Practice Test 10 - 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. You are auditing a nonissuer in an audit engagement. The client applies lower of cost or net realizable value to inventory. You identified that obsolete items are not written down because the sales manager believes they can be sold "eventually," despite no sales in the last 18 months. Controls over obsolescence reserves rely on management judgment with no formal analysis. Which audit procedure should the auditor perform to verify inventory valuation?
2. An entity's board of directors is responsible for overseeing the development and performance of internal control. Which COSO principle does this oversight function most directly relate to?
3. A CPA firm's independence for an attest client is considered impaired if fees for professional services rendered more than one year prior to the date of the audit report remain unpaid. Which of the following statements about this rule is correct?
4. A nonissuer healthcare entity is undergoing a financial statement audit. The auditor plans to use internal audit's work on controls over patient billing adjustments; internal audit has relevant certifications (CIA) but the internal audit director's annual bonus is tied to operating margin. Internal audit's workpapers show limited evidence of supervision and inconsistent sample selection. What is the most appropriate response when evaluating the internal audit function's work?
5. In evaluating an entity's governance, the auditor considers the assignment of authority and responsibility. A well-defined organizational structure is crucial because it primarily serves to:
6. You are planning an audit of a nonissuer entity with multiple locations. The entity uses a standardized ERP system, but local management can create vendors and approve payments up to certain limits. Prior internal audit reports noted weak vendor master file controls at two locations. How should the auditor adjust the audit plan for identified risks?
7. A user auditor requires evidence concerning the operating effectiveness of controls at a service organization for the entire period of intended reliance. Which of the following reports would provide this type of evidence?
8. In which of the following circumstances would the use of substantive analytical procedures be the most appropriate planned response?
9. Which benchmark would be most suitable for the auditor to use when determining planning materiality?
10. You are the auditor of a nonissuer in a financial statement audit and plan to rely on controls over the revenue process to reduce substantive testing. The entity uses pre-numbered shipping documents, and a supervisor is expected to review a daily sales register and match it to shipping documents before invoices are posted. Under these circumstances, which test would best determine the effectiveness of controls over the occurrence of recorded sales?
11. You are auditing an issuer. The company recently implemented a new ERP system, and several automated controls over three-way match were not configured properly for the first two months after go-live. Accounts payable and inventory balances increased significantly during that period. Based on the auditor's assessment, which procedure should be prioritized?
12. The engagement letter for this audit should include a statement that the audit will include which of the following?
13. You are auditing an issuer software company. Management's footnote states that it has "adequate liquidity" but the company has negative operating cash flows, a material debt maturity within 12 months, and is negotiating a waiver for a covenant violation; the waiver is not obtained as of the report date. What type of disclosure is required if a going concern issue is identified?
14. A practitioner is engaged to perform an audit of a nonissuer private equity fund with significant investments in thinly traded securities and side-pocket arrangements. The fund's general partner indicates that if the auditor challenges valuation marks, the auditor will be replaced before next year's audit. Which condition would most likely compromise the auditor's skepticism?
15. A private company (a nonissuer) wants a CPA to provide assurance on a sustainability report containing greenhouse gas emissions metrics. The CPA will apply suitable criteria, obtain evidence, and express a conclusion designed to provide limited assurance. Under these circumstances, which engagement should be performed?
16. You are auditing a nonissuer health clinic under AICPA standards. A regulatory change expanded required patient privacy safeguards and increased fines for breaches, and the clinic implemented a new third-party cloud system for electronic records. Management recognized a liability for potential fines based only on a consultant's informal estimate and did not assess whether a loss is probable. Based on the regulatory change, which audit adjustment is necessary?
17. The precision of the expectation developed for a substantive analytical procedure is a critical factor in its effectiveness. Which of the following factors would most likely increase the precision of an auditor's expectation?
18. You are performing an attestation engagement (examination) for a nonissuer on compliance with a loan covenant requiring quarterly board review of liquidity metrics. Board minutes show the review occurred only once during the year, and management prepared the covenant calculations without independent review. What type of report should be issued for these governance deficiencies?
19. When an auditor uses a substantive analytical procedure to obtain audit evidence, which of the following elements is required to be documented?
20. During the audit of a nonissuer construction contractor, you selected a non-statistical sample of 60 job cost transactions to test classification between cost of sales and capitalized costs. You identified 3 misclassifications totaling $18,000, and the population consists of 6,000 transactions totaling $9.0 million. What is the most appropriate way to evaluate misstatements based on sample results?

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