Practice Test 11 - 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. An issuer medical device company is audited under PCAOB standards. The auditor plans to rely on a third-party valuation specialist's report for stock-based compensation, but the report was commissioned by management, includes a limitation of liability to management only, and uses inputs inconsistent with observable market volatility. What should the auditor consider when evaluating evidence reliability?
2. A successor accountant is reviewing a nonissuer's current-period financial statements. The prior-period financial statements, which were compiled by a predecessor accountant, are also presented. The predecessor's report is not reissued. What should the successor accountant do?
3. You are auditing an issuer and identified a key control over financial reporting: the audit committee reviews quarterly financial statements and discusses significant accounting estimates with management. You plan to evaluate this as part of the control environment and monitoring components. Which procedure is most appropriate to test the effectiveness of this control?
4. An auditor performs a procedure that involves vouching a sample of entries in the sales journal to shipping documents and customer orders to verify both the existence of the sale and the proper authorization of the transaction. This procedure is an example of a(n):
5. An issuer technology company is audited under PCAOB standards. During substantive testing of revenue (occurrence and cutoff), the auditor identifies multiple sales recorded on the last day of the year with shipping documents dated two days after year-end and extended payment terms not in the master contract. What is the best response to identified misstatements?
6. A nonissuer construction contractor is audited under AICPA standards and prepares cash-basis financial statements for a state licensing renewal. The statements include a statement of assets and liabilities and a statement of revenues and expenses but omit substantially all disclosures. The auditor concludes the cash-basis statements are otherwise fairly presented. Which opinion should the auditor express?
7. An issuer financial services company is audited under PCAOB standards. The auditor learns that the company violated a debt covenant that triggers an acceleration clause, but management has obtained a waiver after year-end and classified the debt as long-term without adequate disclosure of the violation and waiver terms. The auditor concludes the disclosure is required under the applicable financial reporting framework. Which compliance reporting action should the auditor take?
8. For a firm's system of quality management to be effective, its policies and procedures must be appropriately communicated to its personnel. This communication should primarily ensure that personnel:
9. A practitioner is planning a review engagement of interim financial statements for a nonissuer entity. The entity changed its inventory costing method during the quarter and recorded a large cumulative adjustment. Based on the entity's environment, what should be considered in the review plan?
10. You are performing an attestation engagement for a nonissuer on management's assertion about compliance with a debt covenant (minimum current ratio). The client's current liabilities include a significant accrual for bonuses, and management calculated the covenant using an internal worksheet that excludes the accrual as "noncurrent in substance." The loan agreement language is ambiguous and internal controls over covenant calculations are informal. Which procedure provides the most reliable evidence regarding whether the covenant was met?
11. An accounting firm is the auditor for a large defined contribution plan subject to DOL regulations. The plan sponsor is a publicly traded manufacturing company. Which of the following would cause the firm's independence to be impaired with respect to the plan?
12. A nonissuer distribution company is audited under AICPA standards and prepares cash-basis financial statements for a state tax authority. The tax authority requires the statements to exclude depreciation entirely, even for cash purchases of equipment, and management complies and discloses the policy. The auditor concludes the statements are fairly presented under that cash basis as modified by the filing requirement. Which aspect of the financial statements requires emphasis due to the special-purpose framework?
13. An issuer is being audited under PCAOB standards. The auditor receives a journal entry listing and transforms it to identify entries posted outside normal business hours; the auditor finds the time stamp field was converted to the auditor's local time zone, changing the apparent posting time. Based on the audit findings, how should the data be adjusted before drawing conclusions from the analytics?
14. What is the most appropriate interpretation of this significant difference?
15. A nonissuer company asks an accountant to assist with monthly financial statements, but the accountant is not independent due to a direct financial interest in the company. The company still wants a service that does not provide assurance and is acceptable under professional standards with appropriate disclosure. Which engagement is most appropriate?
16. In this situation, which of the following actions is most appropriate for the auditor to take when preparing the engagement letter?
17. An auditor is planning an audit of a nonissuer entity that uses estimates for warranty liabilities. The entity launched a new product with limited historical claims data, and management's estimate is based primarily on optimistic engineering assumptions. Which planning procedure is most appropriate?
18. An entity's internal audit function periodically audits the company's compliance with its internal control policies and reports its findings directly to the audit committee. This function is an example of which COSO component in action?
19. A nonissuer retailer is audited on contractual-basis financial statements prepared to comply with a lender agreement. The lender agreement defines "income" in a way that excludes certain operating expenses, and management has applied the definition consistently. The auditor believes the contractual-basis statements are acceptable for the intended users but are misleading if used by general users. Based on the entity's reporting framework, which is the most appropriate reporting action?
20. A firm performs a nonissuer audit and the engagement quality reviewer (required by firm policy due to client financial distress) identifies an unresolved disagreement with the engagement team regarding the adequacy of allowance for credit losses. The engagement partner wants to issue the report while the matter is still being debated to meet lender deadlines. Based on the firm's policies, which response is most appropriate?

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