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Practice Test 3 - CPA Auditing & Attestation (AUD)

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

  1. You are auditing an issuer for the year ended December 31, 20X4. On March 5, 20X5, after the audit report date but before the financial statements are issued, you become aware of a material subsequent event (a major customer bankruptcy) that existed at year-end and would have required an adjustment to the allowance for credit losses. Management agrees to revise the financial statements. What procedures should the auditor perform related to this subsequent event?
  2. A nonissuer software company is audited under AICPA standards. The audit team uses an IT auditor to test change management controls over the revenue billing system. The IT auditor plans to sample only emergency changes because they are considered higher risk, leaving routine changes untested. What criteria should the auditor consider when determining the extent of reliance on IT auditors?
  3. When an auditor concludes that substantial doubt about an entity's ability to continue as a going concern exists, and this doubt is not alleviated, what information is essential to be included in the notes to the financial statements?
  4. You are performing an audit of a nonissuer agricultural equipment dealer under AICPA standards. A sudden economic downturn reduced farm income, and industry reports show increasing customer delinquencies and equipment repossessions. Management did not adjust its allowance for doubtful accounts and continues to use historical loss rates from prior stable years. Which external factor should the auditor prioritize in the risk assessment?
  5. An issuer is being audited under PCAOB standards. The auditor uses data analytics on the cash disbursements population after converting the client's export to audit software; the auditor notices that check numbers are not sequential and that some payments show a blank vendor ID, which could indicate incomplete extraction. What action should the auditor take to ensure data integrity before relying on the analytics results to identify anomalies?
  6. A nonissuer hospitality group requests an initial audit. The group has experienced frequent turnover in its accounting department and has multiple cash-intensive locations, increasing fraud risk. Management proposes that the engagement letter exclude any reference to management's responsibility to provide access to all information, citing "confidentiality." What should be included in an engagement letter for this client?
  7. You are the auditor of a nonissuer manufacturing company in a financial statement audit. During interim testing, you identify that the controller both sets up new vendors and approves vendor master changes, and you note two instances where vendor bank account changes were processed without independent review; management states the process is efficient and does not plan to change it. The audit is otherwise on schedule and you plan to rely on controls over disbursements. What is the auditor's responsibility in communicating this issue?
  8. You are assigned to the audit of a nonissuer insurance agency. The engagement partner is a close personal friend of the client's CEO and frequently socializes with the CEO during the audit, including discussing audit issues informally at social events. Which factor would most likely affect the auditor's objectivity?
  9. During the audit of an issuer, the engagement team learns the firm's retirement plan holds a diversified mutual fund that includes a small allocation to the issuer's stock. The fund is not managed by the firm and participants cannot direct investments into individual securities within the fund. How should the auditor address this under SEC/PCAOB independence rules?
  10. A firm is engaged to audit a multiemployer benefit plan subject to Department of Labor reporting. The plan administrator offers the engagement partner two tickets to a sporting event valued at $450 total as a thank-you during fieldwork, and the partner accepts. Under DOL-related independence considerations for ERISA plan audits, which situation would impair auditor independence?
  11. While obtaining an understanding of a new client, an auditor learns that the company has experienced unusually high turnover in its senior accounting positions over the past two years. This condition most likely indicates an increased risk of:
  12. A firm audits an ERISA plan under Department of Labor requirements. The auditor is asked to serve as the plan's trustee for a short period to help transition between trustees. Under DOL requirements, which situation would impair auditor independence?
  13. A practitioner is planning an audit of a nonissuer retail chain with significant cash sales and high employee turnover. The entity uses point-of-sale systems, but store managers can override prices and issue refunds without secondary approval. What risk factor should the auditor focus on when assessing fraud risks related to revenue?
  14. For a nonissuer entity, the auditor's responsibility for reviewing subsequent events for an audit of financial statements ordinarily is limited to the period of time:
  15. When planning an audit of financial statements prepared on a special purpose framework, the auditor must modify the standard engagement letter. The engagement letter should refer to:
  16. A bank requires a borrower to provide a report from its independent auditor on compliance with certain restrictive debt covenants. This report is to be issued in conjunction with the annual financial statement audit. The auditor's report on compliance should most appropriately be structured to do which of the following?
  17. A client's fiscal year-end is December 31. The user auditor obtains a SOC 1, Type 2 report from the client's primary transaction processor that covers the period October 1 of the prior year through September 30 of the current year. To use this report as evidence supporting a low assessed level of control risk, the user auditor must:
  18. A client holds a significant investment in a security that is not actively traded and is valued using an internal pricing model (a Level 3 fair value measurement). Which substantive procedure would be most appropriate for the auditor to perform?
  19. You are performing a nonissuer audit and using data analytics to identify duplicate payments. Management provided an extract of the disbursements table, and your analytics identified many potential duplicates based on same vendor, amount, and date; however, you later learned the extract excluded manual checks processed outside the system. Which factor would most likely affect the auditor's assessment of evidence sufficiency?
  20. During an audit of a nonissuer construction contractor, the auditor identifies that management used an incorrect cost-to-cost percentage in applying the percentage-of-completion method, overstating contract revenue by $520,000 and understating contract assets by $520,000. Overall materiality is $600,000; the error affects a key performance metric used in management bonuses. What is the most appropriate procedure to evaluate the misstatement?

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