Practice Test 4 - 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. When planning to use internal auditors to provide direct assistance on an audit of a nonissuer, the external auditor is required to obtain which of the following?
2. When designing the audit response for a significant risk, the auditor must perform which of the following?
3. An auditor is most concerned with the completeness assertion for long-term debt. Which substantive procedure would be most effective in addressing this concern?
4. A CPA is engaged to audit the financial statements of a nonissuer retailer under AICPA GAAS. During the audit, management restricts the auditor from confirming accounts receivable and the auditor cannot perform alternative procedures to obtain sufficient appropriate evidence for a balance that is material and pervasive. No other issues are noted. Under these circumstances, what should the auditor conclude regarding the audit opinion?
5. When planning the audit, the auditor's assessment of this external regulatory change should result in an increased focus on:
6. You are performing an audit of a nonissuer manufacturer and plan to use sampling to test depreciation expense by examining additions to property, plant, and equipment (PP&E) for proper capitalization and start dates. The PP&E addition population is 420 items totaling $12.5 million, and the entity has inconsistent documentation for smaller tools and equipment. The auditor wants to reduce the risk of missing large misstatements while still covering the full population. Which sampling method should the auditor use?
7. A software-as-a-service (SaaS) company has a material estimate for deferred implementation revenue. The auditor notes that the key assumption in the estimate is the average length of a customer relationship. Which audit procedure would be most effective for evaluating the reasonableness of this assumption?
8. This output should lead the auditor to design further tests that are primarily focused on the risk of:
9. The accountant's standard report on a review of a nonissuer's financial statements should state that a review is substantially less in scope than:
10. An auditor is designing a substantive test of details using a nonstatistical sampling plan for accounts receivable. Which of the following combinations of factors would lead to the largest required sample size?
11. An issuer manufacturing company is audited under PCAOB standards, including an audit of internal control over financial reporting. The auditor identifies a control deficiency where management's compliance monitoring over environmental regulations is not designed to identify violations that could lead to material remediation liabilities, and a recent violation has occurred. Management argues the control is "operational" and not relevant to internal control over financial reporting. Which compliance reporting action should the auditor take?
12. In an audit of a nonissuer under AICPA auditing standards, the auditor assesses a high risk of material misstatement for inventory valuation due to volatile commodity prices and a history of slow-moving items. The client's perpetual records are unreliable, and management performed a year-end reserve calculation using a new spreadsheet model that lacks documented review. Overall materiality is $900,000, and inventory is $6.5 million. Which substantive procedure would be most effective given the assessed risk?
13. You are auditing a nonissuer with a portfolio of corporate bonds measured at fair value. At year-end, market volatility increased and bid-ask spreads widened; management selected the midpoint price from a pricing service without evaluating whether it represents an exit price. Internal controls do not require assessing market activity levels. In the context of fair value measurement, which procedure is most appropriate?
14. You are auditing a nonissuer hospitality company. The company has recurring losses, negative operating cash flows, and a $6 million loan due in 7 months; the lender has provided a written indication it will consider refinancing but has not issued a commitment letter. Management's forecast assumes refinancing occurs and also assumes a 20% increase in occupancy without signed group bookings. Based on the financial conditions, what should the auditor consider in evaluating going concern?
15. In the planning phase of an audit of a nonissuer manufacturer, the auditor notes that inventory is stored at multiple third-party logistics warehouses and the entity implemented a cycle-count program this year. The cycle counts are performed by warehouse staff, and management reviews exception reports monthly but does not perform periodic independent test counts. Which planning procedure is most appropriate?
16. You are performing a nonissuer financial statement audit of a manufacturer that uses a standard-cost system and records variances monthly. The production department issues materials based on paper pick tickets, and inventory adjustments are posted by cost accounting after receiving emails from the plant. You observe unexplained inventory write-offs and delayed variance analysis. What is the primary business process impacting financial reporting risk?
17. A nonissuer utility company is audited under AICPA standards and prepares financial statements on a regulatory basis required by a state public utility commission. The regulatory basis is acceptable for the purpose, and disclosures are adequate. What modification is required for the auditor's report?​​
18. The management of an issuer client has omitted the Management's Discussion and Analysis (MD&A) section required by the SEC to be presented with the audited annual financial statements. The auditor has completed the audit of the financial statements and found no material misstatements. What is the effect on the auditor's report on the financial statements?
19. What is the direct consequence of setting a lower planning materiality level for the new client?
20. A nonissuer agricultural cooperative is engaged for an examination-level attestation engagement under AICPA standards on compliance with a debt service coverage ratio covenant. The cooperative's chief executive officer insists the practitioner use management's covenant calculation worksheet without testing underlying data, citing "tight reporting deadlines to the bank." What action should the practitioner take to mitigate this skepticism threat?

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