1.

c
2. b
3. c
4. x
5. d
6. a
7. b
8. b
9. b
10.a
11.a
12.c
13.b
14.a
15.a
16.b
17.a
18.b
19.d
20.d
21.a
22.d
23.a
24.d
25.b
26.d
27.a
28.b
29.
30.a
31.a
32.b
33.a
34.D
35.d
36.
37.c
38.D
39.b
40.a
41.a
42.c
43.d
44.b
45.c
46.A
47.c
48.d
49.d
50.a
4. Which oI the Iollowing is explicitly included as a part oI the description oI management's
responsibility in an unmodiIied audit report? A. Management is responsible Ior making a judgment
on which misstatements are material vs. immaterial. B. Management is responsible Ior providing
auditors with all relevant evidence. C. Management is responsible Ior the design, implementation,
and maintenance oI internal control. D. Management is responsible Ior listing all illegal acts with a
direct eIIect on Iinancial statement amounts and disclosures.
5. Independence oI a CPA with respect to a client is not impaired iI: A. The CPA has a loan to an
oIIicer oI the client. B. The CPA has an immaterial direct interest in the client. C. The CPA is trustee
Ior the client's pension plan. D. The CPA has an immaterial joint, closely held business investment
with the client.
6. The AICPA Code oI ProIessional Conduct will ordinarily be considered to have been violated
when the CPA represents that speciIic consulting services will be perIormed Ior a stated Iee and it is
apparent at the time oI the representation that the: A. Actual Iee would be substantially higher. B.
Actual Iee would be substantially lower than the Iees charged by other CPAs Ior comparable
services. C. Fee was a competitive bid. D. CPA would not be independent.
7. Which oI the Iollowing is a correct statement related to CPA legal liability under common law? A.
CPAs are normally liable to their clients, the shareholders, Ior either ordinary or gross negligence. B.
CPAs are liable Ior either ordinary or gross negligence to identiIied third parties Ior whose beneIit
the audit was perIormed. C. CPAs may escape all personal liability through incorporation as a limited
liability corporation. D. CPAs are guilty until they prove that they perIormed the audit with "good
Iaith."
8. Which oI the Iollowing is the best deIense that a CPA can assert against common law litigation by
a stockholder claiming Iraud based on an unqualiIied opinion on materially misstated Iinancial
statements? A. Lack oI due diligence. B. Lack oI gross negligence. C. Contributory negligence on the
part oI the client. D. A disclaimer contained in the engagement letter.
9. Which oI the Iollowing best describes the reason that auditors are concerned with the detection oI
related party transactions? A. The Iinancial statements must oIten be adjusted Ior the eIIects oI
material related party transactions. B. Material related party transactions must be disclosed in the
notes to the Iinancial statements. C. The substance oI related party transactions will diIIer Irom their
Iorm. D. In a related party transaction one party has the ability to exercise signiIicant inIluence over
the other party.
10. Which oI the Iollowing is generally true about the suIIiciency oI audit evidence? A. The amount
oI evidence that is suIIicient varies inversely with the acceptable risk oI material misstatement. B.
The amount oI evidence concerning a particular account varies inversely with the materiality oI the
account. C. The amount oI evidence concerning a particular account varies inversely with the
inherent risk oI the account. D. When evidence is appropriate with respect to an account it is also
suIIicient.
11. Which oI the Iollowing is correct concerning requirements about auditor communications about
Iraud? A. Fraud that involves senior management should be reported directly to the audit committee
regardless oI the amount involved. B. All Iraud with a material eIIect on the Iinancial statements
should be reported directly by the auditor to the Securities and Exchange Commission. C. Fraud with
a material eIIect on the Iinancial statements should ordinarily be disclosed by the auditor through use
oI an "emphasis oI a matter" paragraph added to the audit report. D. The auditor has no responsibility
to disclose Iraud outside the entity under any circumstances.
12. When a company has changed auditors, according to the ProIessional Standards: A. The
successor auditor has the responsibility to initiate contact with the predecessor auditor to ask about
the client beIore the engagement is accepted; the predecessor has no responsibility to initiate this
contact, even when aware oI matters bearing on the integrity oI management. B. The predecessor
must always respond Iully to all inquiries made by the successor auditor. C. The successor must
discuss with the predecessor matters bearing on the engagement prior to accepting the engagement.
D. The successor may choose not to attempt any communication with the predecessor auditor.
13. The internal control provisions oI the Sarbanes-Oxley Act of 2002 apply to which companies in
the United States: A. All companies. B. SEC registrants. C. Only those companies included in the
Fortune 500. D. All nonpublic companies.
14. When perIorming an audit oI internal control under PCAOB requirements, auditors evaluate
control: A. Option A B. Option B C. Option C D. Option D
15. Which oI the Iollowing is least likely to be a general control over computer activities? A.
Procedures Ior developing new programs and systems. B. Requirements Ior system documentation.
C. A change request log. D. A control total.
16. General controls over IT systems are typically tested using: A. Generalized audit soItware. B.
Observation, inspection, and inquiry. C. Program analysis techniques. D. Test data.
17. Using difference estimation, an auditor has taken a sample oI 200 Irom a population's 40,000
items; that population has a book value oI $200,000. She Iound that in her sample the average
audited value was $4.20, while the average book value was $5.20. What is the estimated total audited
value oI the population? A. $160,000. B. $161,538. C. $168,000. D. $200,000.
18. Using ratio estimation, an auditor has taken a sample oI 200 Irom a population's 40,000 items;
that population has a book value oI $200,000. She Iound that in her sample the average audited value
was $4.20, while the average book value was $5.20. What is the estimated total audited value oI the
population? A. $160,000. B. $161,538. C. $168,000. D. $200,000.
19. Which procedure is an auditor most likely to use to detect a check outstanding at year-end that
was not recorded as outstanding on the year-end bank reconciliation? A. Prepare a bank transIer
schedule using the client's cash receipts and cash disbursements journal. B. Receive a cutoII
statement directly Irom the client's bank. C. Prepare a Iour column bank reconciliation using the
year-end bank statement. D. ConIirm the year end balance using the standard Iorm to conIirm
account balance inIormation with Iinancial institutions.
20. Which oI the Iollowing is not a control that generally is established over cash transactions? A.
Separating cash handling Irom recordkeeping. B. Centralizing the receipt oI cash. C. Depositing each
day's receipts intact. D. Obtaining a receipt Ior every disbursement.
21. Which oI the Iollowing is an eIIective control that encourages receiving department personnel to
count and inspect all merchandise received? A. Quantities ordered are excluded Irom the receiving
department copy oI the purchase order. B. Vouchers are prepared by accounts payable department
personnel only aIter they match item counts on the receiving report with the purchase order. C.
Receiving department personnel are expected to match and reconcile the receiving report with the
purchase order. D. Internal auditors periodically examine, on a surprise basis, the receiving
department copies oI receiving reports.
22. An inventory turnover analysis is useIul to the auditor because it may detect: A. Inadequacies in
inventory pricing. B. Methods oI avoiding cyclical holding cost. C. The optimum automatic reorder
points. D. The existence oI obsolete merchandise.
23. The most reliable procedure Ior an auditor to use to test the existence oI a client's inventory at an
outside location would be to: A. Observe physical counts oI the inventory items. B. Trace the total on
the inventory listing to the general ledger inventory account. C. Obtain a conIirmation Irom the client
indicating inventory ownership. D. Analytically compare the current-year inventory balance to the
prior-year balance.
24. Which oI the Iollowing would be least likely to address control over the initiation and execution
oI equipment transactions? A. Requests Ior major repairs are approved by a higher level than the
department initiating the request. B. Prenumbered purchase orders are used Ior equipment and
periodically accounted Ior. C. Requests Ior purchases oI equipment are reviewed Ior consideration oI
soliciting competitive bids. D. Procedures exist to restrict access to equipment.
25. Which oI the Iollowing is not a control that should be established Ior purchases oI equipment? A.
Establishing a budget Ior capital acquisitions. B. Requiring that the department in need oI the
equipment order the equipment. C. Requiring that the receiving department receive the equipment. D.
Establishing an accounting policy regarding the minimum dollar amount oI purchase that will be
considered Ior capitalization.
26. In violation oI company policy, Lowell Company erroneously capitalized the cost oI painting its
warehouse. The auditors examining Lowell's Iinancial statements would most likely detect this when:
A. Discussing capitalization policies with Lowell's controller. B. Examining maintenance expense
accounts. C. Observing, during the physical inventory observation, that the warehouse had been
painted. D. Examining the construction work orders supporting items capitalized during the year.
27. Which oI the Iollowing audit procedures is best Ior identiIying unrecorded trade accounts
payable? A. Reviewing cash disbursements recorded subsequent to the balance sheet date to
determine whether the related payable applies to the prior period. B. Investigating payables recorded
just prior to and just subsequent to the balance sheet date to determine whether they are supported by
receiving reports. C. Examining unusual relationships between monthly accounts payable balances
and recorded cash payments. D. Reconciling vendors' statements to the Iile oI receiving reports to
identiIy items received just prior to the balance sheet date.
28. An entity's internal control requires Ior every check request that there be an approved voucher,
supported by a prenumbered purchase order, and a prenumbered receiving report. To determine
whether checks are being issued Ior unauthorized expenditures, an auditor most likely would select
Ior testing Irom the population oI: A. Purchase orders. B. Canceled checks. C. Receiving reports. D.
Approved vouchers.
29. Which oI the Iollowing statements is correct regarding accounts payable and the auditor's
procedures? A. Because it is generally more diIIicult to discover a transaction that has not been
recorded than to discover one that has been recorded incorrectly, the audit objective oI completeness
drives many oI the substantive procedures applied to these balances. B. A judgment whether an
unrecorded payable should be recorded beIore the Iinancial statements are prepared depends entirely
upon the source oI the payable. C. The conIirmation oI accounts payable selected Irom the year-end
trial balance oI such accounts is most eIIective in discovering unrecorded liabilities. D. Unrecorded
payables are oIten discovered through examining vouchers payable entered into the voucher register
prior to the balance sheet date.
30. Changes in capital stock accounts should normally be approved by: A. The board oI directors. B.
The audit committee. C. The stockholders. D. The president.
31. Which oI the Iollowing is an auditor most likely to conIirm Irom the transIer agent and registrar?
A. Total shares oI stock issued. B. Restrictions on the payment oI dividends. C. Total market value oI
outstanding shares oI stock. D. Gains Irom sale oI treasury stock.
32. The auditors' program Ior the examination oI long-term debt should include steps that require the:
A. VeriIication oI the existence oI the bondholders. B. Examination oI any bond trust indenture. C.
Inspection oI the accounts payable subsidiary ledger. D. Investigation oI credits to the bond interest
income accounts.
33. Auditors must communicate internal control "signiIicant deIiciencies" to: A. The audit
committee. B. The shareholders. C. The SEC. D. The Federal Trade Commission.
34. One reason why the independent auditors perIorm analytical procedures on the client's operations
is to identiIy: A. Weaknesses oI a material nature in internal control. B. Non-compliance with
prescribed control procedures. C. Improper separation oI accounting and other Iinancial duties. D.
Unusual transactions.
35. Which oI the Iollowing is an analytical procedure that should be applied to the income statement?
A. Select sales and expense items and trace amounts to related supporting documents. B. Ascertain
that the net income amount in the statement oI cash Ilows agrees with the net income amount in the
income statement. C. Obtain Irom the proper client representatives, the beginning and ending
inventory amounts that were used to determine costs oI sales. D. Compare the actual revenues and
expenses with the corresponding Iigures oI the previous year and investigate signiIicant diIIerences.
36. II group auditors make no reIerence to component auditors whose work they have relied on as a
part oI the basis Ior their report, the group auditors: A. Are not required to investigate the
proIessional reputation oI the component auditors. B. Are issuing an inappropriate report. C. Are
assuming responsibility Ior the work oI the component auditors. D. Are issuing a qualiIied opinion.
37. When an adverse opinion is expressed, the opinion paragraph should include a direct reIerence to:
A. A note to the Iinancial statements which discusses the basis Ior the opinion. B. The Auditor's
Responsibility section oI the audit report which discusses the basis Ior the opinion rendered. C. A
separate paragraph (section) which discusses the basis Ior the opinion rendered. D. The consistency
in the application oI generally accepted accounting principles.
38. Under which oI the Iollowing set oI circumstances might the auditors disclaim an opinion? A.
The Iinancial statements contain a departure Irom generally accepted accounting principles, the eIIect
oI which is material. B. The group auditors decide to make reIerence to the report oI component
auditor who audited a subsidiary. C. There has been a material change between periods in the method
oI application oI accounting principles. D. There are signiIicant scope limitations on the audit.
39. An auditor identiIied a signiIicant deIiciency in internal control in December. The client was
inIormed and the client corrected the signiIicant deIiciency shortly beIore year-end (December 31);
the auditor agrees that the correction eliminates the signiIicant deIiciency as oI December 31. The
appropriate audit report on internal control under a PCAOB Standard No. 2 audit oI internal control
is: A. Adverse. B. UnqualiIied. C. UnqualiIied with explanatory language relating to the signiIicant
deIiciency. D. QualiIied.
40. Which oI the Iollowing must be included in management's report internal control under section
404 oI the Sarbanes/Oxley Act oI 2002? A. It is management's responsibility to eliminate or publicly
report on signiIicant deIiciencies in internal control. B. A detailed description oI the COSO criteria.
C. Management's assessment oI the operating eIIectiveness Ior the period Irom the beginning to the
end oI the Iiscal year under audit. D. IdentiIication oI the Iramework used Ior evaluating internal
control.
41. Under PCAOB internal control reporting standards, what are the auditor's communication
requirements to the audit committee with respect to material weaknesses? A. All must be
communicated in written Iorm. B. All must be communicated in written Iorm or orally. C. Only those
that violate the Foreign Corrupt Practices Act need be communicated, but in written Iorm. D. Only
those that violate the Foreign Corrupt Practices Act need be communicated, in written Iorm or orally.
42. A practitioner's report on agreed-upon procedures that is in the Iorm oI procedures and Iindings
should contain: A. Negative assurance that the procedures did 349necessarily disclose all reportable
conditions. B. An acknowledgment oI the practitioner's responsibility Ior the suIIiciency oI the
procedures. C. A statement oI restrictions on the use oI the report. D. A disclaimer oI opinion on the
entity's Iinancial statements.
43. Which oI the Iollowing requires modiIication oI a review report? A. A change in accounting
principles. B. A substantial doubt about a company's ability to continue as a going concern. C. A
departure Irom generally accepted accounting principles. D. A change in an accounting estimate.
44. Which oI the Iollowing is correct when a company is issuing summary Iinancial statements
developed Irom audited Iinancial statements? A. Such summary statements should always have a
CPA's report associated with them when audited Iinancial statements exist. B. The CPA may issue a
report on whether the summary inIormation is Iairly stated in all material respects in relation to the
basic Iinancial statements. C. The CPA should perIorm a compilation and review oI the summary
Iinancial statements. D. The CPA who has audited the Iinancial statements who is asked to report on
the summary statements should decline the engagement because the summary statements do not
include all disclosures necessary under generally accepted accounting principles.
45. Under the attestation standards, in which oI the Iollowing circumstances is a review report least
likely to be issued? A. Criteria are agreed-upon or only available to speciIied users. B. Established
criteria exist, but other criteria are used. C. The subject matter departs Irom the criteria. D. A
signiIicant limitation on the scope oI the engagement has occurred.
46. To accept an engagement to examine a client's MD&A Ior annual Iinancial statements, the
practitioners ordinarily must have: A. Audited the most recent Iinancial statement period to which the
MD&A applies. B. Determined that the client reports to the Securities and Exchange Commission. C.
PerIormed a detailed analysis oI the client's controls over decision making. D. Reviewed the
quarterly MD&A inIormation.
47. Which oI the Iollowing is correct concerning service auditor and SysTrust reports? A. They both
result in restricted use reports. B. A client must engage the CPA to perIorm both services as neither
may be selected independently oI the other. C. They both address system reliability. D. They
represent diIIerent names Ior the same service.
48. When a CPA is associated with a Iorecast, all oI the Iollowing should be disclosed except the: A.
Sources oI inIormation. B. Character oI the work perIormed by the CPA. C. Major assumptions in
the preparation oI the Iorecast. D. Probability oI achieving estimates.
49. When a practitioner examines projected Iinancial statements, the practitioner's report should
include a separate paragraph that: A. Describes the limitations on the useIulness oI the presentation.
B. Provides an explanation oI the diIIerences between an examination and a review. C. States that the
accountant is responsible Ior events and circumstances Ior a period not exceeding one year aIter the
report's date. D. Disclaims an opinion on whether the assumptions provide a reasonable basis Ior the
projection.
30 Whlch of Lhe followlng ls correcL relaLlng Lo an engagemenL Lo apply agreedupon procedures Lo
prospecLlve flnanclal sLaLemenLs? A use of Lhe reporL ls resLrlcLed Lo Lhe speclfled users 8 Such
engagemenLs are permlsslble for forecasLs buL noL for pro[ecLlons C 8esponslblllLy for Lhe
adequacy of Lhe procedures performed ls Laken by Lhe pracLlLloner u Such engagemenLs are noL
permlsslble under Lhe professlonal sLandards