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Practice Test 5 - CPA Auditing & Attestation (AUD)

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

  1. A nonissuer technology startup is undergoing a review engagement under AICPA standards. Management reports a significant increase in deferred revenue, but refuses to provide customer contracts, stating they are "confidential," and instead offers a summary spreadsheet. Based on the evidence, what is the accountant's best course of action?
  2. When an auditor has identified events that may cast significant doubt on an entity's ability to continue as a going concern, the auditor should obtain a written representation from management regarding which of the following?
  3. What is the most direct risk the auditor should infer from this output?
  4. In an audit of a nonissuer professional services firm, the auditor identifies an unrecorded $380,000 contingent liability that is probable and reasonably estimable. Overall materiality is $450,000; the liability would reduce pretax income from $520,000 to $140,000. Management refuses to record the accrual but offers to add a disclosure only. What type of report modification should be considered due to the misstatement?
  5. A nonissuer entity is undergoing a financial statement audit under AICPA standards. The auditor is not independent due to providing prohibited nonattest services without appropriate safeguards, and the lack of independence exists throughout the period of the professional engagement. The auditor is asked whether a modified opinion can be issued. What is the most appropriate action for the auditor to take?
  6. A company's management agrees to all the preconditions for an audit in writing. However, during preliminary discussions, the auditor learns that the company's legal counsel has instructed management not to provide the auditor with any information regarding pending litigation. This restriction would most likely cause the auditor to:
  7. During the audit of a nonissuer, the lead engagement partner discovers a direct financial interest in the client that impairs independence under the AICPA Code of Professional Conduct. The interest was held for the majority of the period under audit. What action must the auditor take regarding the audit report?
  8. A nonissuer client requests an initial audit. The client's board is dominated by the founder, and there is significant risk of management override. Your firm learns that the client is involved in ongoing litigation that could be material. Which factor is most critical when deciding to accept this engagement?
  9. In a probability-proportional-to-size (PPS) sample with a sampling interval of $20,000, an auditor selected a customer account with a recorded balance of $5,000. The auditor determined the correct audited value of the account was $4,000. What is the projected misstatement for this sampling unit?
  10. Which of the following is generally considered the most persuasive alternative audit procedure for a non-responding positive accounts receivable confirmation?
  11. You are auditing a nonissuer insurance agency under AICPA standards. A new state regulation requires enhanced disclosure of commission arrangements and prohibits certain contingent commissions, and competitors have changed compensation structures accordingly. Management has not updated its revenue recognition and disclosure for commissions earned under revised contracts. Based on the regulatory change, which audit adjustment is necessary?
  12. An auditor is evaluating management's significant accounting estimate for a contingent liability. The auditor determines that there is a wide range of reasonable outcomes, and management's estimate is at the most aggressive, optimistic end of that range. To properly exercise professional skepticism, the auditor's most appropriate action would be to:
  13. Under the AICPA's 'Integrity and Objectivity Rule,' what is the accountant's primary responsibility in this situation?
  14. A nonissuer technology company is being audited and uses a third-party billing platform to generate customer invoices and calculate sales tax. The SOC 1 Type 2 report covers the full year and notes a deficiency in controls over sales tax rate updates; the report also specifies that the user entity must review monthly tax rate change logs. How does the SOC 1 report affect the auditor's risk assessment?
  15. In the context of an engagement quality review for an audit of an issuer, which of the following is a specific requirement under PCAOB standards that differs from the requirements under AICPA Statements on Quality Management?
  16. You are engaged to perform a financial statement compilation for a nonissuer closely held retailer, and management asks you to help "clean up" the books by proposing journal entries and also to speak directly with the two-member board about the company's weak cash controls. You become aware that the bookkeeper both receives cash and performs the bank reconciliation, and there is no evidence of fraud but the risk is elevated. Based on the accountant's findings, what should be communicated to those charged with governance?
  17. In a financial statement audit of a nonissuer, you note that the controller prepares monthly bank reconciliations and the owner reviews them by initialing and dating the reconciliation and investigating unusual reconciling items. You plan to rely on this monitoring control to reduce substantive testing of cash. Under these circumstances, what is the auditor's best approach to test the operating effectiveness of the owner's review?
  18. A publicly traded company (an issuer) is required to have its financial statements audited and also needs the auditor to report on the effectiveness of internal control over financial reporting as of year-end. The auditor will plan and perform an integrated approach and issue two opinions. Which engagement is required in this situation?
  19. Which of the following circumstances would most likely cause an auditor to determine that the two-way communication between the auditor and those charged with governance is not adequate for the purpose of the audit?
  20. When is the accountant's review report typically dated?

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