Practice Test 1 - CPA Auditing & Attestation (AUD)

20 questions. Answer them in any order, then submit to see your score and every explanation.

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1. A nonissuer credit union requests an audit. Management refuses to provide access to internal audit reports and says regulators will not allow sharing examination findings with the external auditor. The auditor expects these restrictions will significantly limit audit evidence over compliance and allowance for credit losses. Based on the given facts, should the auditor accept the engagement?
2. How should the group auditor's report be modified to reflect this decision?
3. You are performing a financial statement audit of a nonissuer hospitality company under AICPA standards. An economic downturn reduced corporate travel, and the company is near breach of a debt covenant that requires a minimum fixed-charge coverage ratio. Management's forecast assumes a rapid rebound without support from external market data. How should the auditor respond to the identified economic risk?
4. During an audit of an issuer, the auditor sends positive confirmations for accounts receivable. A major customer does not respond after a second request; the balance is material and assessed as higher risk due to recent credit issues. Based on the circumstances, which response to a nonresponse is most appropriate?
5. A nonissuer entity is audited under AICPA auditing standards and has a debt agreement requiring maintenance of a minimum current ratio. The auditor determines the covenant was violated at year-end, but management obtained a waiver after year-end and refuses to disclose the violation, stating the waiver "fixes it." The auditor concludes disclosure of the violation and waiver terms is required under the applicable financial reporting framework. Based on the circumstances, which compliance report modification is most appropriate?
6. Which of the following statements correctly distinguishes the audit engagement letter from the management representation letter?
7. Given the information in the passage, what is the auditor's most appropriate course of action regarding the acquisition agreement?
8. Based on the passage, the auditor should express which type of opinion on compliance for this major program?
9. Your firm audits an issuer. The issuer requests that the firm provide executive recruiting services to identify and screen candidates for the issuer's chief financial officer position and to recommend a finalist. Which action should the auditor take regarding independence?
10. You are the auditor of an issuer in a financial statement audit. The company implemented a new ERP system mid-year; user access is not restricted, several terminated employees still have active credentials, and the company cannot produce a complete and accurate population of sales transactions for the first two months after conversion. What is the most appropriate response to the identified risk?
11. Which of the following describes the fundamental difference between the GAGAS approach to independence and the AICPA Code of Professional Conduct?
12. You are auditing an issuer in an integrated audit. The company has a code of conduct and annual training, but you learn that sales leadership's bonuses are heavily tied to quarterly revenue targets, and there is a pattern of pressuring accounting to "find a way" to meet targets. The audit committee receives complaints through a hotline but does not track resolution trends. Which element of the COSO framework is most affected by this issue?
13. During a financial statement audit of a nonissuer, management emphasizes meeting earnings targets and has recently reduced the internal audit budget. You are considering the impact of the control environment on the effectiveness of other controls you plan to test. Which factor most likely indicates a weakness in the control environment that could affect reliance on controls?
14. An accountant is performing a compilation engagement for a nonissuer. Which of the following statements is required to be included in the accountant's standard compilation report?
15. During a nonissuer financial statement audit, the auditor is evaluating the accuracy and occurrence assertions for cash receipts applied to accounts receivable. The auditor plans to use external confirmations but notes that many customers are small and historically do not respond; the client offers to email customers from the controller's account to "speed responses." Which conclusion is most appropriate regarding the reliability of the confirmation evidence?
16. A nonissuer insurance agency is audited on financial statements prepared using a regulatory basis prescribed by its state insurance department. The statements are intended for the regulator and are not intended for general use. Which aspect of the financial statements requires emphasis due to the special-purpose framework?
17. Given this risk assessment, which amount would be the most professionally responsible determination for performance materiality?
18. A PCAOB-registered firm audits the financial statements of BrightRetail Corp., an SEC-registered issuer. Management asks the audit firm to design and implement BrightRetail's new revenue recognition controls within its financial reporting system, and then to audit the effectiveness of those controls as part of the integrated audit. Based on SEC/PCAOB standards, which response is correct?
19. An issuer is being audited under PCAOB standards. The auditor obtains a payroll report exported to a text file and then imports it into audit software to run analytics for duplicate direct-deposit accounts; after import, the auditor notices that some negative adjustments are displayed as positive amounts. What action should the auditor take to ensure data integrity before concluding on the payroll analytics results?
20. An issuer company is audited under PCAOB standards. The auditor identifies that management has not disclosed a material uncertainty related to ongoing regulatory investigations that could result in significant penalties, and management argues that disclosure would prejudice the company's defense. The auditor has obtained sufficient evidence that the investigation is probable to result in a loss that is at least reasonably possible and potentially material. Based on the circumstances, which compliance report modification is most appropriate?

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