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Practice Test 6 - CPA Auditing & Attestation (AUD)

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

  1. An auditor is using probability-proportional-to-size (PPS) sampling to confirm accounts receivable. How should the auditor typically address the problem of accounts with zero or negative balances that require testing for completeness?
  2. A staff accountant on the attest engagement team for a nonissuer client inherits a small number of shares of the client's stock, representing an immaterial direct financial interest. To comply with the AICPA Code of Professional Conduct, what action is required?
  3. The relationship between the overall audit strategy and the detailed audit plan is best described as:
  4. A client's pension liability estimate is calculated by a third-party service organization. The client provides the auditor with a SOC 1, Type 2 report from the service organization. In using this report to audit the reasonableness of the pension liability, the user auditor's responsibility includes:
  5. This observed pattern should cause the auditor to increase professional skepticism and design additional procedures related to:
  6. You are the auditor of a nonissuer in a financial statement audit. Management's year-end inventory obsolescence reserve is based on an aging report as of two months before year end, and the company experienced a significant product recall one week after year end that management asserts relates only to post-year-end manufacturing. Which procedure should the auditor apply to test the reasonableness of the estimate?
  7. When an audit organization is part of a government entity, GAGAS requires special consideration of independence. To be considered independent for reporting externally, the government audit organization must meet several criteria. Which of the following is one of those criteria?
  8. In an issuer audit, you obtained evidence about litigation contingencies through inquiry of management and review of internal legal summaries prepared by the general counsel. Management is reluctant to authorize a legal letter to external counsel, stating it is unnecessary. What is the most appropriate method for ensuring evidence sufficiency regarding completeness of litigation and claims?
  9. An auditor is conducting an audit of an issuer financial services company with significant allowance for credit losses (current expected credit losses model). Management provides an overly optimistic macroeconomic forecast and emphasizes that a higher allowance would negatively affect executive compensation tied to earnings per share. Which condition would most likely compromise the auditor's skepticism?
  10. An auditor chose to document their understanding of a small client's straightforward payroll process using a narrative memorandum. For the documentation to be considered sufficient under auditing standards, the narrative should:
  11. A CPA is conducting a GAO audit of a small township. The township clerk asks the auditor to reconcile the bank accounts each month and investigate discrepancies because no one on staff has time. The clerk will sign off but does not understand the reconciliations. Which factor indicates a threat to independence under GAO standards?
  12. An issuer is undergoing an integrated audit of financial statements and internal control over financial reporting (ICFR). The issuer outsources accounts receivable (A/R) billing and cash application to a service organization; the SOC 1 Type 2 report identifies a deviation rate above tolerable for controls over posting cash receipts to customer accounts and notes the issuer must perform daily reconciliation of the service organization's cash application file to bank activity as a complementary user entity control. Which action should the auditor take based on SOC 1 findings?
  13. You are the auditor of a nonissuer in a financial statement review. The entity implemented a new subscription billing model with variable consideration and offers customers the ability to upgrade mid-term. Management's revenue recognition memo references system-generated invoices but does not describe how contract modifications flow through the billing platform to the general ledger. What factor most likely affects the auditor's documentation of business processes?
  14. Which of these findings should have the most significant influence on the direction of the audit?
  15. During an audit of a nonissuer manufacturer, the auditor uses outlier identification on inventory turnover by stock-keeping unit (SKU) and finds 14 SKUs with turnover below 0.2 (compared to a median of 4.1), and 6 of those SKUs have no recorded sales in the last 11 months but are still carried at standard cost with no reserve. Management asserts the items are "strategic" and will be sold next year. Based on the data analysis, which conclusion is most appropriate?
  16. When auditing a complex accounting estimate, such as a warranty liability, an auditor must evaluate the sufficiency and appropriateness of the evidence supporting it. Which of the following procedures would provide the most persuasive evidence regarding management's estimate?
  17. You are the senior on a nonissuer audit engagement. Management pressures you to reduce the allowance for doubtful accounts estimate to meet a bank covenant and suggests the firm will be replaced if you do not "be flexible," despite audit evidence supporting a higher allowance. What measure should be taken to address the integrity challenge?
  18. You are auditing an issuer. The audit committee asks whether the engagement team had any significant disagreements with management during the audit. There were disagreements about the classification of certain expenses, but management ultimately accepted the auditor's position. What is the auditor's responsibility in communicating this issue?
  19. An auditor's planning procedures indicate that a client has a significant number of material, non-routine transactions with related parties. The detailed audit plan should include procedures specifically designed to:
  20. The most appropriate revision to the substantive portion of the audit plan would be to:

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