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Certified Public Accountant (CPA) - Auditing and Attestation (AUD) Exam 1

Certified Public Accountant (CPA) - Auditing and Attestation (AUD) Exam 4
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1 / 40
Which of the following audit procedures is used to gather evidence about the existence of recorded liabilities?
Reviewing purchase orders and receiving reports
Recalculating accrued expenses
Confirming liabilities with creditors
Tracing payments to the accounts payable ledger

Explanation: Confirming liabilities with creditors provides direct evidence about the existence of recorded liabilities.
2 / 40
An auditor is most likely to perform a substantive test of details for which of the following account balances?
All of the above
Accounts payable
Accounts receivable
Cash

Explanation: Substantive tests of details can be performed on various account balances, including cash, accounts receivable, and accounts payable, to verify their accuracy.
3 / 40
Which of the following audit procedures is used to gather evidence about the occurrence assertion for sales transactions?
Recalculation of sales revenue
Reviewing sales contracts
Confirming sales with customers
Tracing sales transactions to shipping documents

Explanation: Tracing sales transactions to shipping documents helps confirm that the sales actually occurred and are properly recorded.
4 / 40
Which of the following procedures is most appropriate to test the existence assertion for liabilities?
Recalculating interest on long-term debt
Inspecting purchase orders and contracts
Reviewing subsequent cash disbursements
Confirming liabilities with creditors

Explanation: Confirming liabilities with creditors provides direct evidence of the existence of recorded liabilities.
5 / 40
Which of the following is a key consideration when auditing the valuation of fixed assets?
Whether the assets are classified correctly in the financial statements
Whether the assets are recorded at historical cost or fair value
Whether the assets are depreciated in accordance with the client’s policy
Whether the assets are physically present and in use

Explanation: Auditing the valuation of fixed assets involves ensuring that assets are recorded at the appropriate valuation basis, either historical cost or fair value.
6 / 40
Which of the following is most likely to be considered a significant deficiency in internal controls related to financial reporting?
Insufficient documentation of minor control procedures
Inadequate segregation of duties in the finance department
Inefficient data entry procedures
Lack of formal policies for approving financial transactions

Explanation: Inadequate segregation of duties can lead to significant risks of material misstatement or fraud, making it a significant deficiency.
7 / 40
Which of the following is most likely to be an effective audit procedure for verifying the completeness of long-term debt?
Recalculating interest expense on long-term debt
Inspecting the client’s long-term debt agreements
Confirming long-term debt balances with lenders
Reviewing subsequent payments of long-term debt

Explanation: Reviewing subsequent payments helps identify any long-term debt that may not have been recorded as of the balance sheet date.
8 / 40
Which of the following assertions is addressed by testing the details of transactions and balances?
Existence
Valuation
All of the above
Completeness

Explanation: Testing the details of transactions and balances addresses assertions of existence, completeness, and valuation, among others.
9 / 40
Which of the following procedures would an auditor most likely use to verify the existence of property, plant, and equipment?
Recalculating depreciation expenses
Confirming balances with third parties
Inspecting physical assets
Reviewing purchase orders and invoices

Explanation: Inspecting physical assets helps confirm their existence and verify that they are recorded in the financial statements.
10 / 40
In assessing the risk of material misstatement related to revenue recognition, an auditor should consider:
The frequency of revenue transactions
The complexity of the client’s revenue transactions
The client’s credit policies
The client’s financial statement presentation

Explanation: The complexity of revenue transactions can increase the risk of material misstatement in revenue recognition, requiring thorough evaluation by the auditor.
11 / 40
Which of the following is a primary objective of performing a test of controls?
To verify the accuracy of financial statement balances
To evaluate the client’s compliance with regulatory requirements
To assess the overall reasonableness of financial statements
To determine whether control procedures are being followed and are effective

Explanation: Testing controls assesses whether the control procedures are properly implemented and effective in preventing or detecting material misstatements.
12 / 40
An auditor is assessing the risk of material misstatement related to inventory. Which of the following is a key consideration?
The client’s inventory valuation methods
The accuracy of inventory purchase orders
The existence of inventory items
The frequency of inventory counts

Explanation: Evaluating the client’s inventory valuation methods is crucial in assessing the risk of material misstatement related to inventory.
13 / 40
Which of the following procedures would be most appropriate to test the classification assertion for expenses?
Confirming expense amounts with vendors
Examining transactions for proper account coding
Comparing expense accounts to the general ledger
Reviewing the client’s expense reports

Explanation: Examining transactions for proper account coding helps ensure that expenses are classified correctly in the financial statements.
14 / 40
Which of the following procedures would an auditor perform to test the completeness assertion for accrued liabilities?
Inspecting invoices and contracts
Confirming balances with vendors
Reviewing subsequent disbursements
Analyzing trends in expenses

Explanation: Reviewing subsequent disbursements helps identify any accrued liabilities that may have been omitted from the financial statements.
15 / 40
Which of the following is an appropriate audit procedure to test the accuracy of a client’s accounts payable?
Inspecting purchase orders and receiving reports
Confirming accounts payable balances with suppliers
Reviewing the client’s payment history for unusual patterns
Recalculating the accounts payable aging report

Explanation: Confirming accounts payable balances with suppliers helps verify the accuracy of recorded amounts and ensures completeness.
16 / 40
Which of the following is most likely to be an indicator of a significant deficiency in internal control?
A well-established control environment
Regular internal audits and monitoring
Ineffective oversight of financial reporting
Lack of documentation for minor control activities

Explanation: Ineffective oversight of financial reporting is a significant deficiency as it can lead to material misstatements in the financial statements.
17 / 40
Which of the following is an example of a substantive procedure designed to test the valuation assertion for investments?
Recalculation of investment income
Confirming investment balances with third parties
Reviewing market prices and valuation methods
Inspecting investment documentation for purchase and sale

Explanation: Reviewing market prices and valuation methods helps ensure that investments are recorded at their appropriate value.
18 / 40
Which of the following is most likely to be an effective audit procedure for testing the accuracy of accounts receivable?
Confirming accounts receivable balances with customers
Inspecting sales contracts
Reviewing the aging of accounts receivable
Recalculating the bad debt expense

Explanation: Confirming accounts receivable balances with customers provides direct evidence of the existence and accuracy of receivables.
19 / 40
Which of the following audit procedures is most likely to be performed in the early stages of an audit engagement?
Reviewing subsequent events
Obtaining an understanding of the client’s internal controls
Performing substantive tests of transactions
Testing the accuracy of recorded transactions

Explanation: Understanding the client’s internal controls is typically performed early in the audit to plan and design further audit procedures.
20 / 40
What is the primary objective of performing analytical procedures during the planning phase of an audit?
To assess the client’s compliance with accounting standards
To evaluate the effectiveness of internal controls
To identify areas of potential material misstatement
To determine the sample size for audit tests

Explanation: Analytical procedures in the planning phase help identify areas with higher risk of material misstatement, guiding the audit plan.
21 / 40
Which of the following is a key control to ensure the accuracy of payroll transactions?
Segregation of duties among payroll processing staff
Regular reconciliation of payroll records to bank statements
Approval of payroll by department heads
Maintenance of accurate employee records

Explanation: Segregation of duties helps prevent errors or fraud in payroll processing by ensuring that different individuals handle different aspects of payroll.
22 / 40
When assessing the risk of material misstatement due to fraud, an auditor should consider:
The financial statement presentation
The effectiveness of audit procedures performed
The nature and extent of significant accounting estimates
The client’s internal control environment

Explanation: The client’s internal control environment is crucial in assessing the risk of material misstatement due to fraud.
23 / 40
Which of the following is most likely to be an indication of a significant risk when performing an audit?
Consistent application of accounting principles
Effective oversight by the audit committee
Significant changes in the client’s accounting policies
Management’s commitment to maintaining strong internal controls

Explanation: Significant changes in accounting policies may indicate risks of material misstatement or complexity in financial reporting, requiring closer scrutiny by the auditor.
24 / 40
Which of the following is the primary purpose of testing the effectiveness of controls over financial reporting?
To assess the overall accuracy of the financial statements
To verify the existence of recorded transactions
To evaluate whether controls are designed and operating effectively
To determine the nature, timing, and extent of substantive tests

Explanation: Testing the effectiveness of controls ensures that they are properly designed and operating as intended to prevent or detect material misstatements.
25 / 40
Which of the following is an example of a substantive test of detail?
Performing a risk assessment to identify areas of high risk
Confirming bank balances with the client’s bank
Reviewing the client’s control procedures over cash disbursements
Analyzing trends in revenue and expenses

Explanation: Confirming bank balances with the bank is a substantive test of detail that provides evidence about the existence and accuracy of cash balances.
26 / 40
What is the primary purpose of an auditor performing a walkthrough of a transaction process?
To verify the existence of recorded transactions
To test the effectiveness of internal controls
To obtain an understanding of the transaction process and controls
To evaluate the overall presentation of financial statements

Explanation: Performing a walkthrough helps the auditor understand the transaction process and related controls to design appropriate audit procedures.
27 / 40
Which of the following procedures would an auditor perform to verify the accuracy of recorded sales transactions?
Confirming balances with customers
Tracing transactions from source documents to the sales journal
Reviewing sales contracts
Recalculating sales revenue totals

Explanation: Tracing transactions from source documents to the sales journal verifies the accuracy and completeness of recorded sales transactions.
28 / 40
When evaluating the appropriateness of accounting estimates, an auditor should focus on:
The reasonableness of the assumptions and methods used
The accuracy of calculations involved in the estimate
The completeness of the disclosures related to the estimates
The historical performance of the estimates

Explanation: Evaluating accounting estimates involves assessing whether the assumptions and methods used are reasonable and appropriate.
29 / 40
Which of the following procedures would be most appropriate for verifying the classification assertion of an asset?
Inspecting supporting documentation for transactions
Confirming the existence of the asset with third parties
Reviewing the client’s accounting policies and practices
Tracing transactions to the general ledger

Explanation: Reviewing the client’s accounting policies and practices helps ensure that assets are classified correctly according to relevant standards.
30 / 40
Which of the following best describes the purpose of performing a risk assessment during an audit?
To identify areas with higher risks of material misstatement
To evaluate the effectiveness of internal controls
To determine the sample size for audit testing
To assess compliance with accounting standards

Explanation: Risk assessment helps auditors identify areas with higher risks of material misstatement so that they can tailor their audit procedures accordingly.
31 / 40
What is the primary purpose of testing the design and implementation of internal controls?
To assess the risk of material misstatement
To gather evidence about the accuracy of financial statements
To evaluate whether controls are in place and functioning as intended
To determine if controls are operating effectively

Explanation: Testing the design and implementation of internal controls assesses whether controls are appropriately established and functioning as intended.
32 / 40
An auditor’s primary concern when testing the presentation and disclosure assertion is to:
Verify the accuracy of financial statement amounts
Confirm the existence of assets and liabilities
Evaluate the effectiveness of internal controls
Ensure that financial statements are presented fairly and disclosures are adequate

Explanation: Testing the presentation and disclosure assertion ensures that financial statements are presented fairly and that all required disclosures are included.
33 / 40
Which of the following is an example of a substantive test for accounts payable?
Confirming accounts payable balances with suppliers
Inspecting purchase orders and receiving reports
Observing the physical inventory count
Reviewing internal controls over payment processing

Explanation: Confirming accounts payable balances with suppliers provides direct evidence of the existence and accuracy of recorded payables.
34 / 40
Which of the following audit procedures is most likely to be performed to verify the existence of cash and cash equivalents?
Reviewing internal controls over cash handling
Inspecting bank statements and reconciliations
Recalculating interest income on cash accounts
Confirming cash balances with banks

Explanation: Confirming cash balances with banks provides direct evidence of the existence and accuracy of cash and cash equivalents.
35 / 40
Which of the following is a primary concern when auditing the completeness of revenue transactions?
Evaluating the client’s revenue recognition policies
Ensuring all revenue transactions are recorded
Confirming revenue balances with customers
Verifying the accuracy of recorded revenue amounts

Explanation: The completeness of revenue transactions focuses on ensuring that all transactions are recorded and nothing is omitted.
36 / 40
Which of the following is most likely to be an indicator of a material misstatement due to fraud in revenue recognition?
Frequent changes in revenue recognition policies
Consistent revenue growth
Regular monitoring of revenue transactions
Effective internal control procedures

Explanation: Frequent changes in revenue recognition policies can be an indicator of attempts to manipulate financial results or misstate revenue.
37 / 40
When an auditor identifies a control deficiency, what is the first step they should take?
Report the deficiency to management and the audit committee
Document the deficiency in the audit work papers
Assess its impact on the financial statements
Determine the need for additional audit procedures

Explanation: The first step is to document the control deficiency in the audit work papers to ensure it is properly recorded and communicated.
38 / 40
Which of the following is a key audit consideration when assessing the valuation of accounts receivable?
The existence of significant uncollected balances
The accuracy of customer confirmations
The reasonableness of the allowance for doubtful accounts
The completeness of recorded receivables

Explanation: Assessing the reasonableness of the allowance for doubtful accounts is crucial in evaluating the valuation of accounts receivable.
39 / 40
Which of the following assertions is most directly related to an audit procedure that involves inspecting invoices and purchase orders?
Rights and obligations
Completeness
Valuation
Existence

Explanation: Inspecting invoices and purchase orders helps ensure that all transactions are recorded, addressing the completeness assertion.
40 / 40
When an auditor assesses the risk of material misstatement at the financial statement level, they focus on:
Testing the effectiveness of individual control procedures
Evaluating the overall presentation of the financial statements
Understanding the entity’s control environment and risk assessment process
Identifying significant deficiencies in internal control

Explanation: Assessing risk at the financial statement level involves understanding the entity’s control environment and risk assessment processes to identify potential risks of misstatement.
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