Practice Test 2 - 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 auditor makes inquiries of the warehouse manager regarding obsolete inventory. The manager states that all inventory is current and saleable. To evaluate the sufficiency and appropriateness of this oral evidence, the auditor should:
2. You are auditing an issuer. Management recorded a large, unusual gain on sale of an intangible asset to an entity formed two weeks before year-end; the purchase was financed by the issuer through a note receivable with minimal payments due for three years. Which factor most increases the risk of material misstatement?
3. You are planning an audit of a nonissuer entity with a newly formed audit committee and a first-year CFO. Prior-year audits were performed by a different firm, and there were multiple proposed adjustments that management recorded. How should the auditor adjust the audit plan for identified risks?
4. An auditor is concerned about the existence assertion for inventory stored in a third-party public warehouse. Which audit procedure provides the most appropriate evidence for this assertion?
5. You are the auditor of a nonissuer manufacturing company in a financial statement audit. Management recorded a $6.8 million goodwill impairment reversal after updating its discounted cash flow model using a new 5-year forecast that assumes 18% annual revenue growth and a terminal growth rate of 6%, supported primarily by an internal strategic plan; prior-year actual growth averaged 4%, and no signed customer contracts support the step-change. Which procedure should the auditor apply to test the reasonableness of the estimate?
6. Which of the following factors would an auditor primarily consider when establishing the timing of an audit as part of the overall audit strategy?
7. The necessary extent of documentation for an auditor's understanding of a client's business processes is a matter of professional judgment. Which factor would most likely cause an auditor to create more extensive documentation?
8. You are the auditor of a nonissuer performing a financial statement audit of a franchisor. Franchise fee revenue and related receivables are material, and the company has recently relaxed credit approval to grow franchise count; there are also incentives for sales staff based on new franchise signings. Which factor should the auditor prioritize when developing the audit strategy?
9. A CPA audits a nonissuer under AICPA GAAS. The auditor concludes that disclosures about a related-party transaction are omitted; the omission is material but not pervasive. Management refuses to add the disclosure. The auditor has obtained sufficient appropriate evidence regarding the amounts recorded. What type of audit opinion should be issued?
10. A firm performs nonissuer audit engagements and uses a centralized technical consultation hotline. Engagement teams sometimes receive advice but do not retain evidence of the consultation request, response, or how it was applied. The firm is evaluating changes to its quality management system. Which action should the firm take to ensure engagement quality?
11. What is the auditor's most appropriate action regarding the initial determination of materiality?
12. An auditor is considering accepting an engagement to audit a nonissuer. The auditor becomes aware that management has imposed a scope limitation that will prevent the auditor from observing the physical inventory count. If this limitation is significant and the auditor cannot perform alternative procedures, the auditor should generally:
13. During an audit of a nonissuer, the auditor identifies a control deficiency in the purchasing cycle: purchase orders are required, but receiving personnel frequently accept goods without a purchase order when operations request expedited delivery. Accounts payable then matches vendor invoices to receiving reports only, and the controller approves payments in weekly batches without reviewing supporting documentation. Purchases and expenses are material, and the company has experienced margin declines and liquidity pressure. What is the best approach to address the identified risk?
14. What is the primary purpose of developing an overall audit strategy?
15. An engagement quality review is performed for an audit of a nonissuer financial statement. The primary objective of the engagement quality reviewer is to:
16. You are auditing an issuer and identified a segregation of duties control in the purchasing process: purchasing creates purchase orders, receiving confirms quantities received, and accounts payable records invoices; system roles are intended to prevent one user from performing incompatible duties. Which procedure is most appropriate to test the operating effectiveness of this segregation of duties control?
17. An auditor is performing substantive tests on a client's property, plant, and equipment (PPE). To test the occurrence assertion for PPE additions, the auditor would most likely:
18. An issuer is being audited under PCAOB standards. The auditor plans to use a system-generated accounts receivable aging to test valuation, but the client exports the aging to a spreadsheet and manually adds a column for 'expected credit loss %' before providing it to the auditor. Which procedure should be applied to validate the data transformation and manual modification before using it as audit evidence?
19. You are performing an audit of a nonissuer entity. Conditions and events (recurring losses, negative operating cash flows, and imminent debt maturities) indicate substantial doubt about the entity's ability to continue as a going concern, and management's plans are not likely to alleviate the doubt. Management includes a note disclosure describing the conditions but refuses to disclose that its mitigation plan is unlikely to be successful. What is the most appropriate action for the auditor to take regarding the going concern assessment?
20. A nonissuer construction contractor is undergoing a audit of GAAP financial statements that include required supplementary information (RSI) related to pension plan funding. The RSI schedule shows employer contributions of $4.2 million, but the audited financial statements and underlying records support $3.7 million, and management refuses to correct the RSI. What modifications are required in the auditor's report?

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