determine an estimate for the current year's sales is an
example of an analytical procedure.
2. Correct: b
Explanation: As a control to protect investment securities,
the custody, authorization, and record-keeping of assets,
including securities, should always be kept separate.
Answer (c) is incorrect because more than one person
should have custody of securities, and answer (d) is
incorrect because securities should be registered in the
owner's name.
3. Correct: a
Explanation: Flowcharts provide a visual explanation of
client's activities and help make it easy to quickly grasp the
design of the internal controls system. However, they do
not identify weaknesses in the internal controls, and there
are times when it's useful to use internal control
questionnaires.
4. Correct: c
Explanation: The record count is simply the number of
records in a file or batch, which in this case is 6.
5. Correct: a
Explanation: Reasonable assurance states that the internal
controls of an entity should not be greater than the benefits
those controls can be expected to deliver.
6. Correct: c
Explanation: Operational auditing is the process of
evaluating the effectiveness and efficiency of an entity's
operations. The goal is generally to identify any areas that
could be improved. Answer (a) is incorrect because this
type of auditing focuses on financial statements, not
operations, and answer (d) is incorrect because analytical
procedures are a way of evaluating information by
estimations based on existing data.
7. Correct: b
Explanation: According to AU 530, the date on which
fieldwork ends should be used as the date of the report
under these circumstances.
8. Correct: c
Explanation: An auditor should perform tests of controls if
the auditor is relying on those controls, or if substantive
tests alone are not sufficient to the audit needs.
9. Correct: a
Explanation: The scope paragraph includes the generally
accepted auditing standards (GAAS) followed during the
audit. Answers (b) and (d) are incorrect because the
opinion paragraph indicates that the financial statements
follow GAAP.
10. Correct: a
Explanation: Because similar transactions are routed
through the system in groups during batch processing, it
creates an audit trail that is generally easier to follow.
11. Correct: c
Explanation: This situation generally calls for an unqualified
opinion. There is no lack of consistency (see AU 420 for
more on this issue), no deviation from GAAP, and no need
for an adverse opinion.
12. Correct: c
Explanation: During a financial statement audit, an auditor
is required to explicitly assess the risk of material
misstatements that arise as a result of fraud. This is
mandated by AU 316 and SAS 109. Answers (a) and (b) are
incorrect because although SAS 109 calls for an assessment
of the risk of material misstatements, it does not call for the
assessment of material misstatements specifically due to
errors.
13. Correct: c
Explanation: According to AU 508, only the opinion
paragraph should be modified in this circumstance, and a
separate explanatory paragraph should be added to include
an explanation of the omission.
14. Correct: b
Explanation: WebTrust is the seal awarded to websites to
help assure users of the privacy, security, business
practices/transaction integrity, availability, and
confidentiality of the website. It was established by the
American Institute of Chartered Public Accountants (AICPA)
and the Canadian Institute of Chartered Accountants
(CICA). The others listed do not exist.
15. Correct: d
Explanation: The control risk is below or equal to the
planned assessed level. To support the planned level, the
population's tolerable rate must be greater than the
deviation rate, and the auditor must estimate that the
tolerable rate is greater than the deviation rate.
16. Correct: c
Explanation: According to AU 711, the predecessor auditor
must read the pertinent sections of the registration
statement and obtain a letter of representation from the
successor auditor in this situation.
17. Correct: a
Explanation: The auditor should design auditing procedures
to detect misstatements that aggregate the smallest
amount that would have a material effect on the entity's
income statement. According to AU 312, the auditor should
design the audit to secure reasonable assurance that the
financial statements have no material misstatement.
Because it's hard to know during the planning stage how
misstatements might affect a financial statement, the
auditor generally must use the lowest amount that would
have a material effect on the income statement during the
planning phase.
18. Correct: c
Explanation: The expected rate of errors in an accounting
record is usually lower than the tolerable rate of deviations
for a test of a related control. It is not necessary to rely on
internal control unless the expected error rate is lower that
the tolerable rate of deviations, which is the maximum rate
of deviations from a prescribed control procedure that an
auditor would accept.
 CPA Auditing and Attestation Practice Questions
19. Correct: d
Explanation: An auditor is not prohibited from identifying
risk factors during any of the points listed above. According
to AU 316, an auditor can identify fraud risk factors during
planning, obtaining an understanding, or while conducting
fieldwork, and in addition, risk factors can be identified
while considering acceptance or continuance of
engagements and clients.

20. Correct: b
Explanation: Deviations from control procedures do
increase the risk of material misstatements, but it is
possible for a deviation to exist without creating an error.