Which of the following is NOT associated with increased security from using a VPN?

Which of the following is NOT associated with increased security from using a VPN?

a. The tunneling protocol
b. Remote access
c. Required username and password
d. Utilizes the same database and client software


Answer: b. Remote access

Which of the following is NOT a benefit of using a VPN?

Which of the following is NOT a benefit of using a VPN?

a. Security
b. Vulnerable to hacking
c. Mobile
d. Scalable


Answer: b. Vulnerable to hacking

What does VPN stand for?

What does VPN stand for?

a. Virtual Proxy Network
b. Virtual Private Network
c. Virtual Public Network
d. Verified Private Network


Answer: b. Virtual Private Network

What is the Internet of Things?

What is the Internet of Things?

A. It is in accounting firms.
B. It is in factories.
C. Most people have it in their homes.
D. All of the above.
E. None of the above.


Answer: D. All of the above.

How can the internet of things help the accounting profession?

How can the internet of things help the accounting profession?

A. It can provide an increase in efficiency via automation.
B. It can increase awareness in the profession of its obsolescence.
C. The technology can make nonelectric things more efficient.
D. All of the above.
E. None of the above


Answer: A. It can provide an increase in efficiency via automation.

What is the internet of things?

What is the internet of things?

A. A networks sales system like ebay or amazon.
B. A from of networked communication to build communities like facebook or twitter
C. Connecting any device with an one or off switch to the internet.
D. None of the above


Answer: C. Connecting any device with an one or off switch to the internet.

What ways do Governments plan to replace lost tax revenue?

What ways do Governments plan to replace lost tax revenue? 

a.Taxing digital blueprints?
b.Taxing intellectual property?
c.Niether A or B
d.Both A and B


Answer: d.Both A and B

What aspect of 3D printing are governments most concerned with?

What aspect of 3D printing are governments most concerned with? 

a. Taxation
b. Flattening of Supply Chains
c. Production of Counterfeits
d. Lack of Regulation


Answer: a. taxation

What can you print?

What can you print? 

a. Cars
b. Food
c. Organs
d. All of the Above


Answer: d. All of the Above

What best describes a Software-Defined Infrastructure?

What best describes a Software-Defined Infrastructure?

a. Computing infrastructure entirely under the control of software with no operator or human intervention
b. A branch of computer science dealing with the simulation of intelligent behavior in computers
c. A network that creates an additional layer of security over an insecure network when the network infrastructure cannot provide it
d. It is used to communicate with a database


Answer: a. Computing infrastructure entirely under the control of software with no operator or human intervention

What is the main function of a Software-Defined Infrastructure?

What is the main function of a Software-Defined Infrastructure?

a. Cost effectiveness
b. Efficiency
c. Transparency
d. Human Control


Answer: b. Efficiency

What are 3 benefits to a Software-Defined Infrastructure?

What are 3 benefits to a Software-Defined Infrastructure?

a. Performs multiple, difficult tasks at once
b. Saves time and effort
c. Lower cost of operations and higher utilization of their infrastructure
d. All of the above


Answer: d. All of the above

What is described as the most crucial phase of the Project Management Process?

What is described as the most crucial phase of the Project Management Process? 

A: Planning
B: Controlling
C: Executing
D: Initiation


Answer: D: Initiation

What is the most common, effective scheduling resource?

What is the most common, effective scheduling resource? 

A: Time Cards
B: G-Mail Calendar
C: Gantt Chart
D: Memorization


Answer: C: Gantt Chart

What are the five steps of project management?

What are the five steps of project management?

A: Initiation, Review, Acquire Supplies, Execute, Done
B: Initiation, Planning, Execution, Monitor & Control, Closing
C: Start, Talk to Employees, Implement, Review, Finish
D: Execute, Adapt, Discuss, Plan, Repeat


Answer: B: Initiation, Planning, Execution, Monitor & Control, Closing

The October 1, 2015, EMV Fraud Liability Shift:

The October 1, 2015, EMV Fraud Liability Shift:

a. Forced the adoption of e-Wallet technology by merchants
b. Increased the level of credit card fraud in the U.S.
c. Equipped many merchants with the technology to accept e-Wallet usage by prompting upgraded credit card readers
d. Made credit card fraud the sole responsibility of those who choose to use credit cards
e. Incentivized consumers to integrate e-Wallets in their purchasing patterns


Answer: c. Equipped many merchants with the technology to accept e-Wallet usage by prompting upgraded credit card readers

What is the difference between mobile banking and e-Wallets?

What is the difference between mobile banking and e-Wallets?

a. Mobile banking is more widely accepted at merchant locations
b. Mobile banking allows one to manage his or her bank account while e-Wallets store credit/debit cards, gift cards, and loyalty cards and can be used for purchases
c. There is no difference
d. Mobile banking is for external use while e-Wallets are for personal financial tracking
e. e-Wallets are newer and have not been adopted by consumers or merchants yet


Answer: b. Mobile banking allows one to manage his or her bank account while e-Wallets store credit/debit cards, gift cards, and loyalty cards and can be used for purchases

Mobile wallets can store which of the following:

Mobile wallets can store which of the following:

a. Loyalty cards
b. Gift cards
c. Credit Cards
d. Debit Cards
e. All of the above


Answer: e. All of the above

What is the impact of Bitcoin on accounting?

What is the impact of Bitcoin on accounting?

A. The IRS ruled Bitcoin should be treated like property and the profit should be recognized as a capital gain. Losses can offset the capital gain
B. If you own Bitcoin you should not pay taxes on them
C. Bitcoin need central authority like banks to approve the transactions
D. All Bitcoin transactions are reviewed by auditors
E. Bitcoins are like credit cards because every transaction is easily traceable


Answer: A. The IRS ruled Bitcoin should be treated like property and the profit should be recognized as a capital gain. Losses can offset the capital gain

Which of the following about Blockchain is false?

Which of the following about Blockchain is false?

A. Blockchain is created through several computers on a peer to peer network
B. Members of the network are anonymous individuals
C. Blockchain maintains a list of all transactions using User ID
D. Once a transaction Is recorded it can not be reversed
E. Blockchain has customer protection


Answer: E. Blockchain has customer protection

Which of the following about Bitcoin is false?

Which of the following about Bitcoin is false?

A. Bitcoin is a digital currency and a digital wallet stores the Bitcoin you own
B. Open sourced software called Blockchain is used to create the Bitcoin
C. People give up computer processing space to mine for Bitcoin
D. Bitcoin is currency that is legal in every country
E. Bitcoin is the first decentralized digital currency


Answer: D. Bitcoin is currency that is legal in every country

What is Project Loon?

What is Project Loon?

a. A network of balloons designed to bring Internet to remote areas
b. A way for Google to open up Internet markets to reach new customers.
c. A new way for Google to gather personal data for ad targeting
d. All of the above


Answer: d. All of the above

What is one advantage this project gives to Google?

What is one advantage this project gives to Google?

Answer: New users and ability to use this data for advertising

Where are the balloons positioned in the atmosphere?

Where are the balloons positioned in the atmosphere?

Answer: stratosphere

What type of radio band does Project Loon use to connect?

What type of radio band does Project Loon use to connect?

Answer: ISM bands

Which of the following is not an advantage of drones mentioned in class?

Which of the following is not an advantage of drones mentioned in class?

a. They can help with inventory management
b. They can film unethical decisions being made and catch the culprit
c. They are low cost
d. They can promote business through advertising


Answer: b. They can film unethical decisions being made and catch the culprit

Which of the following is not a restriction of drones mentioned in class?

Which of the following is not a restriction of drones mentioned in class?

a. Can't exceed 100 mph
b. Can't be flown over people
c. Have to be within a pilot's sight at all times
d. Have to be flown out of city limits


Answer: d. Have to be flown out of city limits

What is a drone?

What is a drone?

a. A database integrated by corporations
b. An unmanned aircraft
c. A wearable technology
d. Cloud security device


Answer: b. An unmanned aircraft

What is one reason hashing algorithms are helpful in encryption?

What is one reason hashing algorithms are helpful in encryption?

a. They allow the key to be longer so there are more possibilities for the key
b. They make it so the output of the algorithm can help uniquely identify the input
c. They can be used with any type of input
d. They make it so the input of the algorithm cannot be easily identified from the output


Answer: d. They make it so the input of the algorithm cannot be easily identified from the output

Why do some companies, such as Google, choose not to encrypt their data?

Why do some companies, such as Google, choose not to encrypt their data?

a. It is too time consuming
b. Government compliance reasons
c. It is too expensive
d. Requires specific IT professionals


Answer: b. Government compliance reasons

What are the two types of encryption?

What are the two types of encryption?

a. Private and public
b. Government and commercial
c. Symmetric and public-key
d. Symmetric and freeform


Answer: c. Symmetric and public-key

In an engagement to express an opinion on one or more specified elements, accounts, or items of a financial statement, the auditor can generally audit only those specified elements and not the entire set of financial statements. However, the auditor is required to audit the entire set of financial statements if the elements specified include

In an engagement to express an opinion on one or more specified elements, accounts, or items of a financial statement, the auditor can generally audit only those specified elements and not the entire set of financial statements. However, the auditor is required to audit the entire set of financial statements if the elements specified include 

A. Net Income.
B. Stockholders' Equity.
C. Net Income and Stockholders' Equity.
D. Assets.


Answer: Net Income and Stockholders' Equity.

In which of the following situations would an auditor ordinarily choose between expressing an "except for" qualified opinion and expressing an adverse opinion?

In which of the following situations would an auditor ordinarily choose between expressing an "except for" qualified opinion and expressing an adverse opinion? 

A. The auditor did not observe the entity's physical inventory and is unable to become satisfied as to its balance by other auditing procedures.
B. The financial statements fail to disclose information that is required by generally accepted accounting principles.
C. The auditor is asked to report only on the entity's balance sheet and not on the other basic financial statements.
D. Events disclosed in the financial statements cause the auditor to have substantial doubt about the entity's ability to continue as a going concern.


Answer: The financial statements fail to disclose information that is required by generally accepted accounting principles.

A scope limitation sufficient to preclude an unqualified opinion always will result when management

A scope limitation sufficient to preclude an unqualified opinion always will result when management 

A. Prevents the auditor from reviewing the working papers of the predecessor auditor.
B. Engages the auditor after the year-end physical inventory is completed.
C. Requests that certain material accounts receivable not be confirmed.
D. Refuses to provide a representation letter acknowledging its responsibility for the fair presentation of the financial statements in conformity with GAAP.


Answer: Refuses to provide a representation letter acknowledging its responsibility for the fair presentation of the financial statements in conformity with GAAP.

In the first audit of an entity, because of the entity's record retention policies, an auditor was not able to gather sufficient evidence about the consistent application of accounting principles between the current and the prior year, as well as the amounts of assets or liabilities at the beginning of the current year. If the amounts in question could materially affect current operating results, the auditor would

In the first audit of an entity, because of the entity's record retention policies, an auditor was not able to gather sufficient evidence about the consistent application of accounting principles between the current and the prior year, as well as the amounts of assets or liabilities at the beginning of the current year. If the amounts in question could materially affect current operating results, the auditor would 

A. Be unable to express an opinion on the current year's results of operations and cash flows.
B. Express a qualified opinion on the financial statements because of a client-imposed scope limitation.
C. Withdraw from the engagement and refuse to be associated with the financial statements.
D. Specifically state that the financial statements are not comparable to the prior year because of an uncertainty.


Answer: Be unable to express an opinion on the current year's results of operations and cash flows.

When there has been a change in accounting principle that materially affects the comparability of the comparative financial statements presented for a public company and the auditor concurs with the change, the auditor should

When there has been a change in accounting principle that materially affects the comparability of the comparative financial statements presented for a public company and the auditor concurs with the change, the auditor should

A. A.
B. B.
C. C.
D. D.


Answer: A

Cravens was asked to perform the first audit of a wholesale business that does not maintain perpetual inventory records. Cravens has observed the current inventory but has not observed the physical inventory at the previous year-end date and concludes that the opening inventory balance, which is not auditable, is a material factor in the determination of cost of goods sold for the current year. Cravens will probably

Cravens was asked to perform the first audit of a wholesale business that does not maintain perpetual inventory records. Cravens has observed the current inventory but has not observed the physical inventory at the previous year-end date and concludes that the opening inventory balance, which is not auditable, is a material factor in the determination of cost of goods sold for the current year. Cravens will probably 

A. Decline the engagement.
B. Express an unqualified/unmodified opinion on the balance sheet and income statement except for inventory.
C. Issue a disclaimer of opinion.
D. Issue an adverse opinion.


Answer: Issue a disclaimer of opinion.

An auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing audited financial statements. If the auditor concludes that the financial statements do not require revision, but the entity refuses to revise or eliminate the material inconsistency, the auditor may

An auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing audited financial statements. If the auditor concludes that the financial statements do not require revision, but the entity refuses to revise or eliminate the material inconsistency, the auditor may 

A. Issue an "except for" qualified opinion after discussing the matter with the entity's board of directors.
B. Consider the matter closed since the other information is not in the audited financial statements.
C. Disclaim an opinion on the financial statements after explaining the material inconsistency in a separate explanatory/emphasis-of-matter paragraph.
D. Revise the auditor's report to include a separate explanatory/emphasis-of- matter paragraph describing the material inconsistency.


Answer: Revise the auditor's report to include a separate explanatory/emphasis-of- matter paragraph describing the material inconsistency.

A special report related to compliance with contractual provisions provides

A special report related to compliance with contractual provisions provides 

A. Positive assurance.
B. Negative assurance.
C. No assurance.
D. None of these.


Answer: Negative assurance.

When expressing an opinion on a specified account or item in the financial statements, the auditor need only consider that account or item. However, the auditor must have audited the entire set of financial statements if this engagement requires a report on the entity's

When expressing an opinion on a specified account or item in the financial statements, the auditor need only consider that account or item. However, the auditor must have audited the entire set of financial statements if this engagement requires a report on the entity's 

A. Net income.
B. Retained earnings.
C. Assets.
D. Working capital.


Answer: Net income

An engagement to express an opinion on a system of internal control will generally

An engagement to express an opinion on a system of internal control will generally 

A. Only require those procedures already applied in assessing control risk during a financial statement audit.
B. Increase the reliability of the financial statements that have already been audited.
C. Be more extensive in scope than the assessment of control risk made during a financial statement audit.
D. Be more limited in scope than the assessment of control risk made during a financial statement audit.


Answer: Be more extensive in scope than the assessment of control risk made during a financial statement audit.

Which of the generally accepted auditing standards of reporting would not normally apply to special reports such as cash basis statements?

Which of the generally accepted auditing standards of reporting would not normally apply to special reports such as cash basis statements? 

A. First standard.
B. Second standard.
C. Third standard.
D. Fourth standard.


Answer: First standard.

An auditor's report on financial statements prepared in accordance with a basis of accounting other than generally accepted accounting principles should include all of the following except:

An auditor's report on financial statements prepared in accordance with a basis of accounting other than generally accepted accounting principles should include all of the following except: 

A. An opinion as to whether the basis of accounting used is appropriate under the circumstances.
B. An opinion as to whether the financial statements are presented fairly in conformity with the other basis of accounting.
C. Reference to the note to the financial statements that describes the basis of presentation.
D. A statement that the basis of presentation is a basis of accounting other than generally accepted accounting principles.


Answer: An opinion as to whether the basis of accounting used is appropriate under the circumstances.

When an auditor reports on financial statements prepared on an entity's income tax basis, the auditor's report should

When an auditor reports on financial statements prepared on an entity's income tax basis, the auditor's report should 

A. Be titled so that the financial statements are not confused with statements prepared to conform to generally accepted accounting principles.
B. Disclaim an opinion on whether the statements were examined in accordance with generally accepted auditing standards.
C. Not express an opinion on whether the statements are presented in conformity with the basis of accounting used.
D. Include an explanation of how the results of operations differ from the cash receipts and disbursements basis of accounting.


Answer: Be titled so that the financial statements are not confused with statements prepared to conform to generally accepted accounting principles.

All of the following are true with respect to the auditor's consideration of information other than the audited financial statements that are included in an entity's annual report except:

All of the following are true with respect to the auditor's consideration of information other than the audited financial statements that are included in an entity's annual report except: 

A. The auditor is under no obligation to perform audit procedures on this other information.
B. The auditor must consider whether the other information is consistent with the information contained in the audited financial statements.
C. The auditor must request that material inconsistencies be corrected.
D. The auditor must perform audit procedures on this other information.


Answer: The auditor must perform audit procedures on this other information.

What is an auditor's responsibility for supplementary information, such as segment information, that is outside the basic financial statements, but required by the FASB?

What is an auditor's responsibility for supplementary information, such as segment information, that is outside the basic financial statements, but required by the FASB? 

A. The auditor has no responsibility for required supplementary information as long as it is outside the basic financial statements.
B. The auditor's only responsibility for required supplementary information is to assist in preparing the supplementary information.
C. The auditor is required to read the other information and consider whether such information is consistent with the information in the financial statements.
D. The auditor should apply tests of details of transactions and balances to the required supplementary information and report any material misstatements in such information.


Answer: The auditor is required to read the other information and consider whether such information is consistent with the information in the financial statements.

When audited financial statements are presented in an entity's document containing other information, the auditor should

When audited financial statements are presented in an entity's document containing other information, the auditor should 

A. Perform inquiry and analytical procedures to ascertain whether the other information is reasonable.
B. Add an explanatory paragraph to the auditor's report without changing the opinion on the financial statements.
C. Perform the appropriate substantive auditing procedures to corroborate the other information.
D. Read the other information to determine that it is consistent with the audited financial statements.


Answer: Read the other information to determine that it is consistent with the audited financial statements.

When audited financial statements are presented in a document containing other information, the auditor

When audited financial statements are presented in a document containing other information, the auditor 

A. Has an obligation to perform auditing procedures to corroborate the other information.
B. Is required to issue an "except for" qualified opinion if the other information has a material misstatement of fact.
C. Should read the other information to consider whether it is inconsistent with the audited financial statements.
D. Has no responsibility for the other information because it is not part of the basic financial statements.


Answer: Should read the other information to consider whether it is inconsistent with the audited financial statements.

The auditor's best course of action with respect to "other financial information" included in an annual report containing the auditor's report is to

The auditor's best course of action with respect to "other financial information" included in an annual report containing the auditor's report is to 

A. Indicate in the auditor's report that the "other financial information" is unaudited.
B. Consider whether the "other financial information" is accurate by performing a limited review.
C. Obtain written representations from management as to the material accuracy of the "other financial information."
D. Read and consider the manner of presentation of the "other financial information."


Answer: Read and consider the manner of presentation of the "other financial information."

An auditor may reasonably issue an "except for" qualified opinion for

An auditor may reasonably issue an "except for" qualified opinion for 

A. A scope limitation or an unjustified accounting change.
B. A scope limitation, but not an unjustified accounting change.
C. An unjustified accounting change, but not a scope limitation.
D. Neither an unjustified accounting change nor a scope limitation.


Answer: A scope limitation or an unjustified accounting change.

A CPA who is not independent and is associated with financial statements should disclaim an opinion with respect to those financial statements. The disclaimer should

A CPA who is not independent and is associated with financial statements should disclaim an opinion with respect to those financial statements. The disclaimer should 

A. Clearly state the specific reasons for lack of independence.
B. Not mention any reason for the disclaimer other than that the CPA was unable to conduct the examination in accordance with generally accepted auditing standards.
C. Not describe the reason for lack of independence but should state specifically that the CPA is not independent.
D. Include a middle paragraph clearly describing the CPA's association with the entity and explaining why the CPA was unable to gather sufficient appropriate evidential matter to warrant the expression of an opinion.


Answer: Not describe the reason for lack of independence but should state specifically that the CPA is not independent.

When are an auditor's reporting responsibilities not met by attaching an explanation of the circumstances and a disclaimer of opinion to the entity's financial statement?

When are an auditor's reporting responsibilities not met by attaching an explanation of the circumstances and a disclaimer of opinion to the entity's financial statement? 

A. When the auditor believes the financial statements are misleading.
B. When the auditor was unable to observe the taking of the physical inventory.
C. When the auditor is uncertain about the outcome of a material uncertainty.
D. When the auditor has performed insufficient auditing procedures to express an opinion.


Answer: When the auditor believes the financial statements are misleading.

Which of the following would not require an explanatory/emphasis-of-matter paragraph in the auditor's report?

Which of the following would not require an explanatory/emphasis-of-matter paragraph in the auditor's report? 

A. Additional emphasis.
B. Lack of consistency in the financial statements due to accounting changes.
C. Going concern.
D. Opinion based in part on the report of another auditor.


Answer: Opinion based in part on the report of another auditor.

When reporting on comparative financial statements where the financial statements of the prior year have been examined by a predecessor auditor whose report is not presented, the successor auditor should make

When reporting on comparative financial statements where the financial statements of the prior year have been examined by a predecessor auditor whose report is not presented, the successor auditor should make 

A. No reference to the predecessor auditor.
B. Reference to the predecessor auditor only if the predecessor auditor expressed a qualified opinion.
C. Reference to the predecessor auditor only if the predecessor auditor expressed an unqualified/unmodified opinion.
D. Reference to the predecessor auditor regardless of the type of opinion expressed by the predecessor auditor.


Answer: Reference to the predecessor auditor regardless of the type of opinion expressed by the predecessor auditor.

Auditing standards define special purpose financial statements as including those prepared under the following base(s)

Auditing standards define special purpose financial statements as including those prepared under the following base(s) 

A. Regulatory basis.
B. Tax basis.
C. Contractual basis.
D. All of these.


Answer: All of these.

If a public company issues financial statements that purport to present its financial position and results of operations but omits the statement of cash flows, the auditor ordinarily will express a(an)

If a public company issues financial statements that purport to present its financial position and results of operations but omits the statement of cash flows, the auditor ordinarily will express a(an) 

A. Disclaimer of opinion
B. Qualified opinion.
C. Review report.
D. Unqualified opinion with a separate explanatory paragraph.


Answer: Qualified opinion.

When an auditor concludes there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time, the auditor's responsibility is to

When an auditor concludes there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time, the auditor's responsibility is to 

A. Prepare prospective financial information to verify whether management's plans can be effectively implemented.
B. Project future conditions and events for a period of time not to exceed one year following the date of the financial statements.
C. Issue a qualified or adverse opinion, depending upon materiality, because of the possible effects on the financial statements.
D. Consider the adequacy of disclosure about the entity's possible inability to continue as a going concern.


Answer: Consider the adequacy of disclosure about the entity's possible inability to continue as a going concern.

Comparative financial statements include the financial statements of a prior period that were examined by a predecessor auditor whose report is not presented. If the predecessor auditor's report was qualified, the successor auditor must

Comparative financial statements include the financial statements of a prior period that were examined by a predecessor auditor whose report is not presented. If the predecessor auditor's report was qualified, the successor auditor must 

A. Obtain written approval from the predecessor auditor to include the prior year's financial statements.
B. Issue a standard comparative audit report indicating the division of responsibility.
C. Express an opinion on the current year statements alone and make no reference to the prior year statements.
D. Disclose the reasons for any qualification in the predecessor auditor's opinion.


Answer: Disclose the reasons for any qualification in the predecessor auditor's opinion.

An auditor concludes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. If the entity's financial statements adequately disclose its financial difficulties, the auditor's report is required to include an explanatory/emphasis-of-matter paragraph that specifically uses the phrase(s)

An auditor concludes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. If the entity's financial statements adequately disclose its financial difficulties, the auditor's report is required to include an explanatory/emphasis-of-matter paragraph that specifically uses the phrase(s) 

A. "Reasonable period of time, not to exceed one year" and "going concern."
B. "Reasonable period of time, not to exceed one year" but not "going concern."
C. "Going concern" but not "reasonable period of time, not to exceed one year."
D. Neither "going concern" nor "reasonable period of time, not to exceed one year."


Answer: "Going concern" but not "reasonable period of time, not to exceed one year."

In the auditor's report, the principal auditor decides not to make reference to another CPA who audited an entity's subsidiary. The principal auditor could justify this decision if, among other requirements, the principal auditor

In the auditor's report, the principal auditor decides not to make reference to another CPA who audited an entity's subsidiary. The principal auditor could justify this decision if, among other requirements, the principal auditor 

A. Issues an unqualified/unmodified opinion on the consolidated financial statements.
B. Learns that the other CPA issued an unqualified/unmodified opinion on the subsidiary's financial statements.
C. Is unable to review the other CPA's audit programs and working papers.
D. Is satisfied as to the other CPA's independence and professional reputation.


Answer: Is satisfied as to the other CPA's independence and professional reputation.

The predecessor auditor, after properly communicating with the successor auditor, has reissued a report because the entity desires comparative financial statements. The predecessor auditor's report should make

The predecessor auditor, after properly communicating with the successor auditor, has reissued a report because the entity desires comparative financial statements. The predecessor auditor's report should make 

A. No reference to the report or the work of the successor auditor.
B. Reference to the work of the successor auditor in the scope paragraph.
C. Reference to both the work and the report of the successor auditor in the opinion paragraph.
D. Reference to the report of the successor auditor in the scope paragraph.


Answer: No reference to the report or the work of the successor auditor.

Abbot, CPA, as principal auditor for consolidated financial statements, is using a qualified report of another auditor. Abbot does not consider the qualification material relative to the consolidated financial statements and Abbot is willing to accept responsibility for the work of the other auditor. What recognition, if any, must Abbot make in his report to the report of the other audit?

Abbot, CPA, as principal auditor for consolidated financial statements, is using a qualified report of another auditor. Abbot does not consider the qualification material relative to the consolidated financial statements and Abbot is willing to accept responsibility for the work of the other auditor. What recognition, if any, must Abbot make in his report to the report of the other audit? 

A. He need make no reference.
B. He must refer to the qualification of the other auditor and qualify his report likewise.
C. He must include the other auditor's report with his report but need not qualify his report.
D. He must include the other auditor's report with his report and give an explanation of its significance.


Answer: He need make no reference.

Which of the following would be considered a change that does not affect consistency?

Which of the following would be considered a change that does not affect consistency? 

A. Change expected to have a material future effect.
B. Change in accounting principle.
C. Correction of an error in principle.
D. None of these are considered changes that do not affect consistency.


Answer: Change expected to have a material future effect.

An auditor is reporting on cash basis financial statements. These statements are best referred to in his or her report by which one of the following descriptions?

An auditor is reporting on cash basis financial statements. These statements are best referred to in his or her report by which one of the following descriptions? 

A. Financial position and results of operations arising from cash transactions.
B. Assets and liabilities arising from cash transactions and revenue collected and expenses paid.
C. Balance sheet and income statement resulting from cash transactions.
D. Cash balance sheet and the source and application of funds.


Answer: Assets and liabilities arising from cash transactions and revenue collected and expenses paid.

Other bases of accounting (special purpose frameworks) include all of the following except:

Other bases of accounting (special purpose frameworks) include all of the following except: 

A. Tax basis.
B. Non-GAAP methods used for internal reporting.
C. Cash basis.
D. Regulatory basis.


Answer: Non-GAAP methods used for internal reporting.

An auditor would issue an adverse opinion if

An auditor would issue an adverse opinion if 

A. The audit was begun by other independent auditors who withdrew from the engagement.
B. A qualified opinion cannot be given because the auditor lacks independence.
C. A restriction on the scope of the audit was significant.
D. The statements taken as a whole do not fairly present the financial condition and results of operations of the company.


Answer: The statements taken as a whole do not fairly present the financial condition and results of operations of the company.

When an auditor expresses an adverse opinion, the opinion paragraph should include

When an auditor expresses an adverse opinion, the opinion paragraph should include 

A. The principal effects of the departure from generally accepted accounting principles.
B. A direct reference to a separate paragraph disclosing the basis for the opinion.
C. The substantive reasons for the financial statements being misleading.
D. A description of the uncertainty or scope limitation that prevents an unqualified opinion.


Answer: A direct reference to a separate paragraph disclosing the basis for the opinion.

When the entity fails to include information that is necessary for the fair presentation of financial statements in the body of the statements or in the related footnotes, it is the responsibility of the auditor to present the information, if practicable, in the auditor's report and express a(n)

When the entity fails to include information that is necessary for the fair presentation of financial statements in the body of the statements or in the related footnotes, it is the responsibility of the auditor to present the information, if practicable, in the auditor's report and express a(n) 

A. Qualified opinion or a disclaimer of opinion.
B. Qualified opinion or an adverse opinion.
C. Adverse opinion or a disclaimer of opinion.
D. Qualified opinion or an unqualified opinion.


Answer: Qualified opinion or an adverse opinion.

Which of the following circumstances should be recognized as a consistency modification in the auditor's report, whether or not the item is fully disclosed in the financial statements?

Which of the following circumstances should be recognized as a consistency modification in the auditor's report, whether or not the item is fully disclosed in the financial statements? 

A. A change in accounting estimate.
B. A change from an unacceptable accounting principle to a generally accepted one.
C. Correction of an error not involving a change in accounting principle.
D. A change in classification.


Answer: A change from an unacceptable accounting principle to a generally accepted one.

Which of the following circumstances normally does not affect the consistency phrase in the auditor's standard report?

Which of the following circumstances normally does not affect the consistency phrase in the auditor's standard report? 

A. A change in accounting estimate.
B. A change in accounting principle.
C. A change in the companies included in combined financial statements.
D. A correction of an error in principle.


Answer: A change in accounting estimate.

When the auditor is unable to determine the amounts associated with the illegal acts of entity personnel because of an inability to obtain adequate evidence, the auditor should issue a(n)

When the auditor is unable to determine the amounts associated with the illegal acts of entity personnel because of an inability to obtain adequate evidence, the auditor should issue a(n) 

A. "Subject to" qualified opinion.
B. Disclaimer of opinion.
C. Adverse opinion.
D. Unqualified/unmodified opinion with a separate explanatory/emphasis-of-matter paragraph.


Answer: Disclaimer of opinion.

An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this separate paragraph

An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this separate paragraph 

A. Is considered an "except for" qualification of the opinion.
B. Violates generally accepted auditing standards if this information is already disclosed in footnotes to the financial statements.
C. Necessitates a revision of the opinion paragraph to include the phrase "with the foregoing explanation."
D. Is appropriate and would not negate the unqualified/unmodified opinion.


Answer: Is appropriate and would not negate the unqualified/unmodified opinion.

An auditor was unable to obtain audited financial statements or other evidence supporting an entity's investment in a large foreign subsidiary. Between which of the following reports should the auditor choose?

An auditor was unable to obtain audited financial statements or other evidence supporting an entity's investment in a large foreign subsidiary. Between which of the following reports should the auditor choose? 

A. Adverse and unqualified/unmodified with an explanatory/emphasis-of-matter paragraph added.
B. Disclaimer and unqualified/unmodified with an explanatory/emphasis-of-matter paragraph added.
C. Qualified and adverse.
D. Qualified and disclaimer.


Answer: Qualified and disclaimer.

Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?

Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern? 

A. Significant related party transactions are pervasive.
B. Usual trade credit from suppliers is denied.
C. Arrearages in preferred stock dividends are paid.
D. Restrictions on the disposal of principal assets are present.


Answer: Usual trade credit from suppliers is denied.

Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?

Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern? 

A. Cash flows from operating activities are negative.
B. Research and development projects are postponed.
C. Significant related party transactions are pervasive.
D. Stock dividends replace annual cash dividends.


Answer: Cash flows from operating activities are negative.

Which of the following would be considered a change that affects consistency?

Which of the following would be considered a change that affects consistency? 

A. Change in accounting estimate.
B. Change in accounting principle.
C. Change in classification and reclassification.
D. All of the other options are correct.


Answer: Change in accounting principle.

Which of the following auditing procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern?

Which of the following auditing procedures most likely would assist an auditor in identifying conditions and events that may indicate substantial doubt about an entity's ability to continue as a going concern? 

A. Inspecting title documents to verify whether any assets are pledged as collateral.
B. Confirming with third parties the details of arrangements to maintain financial support.
C. Reconciling the cash balance per books with the cut-off bank statement and the bank confirmation.
D. Comparing the entity's depreciation and asset capitalization policies to other entities in the industry.


Answer: Confirming with third parties the details of arrangements to maintain financial support.

The adverse effects of events causing an auditor to believe there is substantial doubt about an entity's ability to continue as a going concern would most likely be mitigated by evidence relating to the

The adverse effects of events causing an auditor to believe there is substantial doubt about an entity's ability to continue as a going concern would most likely be mitigated by evidence relating to the 

A. Ability to expand operations into new product lines in the future.
B. Feasibility of plans to purchase leased equipment at less than market value.
C. Marketability of assets that management plans to sell.
D. Committed arrangements to convert preferred stock to long-term debt.


Answer: Marketability of assets that management plans to sell.

When a question arises about an entity's continued existence, the auditor should consider factors tending to mitigate the significance of negative information concerning the entity's means for maintaining adequate cash flow. An example of such a factor is the

When a question arises about an entity's continued existence, the auditor should consider factors tending to mitigate the significance of negative information concerning the entity's means for maintaining adequate cash flow. An example of such a factor is the 

A. Possibility of purchasing certain assets rather than leasing them.
B. Capability of extending the due dates of existing debt.
C. Appropriateness of changing depreciation methods from double declining balance to straight line.
D. Marketability of property and equipment that management plans to keep.


Answer: Capability of extending the due dates of existing debt.

If the principal auditor decides to make reference to the other auditor's examination, the introductory paragraph must specifically indicate the

If the principal auditor decides to make reference to the other auditor's examination, the introductory paragraph must specifically indicate the 

A. The portion of the financial statements examined by the other auditor.
B. Name of the other auditor.
C. Name of the consolidated subsidiary examined by the other auditor.
D. Type of opinion expressed by the other auditor.


Answer: The portion of the financial statements examined by the other auditor.

In connection with the examination of the consolidated financial statements of Mott Industries, Frazier, CPA, plans to refer to another CPA's examination of the financial statements of a subsidiary company. Under these circumstances, Frazier's report must disclose

In connection with the examination of the consolidated financial statements of Mott Industries, Frazier, CPA, plans to refer to another CPA's examination of the financial statements of a subsidiary company. Under these circumstances, Frazier's report must disclose 

A. The name of the other CPA and the type of report issued by the other CPA.
B. The portion of the financial statements examined by the other CPA.
C. The nature of Frazier's review of the other CPA's work.
D. In a footnote the portions of the financial statements that were covered by the examinations of both auditors.


Answer: The portion of the financial statements examined by the other CPA.

A predecessor auditor should complete the following before reissuing a report on statements presented on a comparative basis:

A predecessor auditor should complete the following before reissuing a report on statements presented on a comparative basis: 

A. Read the financial statements of the current period.
B. Read the financial statements of the past five years.
C. Obtain a letter of representations from the current-year, successor auditor.
D. Read the financial statements of the current period and obtain a letter of representation from the current-year, successor auditor.


Answer: Read the financial statements of the current period and obtain a letter of representation from the current-year, successor auditor.

When comparative financial statements are presented, the fourth standard of reporting, which refers to financial statements "taken as a whole," should be considered to apply to the financial statements of the

When comparative financial statements are presented, the fourth standard of reporting, which refers to financial statements "taken as a whole," should be considered to apply to the financial statements of the 

A. Periods presented plus the one preceding period.
B. Current period only.
C. Current period and those of the other periods presented.
D. Current and immediately preceding period only.


Answer: Current period and those of the other periods presented.

If the auditor believes that there is minimal likelihood that resolution of an uncertainty will have a material effect on the financial statements, the auditor would issue a(n)

If the auditor believes that there is minimal likelihood that resolution of an uncertainty will have a material effect on the financial statements, the auditor would issue a(n) 

A. "Except for" opinion.
B. Adverse opinion.
C. Unqualified/unmodified opinion.
D. Disclaimer of opinion.


Answer: Unqualified/unmodified opinion.

For which of the following events would an auditor issue a report that does not include any reference to consistency?

For which of the following events would an auditor issue a report that does not include any reference to consistency? 

A. A change in the method of accounting for inventories.
B. A change from an accounting principle that is not generally accepted to one that is generally accepted.
C. A change in the service life used to calculate depreciation expense.
D. A change in accounting principle without reasonable justification from management.


Answer: A change in the service life used to calculate depreciation expense.

Management believes and the auditor is satisfied, that a material loss probably will occur when pending litigation is resolved. Management is unable to make a reasonable estimate of the amount or range of the potential loss, but fully discloses the situation in the notes to the financial statements. If the auditor wishes to call attention to the matter and management does not make an accrual in the financial statements, the auditor should issue a(an)

Management believes and the auditor is satisfied, that a material loss probably will occur when pending litigation is resolved. Management is unable to make a reasonable estimate of the amount or range of the potential loss, but fully discloses the situation in the notes to the financial statements. If the auditor wishes to call attention to the matter and management does not make an accrual in the financial statements, the auditor should issue a(an) 

A. Qualified report due to a scope limitation.
B. Qualified report due to a departure from GAAP.
C. Unqualified/unmodified report with an explanatory/emphasis-of-matter paragraph.
D. Unqualified/unmodified report in a standard auditor's report.


Answer: Unqualified/unmodified report with an explanatory/emphasis-of-matter paragraph.

When the audited financial statements of the prior year are presented together with those of the current year, the continuing auditor's report should cover

When the audited financial statements of the prior year are presented together with those of the current year, the continuing auditor's report should cover 

A. Both years.
B. Only the current year.
C. Only the current year, but the prior year's report should be presented.
D. Only the current year, but the prior year's report should be referred to.


Answer: Both years.

Which of the following situations will not result in modification of the auditor's report because of a scope limitation?

Which of the following situations will not result in modification of the auditor's report because of a scope limitation? 

A. Restriction imposed by the client.
B. Reliance placed on the report of another auditor.
C. Inability to obtain sufficient appropriate evidential matter.
D. Inadequacy in the accounting records.


Answer: Reliance placed on the report of another auditor.

Which of the following parties is responsible for the fairness of the representations made in financial statements?

Which of the following parties is responsible for the fairness of the representations made in financial statements? 

A. Entity's management.
B. Independent auditor.
C. Audit committee.
D. AICPA.


Answer: Entity's management.

Who generally signs the legal letter?

Who generally signs the legal letter? 

A. The board of directors.
B. The audit partner.
C. The CEO of the entity being audited.
D. The entity's attorneys.


Answer: The CEO of the entity being audited.

After issuance of the auditor's report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by that report unless

After issuance of the auditor's report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by that report unless 

A. A final resolution of a contingency that had resulted in a qualification of the auditor's report is made.
B. A development occurs that may affect the entity's ability to continue as a going concern.
C. An investigation of the auditor's practice by a peer review committee ensues.
D. New information is discovered concerning undisclosed related party transactions of the previously audited period.


Answer: New information is discovered concerning undisclosed related party transactions of the previously audited period.

After an auditor has issued an audit report on a nonpublic entity, there is no obligation to make any further audit tests or inquiries with respect to the audited financial statements covered by that report unless

After an auditor has issued an audit report on a nonpublic entity, there is no obligation to make any further audit tests or inquiries with respect to the audited financial statements covered by that report unless 

A. New information comes to the auditor's attention concerning an event that occurred prior to the date of the auditor's report that may have affected the auditor's report.
B. Material adverse events occur after the date of the auditor's report.
C. Final determination or resolution was made on matters that had resulted in a qualification in the auditor's report.
D. Final determination or resolution was made of a contingency that had been disclosed in the financial statements and no liability arose from the resolution.


Answer: New information comes to the auditor's attention concerning an event that occurred prior to the date of the auditor's report that may have affected the auditor's report.

After issuance of the auditor's report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by an auditor's report unless

After issuance of the auditor's report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by an auditor's report unless 

A. A lawsuit in which risk of loss was considered remote is resolved in the company's favor.
B. A development occurs that may affect the entity's ability to continue as a going concern.
C. A material fraud is initiated by an employee after the report is issued.
D. Evidence of significant, non-arms-length, related party transactions that happened prior to year-end is discovered.


Answer: Evidence of significant, non-arms-length, related party transactions that happened prior to year-end is discovered.

Key Co. plans to present comparative financial statements for the years ended December 31, 2012 and 2013, respectively. Smith, CPA, audited Key's financial statements for both years and plans to report on the comparative financial statements on May 1, 2014. Key's current management team was not present until January 1, 2013. What period of time should be covered by Key's management representation letter?

Key Co. plans to present comparative financial statements for the years ended December 31, 2012 and 2013, respectively. Smith, CPA, audited Key's financial statements for both years and plans to report on the comparative financial statements on May 1, 2014. Key's current management team was not present until January 1, 2013. What period of time should be covered by Key's management representation letter? 

A. January 1, 2012 through December 31, 2013.
B. January 1, 2012 through May 1, 2014.
C. January 1, 2013 through December 31, 2013.
D. January 1, 2013 through May 1, 2014.


Answer: January 1, 2012 through May 1, 2014.

For which of the following matters should an auditor obtain written management representations?

For which of the following matters should an auditor obtain written management representations? 

A. Management's cost-benefit justifications for not correcting internal control weaknesses.
B. Management's knowledge of future plans that may affect the price of the entity's stock.
C. Management's compliance with contractual agreements that may affect the financial statements.
D. Management's acknowledgment of its responsibility for employees' violations of laws.


Answer: Management's compliance with contractual agreements that may affect the financial statements.

Which of the following statements is correct concerning an auditor's required communication with those charged with governance?

Which of the following statements is correct concerning an auditor's required communication with those charged with governance? 

A. This communication is required to occur before the auditor's report on the financial statements is issued.
B. This communication should include management changes in the application of significant accounting policies.
C. Any significant matter communicated to those charged with governance also should be communicated to management.
D. Significant audit adjustments proposed by the auditor and recorded by management need not be communicated to those charged with governance.


Answer: This communication should include management changes in the application of significant accounting policies.

Which of the following statements is correct about an auditor's required communication with management and those charged with governance?

Which of the following statements is correct about an auditor's required communication with management and those charged with governance? 

A. Any matters communicated to those charged with governance are also required to be communicated to the entity's management.
B. The auditor is required to inform those charged with governance about significant errors discovered by the auditor and subsequently corrected by management.
C. The auditor does not have any requirement to communicate with anyone outside of management.
D. Weaknesses in internal control previously reported to those charged with governance are required to be communicated to those charged with governance after each subsequent audit until the weaknesses are corrected.


Answer: The auditor is required to inform those charged with governance about significant errors discovered by the auditor and subsequently corrected by management.

Which of the following statements ordinarily is included among the written management representations obtained by the auditor?

Which of the following statements ordinarily is included among the written management representations obtained by the auditor? 

A. Compensating balances and other arrangements involving restrictions on cash balances have been disclosed.
B. Management acknowledges responsibility for illegal actions committed by employees.
C. Sufficient evidential matter has been made available to permit the issuance of an unqualified opinion.
D. Management acknowledges that there are no material weaknesses in the account balances.


Answer: Compensating balances and other arrangements involving restrictions on cash balances have been disclosed.

A disclosure of a contingent liability in the footnotes is made rather than adjusting the financial statement accounts when

A disclosure of a contingent liability in the footnotes is made rather than adjusting the financial statement accounts when 

A. The outcome of the event is judged to be reasonably possible and the loss can be reasonably estimated.
B. The loss can be reasonably estimated, but the outcome is unknown.
C. The outcome of the event is judged to be reasonably possible but the loss cannot be reasonably estimated.
D. The outcome is unknown and the loss is reasonably estimable but the entity does not want to book the loss.


Answer: The outcome of the event is judged to be reasonably possible but the loss cannot be reasonably estimated.

A Type I subsequent event usually requires

A Type I subsequent event usually requires 

A. An adjustment to the financial statements.
B. No adjustment to the financial statements.
C. Withdrawal from the engagement.
D. No action.


Answer: An adjustment to the financial statements.

An auditor's decision concerning whether or not to "dual date" the audit report is based upon the auditor's willingness to

An auditor's decision concerning whether or not to "dual date" the audit report is based upon the auditor's willingness to 

A. Extend auditing procedures.
B. Accept responsibility for all events between year-end and the audit report date.
C. Permit inclusion of a footnote captioned: event (unaudited) subsequent to the date of the auditor's report.
D. Assume responsibility for events subsequent to the issuance of the auditor's report.


Answer: Extend auditing procedures.

Which of the following statements extracted from an entity's lawyer's letter concerning litigation, claims, and assessments most likely would cause the auditor to request clarification?

Which of the following statements extracted from an entity's lawyer's letter concerning litigation, claims, and assessments most likely would cause the auditor to request clarification? 

A. "I believe that the possible liability to the company is nominal in amount."
B. "I believe that the action can be settled for less than the damages claimed."
C. "I believe that the plaintiff's case against the company is without merit."
D. "I believe that the company will be able to defend this action successfully."


Answer: "I believe that the action can be settled for less than the damages claimed."

The primary reason an auditor requests letters of inquiry be sent to an entity's attorneys is to provide the auditor with

The primary reason an auditor requests letters of inquiry be sent to an entity's attorneys is to provide the auditor with 

A. A description and evaluation of litigation, claims, and assessments that existed at the date of the balance sheet.
B. An expert opinion as to whether a loss is possible, probable, or remote.
C. The opportunity to examine the documentation concerning litigation, claims, and assessments.
D. Corroboration of the information furnished by management concerning litigation, claims, and assessments.


Answer: Corroboration of the information furnished by management concerning litigation, claims, and assessments.

Auditors often request that the entity send a letter of inquiry to those attorneys who have been consulted with respect to litigation, claims, and/or assessments. The primary reason for this request is to provide the auditor with

Auditors often request that the entity send a letter of inquiry to those attorneys who have been consulted with respect to litigation, claims, and/or assessments. The primary reason for this request is to provide the auditor with 

A. An estimate of the dollar amount of the probable loss.
B. An expert opinion as to whether a loss is possible, probable, or remote.
C. Information concerning the progress of cases to date.
D. Corroborative inquiries made of the entity by the auditor.


Answer: Corroborative inquiries made of the entity by the auditor.

An entity has violated a minor requirement of its bond indenture that could result in the trustee requiring immediate payment of the principal amount due. The entity refuses to seek a waiver from the bond trustee. Request for immediate payment is not considered likely. Under these circumstances, the auditor must

An entity has violated a minor requirement of its bond indenture that could result in the trustee requiring immediate payment of the principal amount due. The entity refuses to seek a waiver from the bond trustee. Request for immediate payment is not considered likely. Under these circumstances, the auditor must 

A. Require classification of bonds payable as a current liability.
B. Contact the bond trustee directly.
C. Disclose the situation in the auditor's report.
D. Obtain an opinion from the company's attorney as to the likelihood of the trustee's enforcement of the requirement.


Answer: Disclose the situation in the auditor's report.

After an audit report containing an unqualified opinion on a nonpublic entity's financial statements is issued, the auditor learns that the entity has decided to sell the shares of a subsidiary that accounts for 30 percent of its revenue and 25 percent of its net income. The auditor should

After an audit report containing an unqualified opinion on a nonpublic entity's financial statements is issued, the auditor learns that the entity has decided to sell the shares of a subsidiary that accounts for 30 percent of its revenue and 25 percent of its net income. The auditor should 

A. Determine whether the information is reliable and, if it is determined to be reliable, request that revised financial statements be issued.
B. Notify the entity that the auditor's report may no longer be associated with the financial statements.
C. Describe the effects of this subsequently discovered information in communications with persons known to be relying on the financial statements.
D. Take no action because the auditor has no obligation to make any further inquiries.


Answer: Take no action because the auditor has no obligation to make any further inquiries.

On February 25, a CPA issued an auditor's report expressing an unqualified opinion on financial statements for the year ended January 31. On March 2, the CPA learned that, on February 11, the entity incurred a material loss on an uncollectible trade receivable as a result of the ongoing deterioration of the financial condition of the entity's principal customer, which finally led to the customer's bankruptcy. Management then refused to adjust the financial statements for this subsequent event. The CPA determined that the information is reliable and that there are creditors currently relying on the financial statements. The CPA's next course of action most likely would be to

On February 25, a CPA issued an auditor's report expressing an unqualified opinion on financial statements for the year ended January 31. On March 2, the CPA learned that, on February 11, the entity incurred a material loss on an uncollectible trade receivable as a result of the ongoing deterioration of the financial condition of the entity's principal customer, which finally led to the customer's bankruptcy. Management then refused to adjust the financial statements for this subsequent event. The CPA determined that the information is reliable and that there are creditors currently relying on the financial statements. The CPA's next course of action most likely would be to 

A. Notify the entity's creditors that the financial statements and the related auditor's report should no longer be relied upon.
B. Notify each member of the entity's board of directors about management's refusal to adjust the financial statements.
C. Issue revised financial statements and distribute them to each creditor known to be relying on the financial statements.
D. Issue a revised auditor's report and distribute it to each creditor known to be relying on the financial statements.


Answer: Notify each member of the entity's board of directors about management's refusal to adjust the financial statements.

Which of the following events occurring after the issuance of an entity's financial statements and the auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements?

Which of the following events occurring after the issuance of an entity's financial statements and the auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements? 

A. An uninsured natural disaster occurs that may affect the entity's ability to continue as a going concern.
B. A contingency is resolved that had been disclosed in the audited financial statements.
C. New information is discovered concerning undisclosed lease transactions in the audited period.
D. A subsidiary that accounts for 25 percent of the entity's consolidated net income is sold.


Answer: New information is discovered concerning undisclosed lease transactions in the audited period.

Communications between the auditor and those charged with governance should include all of the following except:

Communications between the auditor and those charged with governance should include all of the following except: 

A. A summary of specific audit procedures used.
B. Significant audit adjustments.
C. Consultations with other accountants.
D. Major issues discussed with management before the auditor was retained.


Answer: A summary of specific audit procedures used.

A written representation from an entity's management that, among other matters, acknowledges responsibility for the fair presentation of financial statements should normally be signed by the

A written representation from an entity's management that, among other matters, acknowledges responsibility for the fair presentation of financial statements should normally be signed by the 

A. Chief executive officer and the chief financial officer.
B. Chief financial officer and the chairman of the board of directors.
C. Chairman of the audit committee of the board of directors.
D. Chief executive officer, the chairman of the board of directors and the entity's lawyer.


Answer: Chief executive officer and the chief financial officer.

When considering the use of management's written representations as audit evidence about the completeness assertion, an auditor should understand that such representations

When considering the use of management's written representations as audit evidence about the completeness assertion, an auditor should understand that such representations 

A. Complement, but do not replace, substantive procedures designed to support the assertion.
B. Constitute sufficient evidence to support the assertion when considered in combination with reliance on internal controls.
C. Are not part of the evidential matter considered to support the assertion.
D. Replace reliance on internal controls as evidence to support the assertion.


Answer: Complement, but do not replace, substantive procedures designed to support the assertion.

"There have been no communications from regulatory agencies concerning noncompliance with or deficiencies in, financial reporting practices that could have a material effect on the financial statements." The foregoing passage is most likely from a

"There have been no communications from regulatory agencies concerning noncompliance with or deficiencies in, financial reporting practices that could have a material effect on the financial statements." The foregoing passage is most likely from a 

A. Report on internal control.
B. Special report.
C. Management representation letter.
D. Letter for underwriters.


Answer: Management representation letter.

Which of the following matters is an auditor required to communicate to those charged with governance?

Which of the following matters is an auditor required to communicate to those charged with governance? 

A. The basis for assessing control risk at low.
B. The process used by management in formulating sensitive accounting estimates.
C. The auditor's preliminary judgments about materiality levels.
D. The justification for performing substantive procedures at interim dates.


Answer: The process used by management in formulating sensitive accounting estimates.

There are no violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency." The foregoing passage most likely is from a(an)

There are no violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency." The foregoing passage most likely is from a(an) 

A. Entity engagement letter.
B. Report on compliance with laws and regulations.
C. Management representation letter.
D. Attestation report on internal controls.


Answer: Management representation letter.

Which of the following expressions is least likely to be included in a management representation letter?

Which of the following expressions is least likely to be included in a management representation letter? 

A. No events have occurred subsequent to the balance sheet date that require adjustment to or disclosure in, the financial statements.
B. The company has complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance.
C. Management acknowledges responsibility for illegal actions committed by its employees.
D. Management has made available all financial statements and related data.


Answer: Management acknowledges responsibility for illegal actions committed by its employees.

As part of an audit, a CPA often requests a representation letter from the entity. Which one of the following is not a valid purpose of such a letter?

As part of an audit, a CPA often requests a representation letter from the entity. Which one of the following is not a valid purpose of such a letter? 

A. To provide audit evidence.
B. To emphasize to the entity their responsibility for the fairness of the financial statements.
C. To satisfy himself or herself that a certain account balance is fairly stated when certain customary auditing procedures are not performed.
D. To provide possible protection to the CPA against a charge of knowledge in cases where fraud is subsequently discovered to have existed in the accounts.


Answer: To satisfy himself or herself that a certain account balance is fairly stated when certain customary auditing procedures are not performed.

Which of the following ratios is least likely to assist the auditor in determining whether the entity is experiencing financial difficulties?

Which of the following ratios is least likely to assist the auditor in determining whether the entity is experiencing financial difficulties? 

A. Net worth/total liabilities.
B. Cash/total assets.
C. Total liabilities/total assets.
D. Net income before taxes/net sales.


Answer: Cash/total assets.

In the course of the examination of financial statements for the purpose of expressing an opinion, the auditor normally prepares a schedule of unadjusted differences for which the auditor did not propose adjustments when they were discovered. What is the primary purpose of this schedule?

In the course of the examination of financial statements for the purpose of expressing an opinion, the auditor normally prepares a schedule of unadjusted differences for which the auditor did not propose adjustments when they were discovered. What is the primary purpose of this schedule? 

A. To point out to the responsible entity officials the errors made by various company personnel.
B. To summarize the adjustments that must be made before the company can prepare and submit its federal tax return.
C. To identify the potential financial statement effects of errors or disputed items that were considered immaterial when discovered.
D. To summarize the errors made by the company so that corrections can be made after the audited financial statements are released.


Answer: To identify the potential financial statement effects of errors or disputed items that were considered immaterial when discovered.

After fieldwork audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap-up review of the working papers. This second review usually focuses on

After fieldwork audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap-up review of the working papers. This second review usually focuses on 

A. The audit report, financial statements, and footnotes for consistency.
B. Irregularities involving the entity's management and its employees.
C. The materiality of the adjusting entries proposed by the audit staff.
D. The communication of internal control weaknesses to those charged with governance.


Answer: The audit report, financial statements, and footnotes for consistency.

A Type II subsequent event usually requires

A Type II subsequent event usually requires 

A. An adjustment to the financial statements and the footnotes.
B. An adjustment to the financial statements but no special disclosure is required.
C. Disclosure in the footnotes.
D. Neither an adjustment to the financial statements nor disclosure in the footnotes.


Answer: Disclosure in the footnotes.

Harvey, CPA is preparing an audit program for the purpose of ascertaining the occurrence of subsequent events that may require adjustment or disclosure essential to a fair presentation of the financial statements in conformity with generally accepted accounting principles. Which one of the following procedures would be least appropriate for this purpose?

Harvey, CPA is preparing an audit program for the purpose of ascertaining the occurrence of subsequent events that may require adjustment or disclosure essential to a fair presentation of the financial statements in conformity with generally accepted accounting principles. Which one of the following procedures would be least appropriate for this purpose? 

A. Confirm, as of the completion of fieldwork, accounts receivable that have increased significantly from the year-end date.
B. Read the minutes of the board of directors.
C. Inquire of management concerning events that may have occurred.
D. Obtain a lawyer's letter as of the completion of fieldwork.


Answer: Confirm, as of the completion of fieldwork, accounts receivable that have increased significantly from the year-end date.

If an auditor dates the auditor's report on financial statements for the year ended December 31, 2013, as of February 10, 2014, except for Note J, as to which the date is March 3, 2014, the auditor is acknowledging responsibility to actively search for and ensure proper handling by management of

If an auditor dates the auditor's report on financial statements for the year ended December 31, 2013, as of February 10, 2014, except for Note J, as to which the date is March 3, 2014, the auditor is acknowledging responsibility to actively search for and ensure proper handling by management of 

A. All subsequent events occurring through March 3, 2014.
B. All subsequent events occurring through February 10, 2014.
C. All subsequent events occurring through February 10, 2014 and the specific subsequent event referred to in Note J through March 3, 2014.
D. Only the specific subsequent event referred to in Note J as of March 3, 2014.


Answer: All subsequent events occurring through February 10, 2014 and the specific subsequent event referred to in Note J through March 3, 2014.

A major customer of an entity suffers a fire after year-end, but just prior to completion of audit fieldwork. The entity believes that this event could have a significant direct effect on the financial statements. The auditor should

A major customer of an entity suffers a fire after year-end, but just prior to completion of audit fieldwork. The entity believes that this event could have a significant direct effect on the financial statements. The auditor should 

A. Advise management to disclose the event in the notes to the financial statements.
B. Disclose the event in the auditor's report.
C. Withhold submission of the auditor's report until the extent of the direct effect on the financial statements is known.
D. Advise management to adjust the financial statements.


Answer: Advise management to disclose the event in the notes to the financial statements.

An auditor is concerned with completing various phases of the examination after the balance sheet date. This "subsequent period" involving formal audit procedures extends to the date of the

An auditor is concerned with completing various phases of the examination after the balance sheet date. This "subsequent period" involving formal audit procedures extends to the date of the 

A. Auditor's report.
B. Final review of the audit working papers.
C. Public issuance of the financial statements.
D. Delivery of the auditor's report to the entity.


Answer: Auditor's report.

Subsequent events for which the auditor has a responsibility to actively search are defined as events that occur subsequent to the

Subsequent events for which the auditor has a responsibility to actively search are defined as events that occur subsequent to the 

A. Balance sheet date.
B. Date of the auditor's report.
C. Balance sheet date but prior to the date of the auditor's report.
D. Date of the auditor's report and concern contingencies that are not reflected in the financial statements.


Answer: Balance sheet date but prior to the date of the auditor's report.

Which of the following subsequent events will be least likely to result in an adjustment to the financial statements?

Which of the following subsequent events will be least likely to result in an adjustment to the financial statements? 

A. Culmination of events affecting the realization of accounts receivable owned as of the balance sheet date.
B. Culmination of events affecting the realization of inventories owned as of the balance sheet date.
C. Material changes in the settlement of liabilities that were estimated as of the balance sheet date.
D. Material changes in the quoted market prices of listed investment securities since the balance sheet date.


Answer: Material changes in the quoted market prices of listed investment securities since the balance sheet date.

Which of the following is generally requested in a legal letter?

Which of the following is generally requested in a legal letter? 

A. A request that the attorney comment on unasserted claims where his or her views differ from management's evaluation.
B. A list of all attorneys that performed any work for the entity during the year.
C. A statement indicating that the attorney is responsible for the fair presentation of unasserted claims in the entity's financial statements.
D. A request that the attorney provide a copy of all invoices given to the entity during the year.


Answer: A request that the attorney comment on unasserted claims where his or her views differ from management's evaluation.

An attorney is responding to an independent auditor as a result of the entity's letter of inquiry. The attorney may appropriately limit the response to

An attorney is responding to an independent auditor as a result of the entity's letter of inquiry. The attorney may appropriately limit the response to 

A. Asserted claims and litigation.
B. Matters to which the attorney has given substantive attention in the form of legal consultation or representation.
C. Asserted, overtly threatened, or pending claims and litigation.
D. Items that have an extremely high probability of being resolved to the entity's detriment.


Answer: Matters to which the attorney has given substantive attention in the form of legal consultation or representation.

Which of the following is not an audit procedure that the independent auditor would perform with respect to litigation, claims, and assessments?

Which of the following is not an audit procedure that the independent auditor would perform with respect to litigation, claims, and assessments? 

A. Inquire of and discuss with management the policies and procedures adopted for identifying, evaluating, and accounting for litigation, claims, and assessments.
B. Obtain from management a description and evaluation of litigation, claims, and assessments that existed at the balance sheet date.
C. Obtain assurance from management that it has disclosed all unasserted claims that the lawyer has advised are likely to be asserted and must be disclosed.
D. Confirm directly with the entity's lawyer that all claims have been recorded in the financial statements.


Answer: Confirm directly with the entity's lawyer that all claims have been recorded in the financial statements.

Which of the following procedures would an auditor ordinarily perform during the review of subsequent events?

Which of the following procedures would an auditor ordinarily perform during the review of subsequent events? 

A. An analysis of related party transactions for the discovery of possible irregularities.
B. A review of the cut-off bank statements for the period after the year-end.
C. An inquiry of the entity's legal counsel concerning litigation.
D. An investigation of material weaknesses in internal control previously communicated to the entity.


Answer: An inquiry of the entity's legal counsel concerning litigation.

Which of the following procedures would an auditor most likely perform to obtain evidence about an entity's subsequent events?

Which of the following procedures would an auditor most likely perform to obtain evidence about an entity's subsequent events? 

A. Reconcile bank activity for the month after the balance sheet date with cash activity reflected in the accounting records.
B. Obtain a letter from the entity's attorney describing any pending litigation, unasserted claims, and loss contingencies.
C. Review the treasurer's monthly reports on temporary investments owned, purchased, and sold.
D. Examine on a test basis the purchase invoices and receiving reports for several days after the inventory date.


Answer: Obtain a letter from the entity's attorney describing any pending litigation, unasserted claims, and loss contingencies.

Generally, loss contingencies that are judged to be remote

Generally, loss contingencies that are judged to be remote 

A. Should be disclosed in the footnotes.
B. Should be recorded in the financial statements.
C. Should not be disclosed in the footnotes.
D. Should be recorded in the financial statements and the footnotes.


Answer: Should not be disclosed in the footnotes.

Ajax, Inc., is an affiliate of Borax, Inc. and is audited by another audit firm. Which of the following is most likely to be used by the auditor of Borax to obtain assurance that all guarantees by Borax of Ajax's indebtedness have been detected?

Ajax, Inc., is an affiliate of Borax, Inc. and is audited by another audit firm. Which of the following is most likely to be used by the auditor of Borax to obtain assurance that all guarantees by Borax of Ajax's indebtedness have been detected? 

A. Send the standard bank confirmation request to all of Borax's lender banks.
B. Review Borax board minutes and obtain a representation letter.
C. Examine supporting documents for all entries in intercompany accounts.
D. Obtain written confirmation of indebtedness from the auditor of Ajax.


Answer: Review Borax board minutes and obtain a representation letter.

The management letter is used

The management letter is used 

A. To allow management to corroborate oral representations to the auditor.
B. To confirm the terms of the audit engagement.
C. To list all reportable conditions with respect to internal controls.
D. To make recommendations to the entity based on observations made during the audit.


Answer: To make recommendations to the entity based on observations made during the audit.

Which of the following items should an auditor communicate to those charged with governance in a publicly traded company?

Which of the following items should an auditor communicate to those charged with governance in a publicly traded company? 

A. Significant audit adjustments recorded by the company and management's consultation with other accountants about significant accounting matters.
B. Significant audit adjustments recorded by the company but not management's consultation with other accountants about significant accounting matters.
C. Management's consultation with other accountants about significant accounting matters but not significant audit adjustments recorded by the company.
D. Neither significant audit adjustments recorded by the company nor management's consultation with other accountants about significant accounting matters.


Answer: Significant audit adjustments recorded by the company and management's consultation with other accountants about significant accounting matters.

The date of the management representation letter should coincide with the

The date of the management representation letter should coincide with the 

A. Date of the latest subsequent event referred to in the notes to the financial statements.
B. Balance sheet date.
C. Date of the auditor's report.
D. Date of the engagement agreement.


Answer: Date of the auditor's report.

Which of the following auditing procedures is ordinarily performed last?

Which of the following auditing procedures is ordinarily performed last? 

A. Confirming accounts payable.
B. Testing the purchasing function.
C. Reading the minutes of directors' meetings.
D. Obtaining a management representation letter.


Answer: Obtaining a management representation letter.

The purpose of analytical procedures at the completion of the audit includes all of the following except:

The purpose of analytical procedures at the completion of the audit includes all of the following except: 

A. Revising the audit plan.
B. Considering overall reasonableness of the financial statements.
C. Reviewing adequacy of evidence gathered to investigate unusual fluctuations.
D. Recalculating some of the ratios examined during audit planning.


Answer: Revising the audit plan.

Which of the following procedures should an auditor generally perform regarding subsequent events?

Which of the following procedures should an auditor generally perform regarding subsequent events? 

A. Compare the latest available interim financial statements issued after year-end with the financial statements being audited.
B. Send second requests to the entity's customers who failed to respond to initial accounts receivable confirmation requests.
C. Communicate material weaknesses in internal controls to those charged with governance.
D. Review the cutoff bank statements for several months after year-end.


Answer: Compare the latest available interim financial statements issued after year-end with the financial statements being audited.

An auditor issued an audit report that was dual dated for a subsequent event that occurred after the completion of fieldwork but before issuance of the auditor's report. The auditor's responsibility for events occurring subsequent to the completion of fieldwork was

An auditor issued an audit report that was dual dated for a subsequent event that occurred after the completion of fieldwork but before issuance of the auditor's report. The auditor's responsibility for events occurring subsequent to the completion of fieldwork was 

A. Limited to the specific event referenced.
B. Limited to include only events occurring before the date of the last subsequent event referenced.
C. Extended to subsequent events occurring through the date of issuance of the report.
D. Extended to include all events occurring since the completion of fieldwork.


Answer: Limited to the specific event referenced.

An example of a Type I subsequent event is

An example of a Type I subsequent event is 

A. A tornado that destroys an entity's factory after the balance sheet date.
B. An event after the balance sheet date that confirms the auditor's belief (documented prior to the end of the entity's fiscal year) that a large portion of the entity's inventory is obsolete.
C. Notification of an IRS audit after the balance sheet date.
D. The entity's Board of Directors unexpectedly resigns after the balance sheet date.


Answer: An event after the balance sheet date that confirms the auditor's belief (documented prior to the end of the entity's fiscal year) that a large portion of the entity's inventory is obsolete.

Which of the following situations would require adjustment to or disclosure in the financial statements?

Which of the following situations would require adjustment to or disclosure in the financial statements? 

A. A merger discussion.
B. The application for a patent on a new production process.
C. Discussions with a customer that could lead to a 40 percent increase in the entity's sales if agreement is successful.
D. The bankruptcy of a customer who regularly purchased 30 percent of the company's output.


Answer: The bankruptcy of a customer who regularly purchased 30 percent of the company's output.

Which of the following material events occurring subsequent to the balance sheet date would require an adjustment to the financial statements before they could be issued?

Which of the following material events occurring subsequent to the balance sheet date would require an adjustment to the financial statements before they could be issued? 

A. Sale of long-term debt or capital stock.
B. Loss of a plant as a result of a flood.
C. Major purchase of a business that is expected to double sales volume.
D. Settlement of litigation, in excess of the previously recorded liability.


Answer: Settlement of litigation, in excess of the previously recorded liability.

The refusal of an entity's attorney to provide a representation on the legality of a particular act committed by the entity is generally

The refusal of an entity's attorney to provide a representation on the legality of a particular act committed by the entity is generally 

A. Sufficient reason to issue a "subject to" qualified opinion.
B. Considered to be a scope limitation.
C. Insufficient reason to modify the auditor's report because of the attorney's obligation of confidentiality.
D. Proper grounds to withdraw from the engagement without further consideration.


Answer: Considered to be a scope limitation.

If a lawyer refuses to furnish corroborating information regarding litigation, claims, and assessments, the auditor should

If a lawyer refuses to furnish corroborating information regarding litigation, claims, and assessments, the auditor should 

A. Honor the confidentiality of the client-lawyer relationship.
B. Consider the refusal to be a scope limitation.
C. Seek to obtain the corroborating information from management.
D. Disclose this fact in a footnote to the financial statements.


Answer: Consider the refusal to be a scope limitation.

An auditor will ordinarily examine invoices from lawyers primarily in order to

An auditor will ordinarily examine invoices from lawyers primarily in order to 

A. Substantiate accruals.
B. Assess the legal ramifications of litigation in progress.
C. Estimate the dollar amount of contingent liabilities.
D. Identify possible unasserted litigation, claims, and assessments.


Answer: Identify possible unasserted litigation, claims, and assessments.

An auditor should obtain evidential matter relevant to all the following factors concerning third-party litigation against an entity except the:

An auditor should obtain evidential matter relevant to all the following factors concerning third-party litigation against an entity except the: 

A. Period in which the underlying cause for legal action occurred.
B. Probability of an unfavorable outcome.
C. Jurisdiction in which the matter will be resolved.
D. Existence of a situation indicating an uncertainty as to the possible loss.


Answer: Jurisdiction in which the matter will be resolved.

The auditor's primary means of obtaining corroboration of management's information concerning litigation is a

The auditor's primary means of obtaining corroboration of management's information concerning litigation is a 

A. Letter of audit inquiry to the entity's lawyer.
B. Letter of corroboration from the auditor's lawyer upon review of the legal documentation.
C. Confirmation of claims and assessments from the other parties to the litigation.
D. Confirmation of claims and assessments from an officer of the court presiding over the litigation.


Answer: Letter of audit inquiry to the entity's lawyer.

When obtaining evidence regarding litigation against an entity, the CPA would be least interested in determining

When obtaining evidence regarding litigation against an entity, the CPA would be least interested in determining 

A. An estimate of when the matter will be resolved.
B. The period in which the underlying cause of the litigation occurred.
C. The probability of an unfavorable outcome.
D. An estimate of the potential loss.


Answer: An estimate of when the matter will be resolved.

When auditing contingent liabilities, which of the following procedures would be least effective?

When auditing contingent liabilities, which of the following procedures would be least effective? 

A. Reading the minutes of the board of directors.
B. Reviewing the bank confirmation letter.
C. Examining customer confirmation replies.
D. Examining invoices for legal services.


Answer: Examining customer confirmation replies.