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Practice Test 8 - CPA Auditing & Attestation (AUD)

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

  1. During an issuer audit, the auditor finds that management's key control over revenue includes a quarterly reconciliation between the billing system and the general ledger. However, the reconciliation is performed only at quarter-end, and the fourth-quarter reconciliation was not completed before year-end close due to system downtime. Revenue is material and subject to fraud risk. How should the auditor respond to the control deficiency identified?
  2. An auditor was engaged to audit and report only on the balance sheet of a nonissuer. The auditor was able to obtain sufficient appropriate audit evidence and concluded that the balance sheet is presented fairly in all material respects in accordance with GAAP. The auditor's report should contain a(n):
  3. You are auditing an issuer and run anomaly detection on journal entries. Analytics identify a cluster of manual entries posted on the last day of the year by a senior finance user, with descriptions referencing "reclass" and "true-up," and entries frequently posted to revenue and accrued liabilities without standard support; this affects revenue, liabilities, and the risk of management override. What is the most appropriate audit response to the identified anomaly?
  4. To gather evidence regarding the existence of a client's material inventory stored in a public warehouse, the auditor should ordinarily:
  5. A group audit for a nonissuer is conducted under AICPA standards. A component representing 25% of total assets is audited by a local firm that is not part of the group auditor's network. The component auditor has a strong reputation, but the group auditor has not previously worked with them and cannot access certain workpapers due to local confidentiality laws. Based on the auditor's assessment, which factor should influence the reliance on component auditors?
  6. A prospective issuer client requests your firm to perform an initial audit and states it wants to also engage your firm to design and implement its financial reporting controls before year-end. The company operates in a regulated industry and has significant compliance risks. Which factor is most critical when deciding to accept this engagement?
  7. An issuer is undergoing an integrated audit under PCAOB standards. During the audit, the auditor identifies a pervasive revenue recognition error that materially overstates revenue and net income, and management refuses to correct the financial statements. The auditor obtained sufficient appropriate audit evidence and also identified material weaknesses in internal control over financial reporting. Under these circumstances, what should the auditor conclude regarding the audit opinion on the financial statements?
  8. During an audit of a nonissuer with significant work-in-process inventory, you note that production reports used to assign labor hours are prepared by production supervisors and are not reviewed, and the same supervisors' bonuses are tied to reported efficiency. Inventory costing controls rely heavily on these reports. Which factor would most likely affect the auditor's assessment of inventory controls?
  9. A nonissuer construction company is audited under AICPA standards. Management's specialist (licensed professional engineer) provided an estimate of percentage-of-completion based on a cost-to-cost method for a material contract, including a revised estimate of total costs due to design changes. The specialist works for the company and reports to the project executive whose bonus is tied to gross margin. Which action should the auditor take when relying on a specialist's report?
  10. In reporting on a single audit performed under the Uniform Guidance, professional standards permit the auditor to combine which two of the following reports into a single, combined report?
  11. You are auditing a nonissuer distributor and learn that your firm's tax partner is simultaneously representing the client's majority owner in a personal dispute with a minority shareholder. The dispute involves allegations that the owner has diverted company assets, which could affect the financial statements. The audit engagement team was not previously aware of the representation. Which action should the auditor take to maintain independence?
  12. A nonissuer entity engages a CPA to perform an attestation examination on management's compliance report over a grant program. The compliance report includes a schedule of expenditures that does not agree to the audited financial statements, and the practitioner believes the schedule is materially misstated. Management refuses to correct the schedule. What is the most appropriate course of action for the practitioner?
  13. Based on the results of the test of controls described in the passage, what is the auditor's most appropriate conclusion?
  14. A prospective client is a nonissuer cryptocurrency trading business requesting an initial audit. The company operates in a rapidly changing regulatory environment and has significant risks around custody, valuation, and existence of digital assets. Management refuses to provide complete access to wallet addresses and third-party custody reports. Which factor is most critical when deciding to accept this engagement?
  15. A firm is performing an audit of an issuer company. Management pressures the engagement team to meet an accelerated reporting deadline and suggests that, because internal audit tested controls, the external auditor should reduce substantive testing without further evaluation; the engagement team is considering accepting this to avoid missing the filing date. What action should the auditor take to mitigate this skepticism threat?
  16. A user auditor received a SOC 1 report with a qualified opinion from the service auditor. The qualification relates to a material weakness in controls over transaction processing that existed throughout the entire reporting period. What is the most likely effect on the user auditor's audit plan?
  17. You are engaged to perform a review of interim financial information for an issuer. Due to a cybersecurity incident, management cannot provide complete reconciliations for key accounts by the agreed-upon review completion date, and you expect the review report issuance to be delayed by three weeks. The audit committee has asked whether the delay is "just administrative." Which information should the auditor prioritize in communication with governance?
  18. You are performing a nonissuer financial statement audit. The client's monthly close includes manual journal entries prepared by the controller and posted by the same person due to staffing shortages, and several prior-year audit adjustments related to cutoff were recorded late. The auditor is determining how to document key business processes to assess risk and design further audit procedures. Based on the auditor's analysis, how should the business process be documented?
  19. When auditing an investment accounted for by the equity method, an auditor most likely would obtain evidence regarding the investee's financial performance by:
  20. A nonissuer engages you to perform an examination of management's compliance with a debt covenant ratio as of year-end under AICPA attestation standards (AT-C). Management will not provide the underlying loan agreement, and the bank will not confirm the covenant terms; you cannot determine the applicable criteria for the ratio. Which factors would most likely affect the report's conclusions?

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