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Practice Test 12 - CPA Auditing & Attestation (AUD)

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

  1. A nonissuer manufacturing company is audited under AICPA standards and prepares financial statements on a regulatory basis in accordance with a state insurance department's prescribed accounting practices. The prescribed practices differ from U.S. GAAP in several material respects, and management's note disclosures clearly describe the basis and the differences. What factor should the auditor consider when forming an opinion?
  2. Which of the following engagements would be considered an attestation engagement?
  3. How does the auditor's assessment of the risk of material misstatement (RMM) at the overall financial statement level affect the initial determination of planning materiality?
  4. You are auditing a nonissuer company and plan to confirm cash with multiple banks using positive confirmations. Management asks the auditor to send confirmations only to banks that management identifies as "active," claiming other accounts were closed earlier in the year. Which action should the auditor take based on this request?
  5. A nonissuer client engaged your firm for an audit of its financial statements. After signing the engagement letter, the client acquires a foreign subsidiary operating in a high-inflation environment, increasing accounting complexity and risk. Based on the provided facts, what modification to the engagement terms is necessary?
  6. What is the auditor's communication responsibility to those charged with governance regarding this deficiency?
  7. An issuer audit client has an overdue balance for prior-year audit fees that has remained unpaid for 14 months after the prior-year report date. The firm is planning to begin current-year interim procedures next week. Based on SEC/PCAOB standards, which response is correct?
  8. A practitioner is performing a review for a nonissuer and identifies evidence that management may have overridden controls to accelerate revenue recognition. The practitioner believes the matter could be material and pervasive. What is the most appropriate action for the practitioner to take?
  9. A nonissuer manufacturing company is undergoing a financial statement audit under AICPA standards. During the audit, management refuses to consolidate a wholly owned subsidiary that is material to total assets and revenues, and the auditor concludes the departure from generally accepted accounting principles is material and pervasive. The auditor has obtained sufficient appropriate audit evidence. How should the auditor's report be modified given these circumstances?
  10. You are the auditor of an issuer in an integrated audit of financial statements and internal control over financial reporting. The company has an audit committee that meets regularly, but internal audit reports repeated failures in the entity-level control for monitoring user access changes, and management has not remediated them. You conclude the monitoring control deficiency is pervasive and affects multiple significant accounts. What type of report should be issued for these governance deficiencies?
  11. Which of the following engagements is performed under the Statements on Auditing Standards (SAS) but provides a level of assurance that is less than reasonable?
  12. A regional retailer (a nonissuer) wants some assurance on its interim financial statements for internal use and a prospective line of credit, but management does not want the cost of an audit. The accountant will primarily perform inquiries of management and analytical procedures and will provide limited assurance. Under these circumstances, which engagement should be performed?
  13. An issuer is undergoing a PCAOB audit. The company's MD&A states that "inventory obsolescence reserves decreased due to improved demand forecasting," but the audited financial statements show the reserve increased significantly and the auditor believes the MD&A narrative is materially misleading. Management refuses to revise the MD&A. How should the auditor report discrepancies between the financial statements and other information?
  14. A PCAOB-registered firm is negotiating the audit engagement letter for the audit of NovaFin, a public issuer. NovaFin proposes paying the audit fee only if the firm issues an unqualified opinion by a specified deadline, with a reduced fee if additional audit procedures are required. Based on SEC/PCAOB standards, which response is correct?
  15. An auditor is considering accepting an engagement for a client that uses a service organization to process its payroll. Management states that it cannot provide the auditor with a SOC 1 report from the service organization and will not authorize the auditor to contact them directly. This limitation would most likely cause the auditor to:
  16. When evaluating the reliability of electronic evidence generated by a client's information system, an auditor's primary consideration should be the:
  17. You are the auditor of an issuer in an integrated audit. Management identified a material weakness related to ineffective review of revenue contracts and has begun remediation late in the year. The audit committee receives updates but does not challenge management's timeline or interim compensating controls. Which action should the auditor take regarding governance weaknesses?
  18. The auditor's approach is most indicative of which threat to professional skepticism?
  19. An auditor is evaluating the competence of a client's internal audit function. Which of the following procedures would provide the best evidence regarding the competence of the internal audit staff?
  20. This situation raises a concern about the effectiveness of the Control Environment because it may call into question which key COSO principle?

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