Question 1

In performing an attestation engagement,a CPA typically

Accepted Answer

In an attestation engagement, the CPA expresses a conclusion on an assertion about some type of subject matter. This may include financial statements, internal control effectiveness, compliance with laws and regulations, or sustainability reporting. Litigation support, assessing control risk, and management consulting are all areas that may be related to the attestation engagement, but they are not the primary focus.

Question 2

Auditors are auditing the warehouse of Huge Lots Corporation.The auditors performed the audit procedures listed 1-5.For each audit procedure select the ASB balance assertion that is most likely being tested.
A. Existence
B. Rights and obligations
C. Completeness
D. Accuracy
E. Valuation
1. The auditors walked through the warehouse looking for obsolete inventory.
2. The auditors compared invoices received from suppliers with the cost of inventory listed in the inventory accounts.
3. The auditors reviewed purchase orders to determine if any inventory was on consignment.
4. The auditors reviewed vendor invoices to determine if freight costs, taxes, tariffs or other costs had been included in inventory costs.
5. The auditors selected items from the inventory and reviewed inventory records to ensure these items were included in those records.

Accepted Answer

The answer of Auditors are auditing the warehouse of Huge...

Question 3

Inquiries of warehouse personnel concerning possible obsolete or slow moving inventory items provide assurance about the ASB balance assertion of

Accepted Answer

Inquiries about obsolete or slow moving inventory items provide assurance about the ASB balance assertion of valuation. It ensures that obsolete or slow-moving items have been appropriately marked down in value on the books.

Question 4

The study of business operations for the purpose of making recommendations about the efficient use of resources,effective achievement of business objectives,and compliance with company policies is referred to as

Accepted Answer

Operational auditing specifically focuses on the study of business operations in order to make recommendations about resource efficiency, achieving business objectives, and complying with company policies. Environmental auditing focuses on assessing a company's impact on the environment, while financial auditing focuses on examining financial statements for accuracy. Compliance auditing focuses on ensuring that a company is adhering to relevant laws and regulations.

Question 5

The underlying conditions that create demand by users for reliable information include all of the following,except

Accepted Answer

Users should have professional skepticism and critically evaluate the information they receive. This is not a condition that creates demand for reliable information; rather, it is a necessary mindset for users to have when receiving information.

Question 6

The probability that the information circulated by a company will be false or misleading is referred to as

Accepted Answer

The probability that the information circulated by a company will be false or misleading is referred to as information risk. Business risk refers to the risk that a company may face due to changes in the market, industry or economy. Assurance risk refers to the risk that the auditor may not detect material misstatement in the financial statements. Audit risk refers to the risk that an auditor may give an inappropriate audit opinion.

Question 7

What are the differences between the American Accounting Association and AICPA definitions and objectives of auditing?

Accepted Answer

The answer of What are the differences between the American...

Question 8

Cutoff tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about the PCAOB assertion of

Accepted Answer

Cutoff tests are used to determine if transactions have been recorded in the correct accounting period. In this case, cutoff tests are being used to determine if credit sales made before year-end have been recorded in the subsequent year. Therefore, the cutoff tests are providing assurance about the completeness of the financial statements, specifically, that all sales made in the period have been recorded.

Question 9

The accounting,auditing,and investigating agency of the U.S.Congress,headed by the U.S.Comptroller General is known as

Accepted Answer

The U.S. Comptroller General heads the U.S. General Accountability Office (GAO), which is responsible for accounting, auditing, and investigating activities for the U.S. Congress. The Federal Bureau of Investigation (FBI) is a law enforcement agency, the Internal Revenue Service (IRS) is responsible for tax collection and enforcement, and the United States Legislative Auditors (USLA) is not a real agency.

Question 10

The four basic requirements for becoming a CPA in most states are

Accepted Answer

The four basic requirements for becoming a CPA in most states are education (usually a bachelor's degree with a certain number of accounting and business credits), passing the CPA Examination, fulfilling a certain amount of experience (which varies by state), and obtaining a state CPA certificate or license. Some states may have additional requirements, but these are the four basic ones. Option A is inaccurate because substantial equivalency is not a primary requirement, Option B is inaccurate because continuing professional education is not a primary requirement for becoming a CPA (although it is required for maintaining the license), and Option C is inaccurate because an AICPA certificate is not a requirement for becoming a CPA, although being a member of the AICPA is an option for CPAs.

Question 11

The process of a CPA obtaining a certificate and license in a state other than the state in which the CPA's certificate was originally obtained is referred to as

Accepted Answer

The process of obtaining a certificate and license in another state is called substantial equivalency, which means that the CPA's education and experience are deemed equivalent to the requirements of the state in which they are seeking licensure. This process allows CPAs to practice across state lines without having to go through the entire licensing process again.

Question 12

The Sarbanes-Oxley Act of 2002 requires that the key company officials certify the financial statements.Certification means that the company CEO and CFO must sign a statement indicating

Accepted Answer

The Sarbanes-Oxley Act of 2002 requires both the CEO and CFO to sign a statement certifying the financial statements. The certification statement includes all of the choices listed - indicating that they have read the financial statements, are not aware of any false or misleading statements or key omitted disclosures, and believe that the financial statements present an accurate picture of the company's financial condition. Therefore, the correct answer is D, all of these.

Question 13

The risk an entity will fail to meet its objectives is referred to as

Accepted Answer

Business risk is the risk that an entity will fail to meet its objectives, which can be due to a variety of internal and external factors.

Question 14

ABC Company had a major sale to XYZ Company.This sale accounted for 20% of the revenue of ABC Company.The auditors performed the audit procedures listed 1-3.For each audit procedure select the ASB transaction assertion that is most likely being tested.
A. Occurrence
B. Completeness
C. Cutoff
D. Accuracy
E. Classification
1. The auditor reviewed the shipping documents to check the date that product was shipped to XYZ Company.
2. The auditor reviewed the shipping documents to ensure that all product included in the sales revenue to XYZ had been shipped.
3. The auditor reviewed the invoice sent to XYZ Company to ensure that XYZ had been properly billed.

Accepted Answer

The answer of ABC Company had a major sale to...

Question 15

Inquiries of warehouse personnel concerning possible obsolete or slow moving inventory items provide assurance about the PCAOB assertion of

Accepted Answer

Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory items help in assessing the valuation assertion. This is because such inquiries can reveal information about inventory that may not be properly valued on the financial statements due to obsolescence or slow movement, which could affect the inventory's net realizable value.

Question 16

An attestation engagement is one in which a CPA is engaged to

Accepted Answer

An attestation engagement involves the CPA issuing a report on subject matter or an assertion about the subject matter that is the responsibility of another party. Choices B, C, and D are not attestation engagements. Choice B refers to tax services, choice C refers to expert witness services, and choice D refers to the preparation of prospective financial statements, which is not an attestation engagement as no assurance is provided.

Question 17

Which of the following is not an ASB assertion about inventory related to presentation and disclosure?

Accepted Answer

All of these options are ASB presentation and disclosure assertions about inventory, meaning that they are all important to ensuring that inventory is properly presented and disclosed in the financial statements. Therefore, option D is the correct choice.

Question 18

What is information risk? What is business risk?

Accepted Answer

The answer of What is information risk? What is business...

Question 19

What is operational auditing and by whom is it performed?

Accepted Answer

The answer of What is operational auditing and by whom...

Question 20

Which of the PCAOB assertions (A-E)are best verified by the following audit procedures (1-4)?
A. Existence or occurrence
B. Rights and obligations
C. Valuation or allocation
D. Completeness
E. Presentation and disclosure
1. Confirming inventory held on consignment by the client with independent third party.
2. Consulting the Wall Street Journal for year-end prices of securities held by the client.
3. Physically examine all major property and equipment additions.
4. Review the aged trial balance for significant past due accounts.

Accepted Answer

The answer of Which of the PCAOB assertions (A-E)are best...

Quiz 1: Auditing and Assurance Services