CPA Auditing and Attestation (AUD) : CPA Auditing and Attestation (AUD)
Study concepts, example questions & explanations for CPA Auditing and Attestation (AUD)
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Example Questions
Example Question #1 : Sampling
While performing a test of details during an audit, an auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated. It was in fact not materially misstated. This situation illustrates the risk of:
Assessing control risk too low
Incorrect acceptance
Assessing control risk too high
Incorrect rejection
Incorrect rejection
Erroneously concluding that an account balance is materially misstated is an example of incorrect rejection.
Example Question #2 : Sampling
When conducting testing of various data areas during an audit, the auditor should uniformly use the same sample selection procedures for each testing unit.
True, when it facilitates the audit
False, there is a set procedure for how to proceed by the AICPA
True, only when the client advises this
False, the auditor should assess the best way of sampling each data set
False, the auditor should assess the best way of sampling each data set
Each data set to be tested requires a customized well thought out sampling and testing approach that allows the auditor to examine testing areas properly.
Example Question #1 : Revenue Cycle
An example of an internal control procedure regarding the sale of an item on credit.
Management would check the vendor address
Management would ensure vendor has an active tax ID Number
Management would review terms of sale
Management would check the vendor account number
Management would review terms of sale
In this scenario, management would review the terms of sale. The other choices are controls over the procurement cycle.
Example Question #1 : Cash Cycle, Revenue Cycle, And Expenditure Cycle
Management would ensure proper segregation of duties by:
Making sure employees don’t record Accounts Receivable
Making sure employees don’t bill customers
Making sure employees don’t deposit cash
Making sure employees don’t both make adjusting entries and prepare statements
Making sure employees don’t both make adjusting entries and prepare statements
Items b, c, and d would be appropriate job duties for specific employees. Combining the preparation of adjusting entries with financial statements would be a departure from internal control.
Example Question #2 : Cash Cycle, Revenue Cycle, And Expenditure Cycle
To ensure all transactions were included in financial statements
none of the above
Any receivable not collected is evaluated subsequent to year end
Receivables are tested on an interim basis
All receivables are collected
Any receivable not collected is evaluated subsequent to year end
A subsequent test of accounts receivable is necessary to determine that all accounts receivable were included in the financial statements. The auditors will test subsequent receipts to determine if the revenue transaction was included in the appropriate period.
Example Question #1 : Cash Cycle, Revenue Cycle, And Expenditure Cycle
Tests designed to detect credit sales made before the end of the year that has been recorded in the subsequent year provide assurance about management's assertion regarding:
Existence
Classification
Accuracy
Cutoff
Cutoff
Cutoff tests are designed to determine whether transactions have been recorded in the proper period. Tests to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about both cutoff and completeness.
Example Question #5 : Revenue Cycle
An auditor is required to confirm A/R if the A/R balances are:
Smaller than expected
Older than the prior year
Subject to valuation estimates
Material to the financial statements
Material to the financial statements
The use of audit confirmations for an entity;'s A/R is a required GAAP procedure if the A/R balances are deemed material to the balance sheet.
Example Question #6 : Revenue Cycle
Kiting and lapping are methods of potential fraud that would be discovered in which business cycle?
Investment cycle
Expenditure cycle
Cash cycle
Inventory cycle
Cash cycle
These types of fraud would be cash related frauds as they require the movement of cash.
Example Question #1 : Cash Cycle, Revenue Cycle, And Expenditure Cycle
Proper segregation of duties requires that
The receiving clerk signs the purchase order
Purchase requests are generated by the purchasing agent
The purchasing agent does not prepare purchase orders
Bank reconciliations are not done by those in charge of disbursements
Bank reconciliations are not done by those in charge of disbursements
Proper segregation of duties requires that bank reconciliations are prepared by those employees not associated with disbursing funds.
Example Question #3 : Cash Cycle, Revenue Cycle, And Expenditure Cycle
Physical control over those in charge of disbursement would be:
Bank reconciliations are performed timely
Employees in charge of cash disbursements are bonded
Proper authorization by a supervisor
Proper review of timecards are established
Employees in charge of cash disbursements are bonded
Physical control is not associated with procedures. The use methods to protect assets such as physical barriers and mitigating activities such as insurance. The other examples are procedural internal control methods.
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