1. In the Auditing and Attestation section of the CPA exam, candidates are expected to demonstrate knowledge and understanding of the professional standards and the skill to apply that knowledge to performing auditing tasks. Some of the tasks that candidates are expected to perform are

a. differentiate between audits, tax, and compilation services

b. differentiate between the accounting standards for issuers and nonissuers

c. identify situations that might be unethical or a violation of professional standards, perform research and consultations as appropriate, and determine the appropriate action

d. recognize potentially unethical behavior of clients and determine the impact on the services performed

e. demonstrate the importance of identifying and following requirements, rules, and standards that are established by the AICPA

f. both A and B

g. both C and D

h. both D and E

Question 2: In which of the following ways may an accountant be hired by a publicly owned company?

a. to perform an audit with no assurance

b. to prepare and audit the financial statements

c. to provide attest services

d. to do an audit compilation

e. to perform a review

f. both A and D

g. both B and E

h. both C and E

Question 3: The objective of a compilation engagement in the U.S. is to

a. express limited assurance that there are no material modifications that should be made to the financial statements in order for the statements to be in conformity with GAAP

b. present in the form of financial statements, information that is the representation of management while expressing limited assurance on the financial statements

c. express limited assurance that there are no material misstatements in the financial statements

d. present in the form of financial statements, information that is the representation of management without expressing any assurance on the financial statements

Question 4: Which of the following are principles that establish the basic framework for the professional code of conduct in the U.S.?

a. reliability

b. relevance

c. integrity

d. objectivity and independence

e. proficiency

f. both A and D

g. both C and D

h. both D and E

Question 5: According to Interpretation 101-1, independence is impaired if the auditor has any direct or material indirect financial interest in the client. An indirect financial interest includes

a. a material financial interest in a company associated with the client

b. stock ownership in the client

c. stock ownership in the client by a distant cousin

d. a loan to or from the client

e. an investment in a mutual fund that owns shares of stock in the company

f. both A and E

g. both B and C

h. both D and E

Question 6: Rule 202 of the AICPA Code of Professional Conduct- requires the accountant to follow the accounting standards. Rule 202

a. gives the accounting standards clear guidelines for members to follow

b. gives the accounting standards the force of law for the profession

c. gives the accounting standards a measurement for due professional care

d. gives the accounting standards an exception if the financial statements are not in accordance with GAAP

Question 7: Section 300 - "Responsibilities to Clients" of the AICPA Code of Professional Conduct includes Rule 302 which prohibits

a. an accountant from preparing tax returns for a contingent fee

b. an accountant from performing actuarial for a contingent fee

c. an accountant from preparing fairness opinions for a contingent fee

d. an accountant from performing valuation services for a contingent fee

Question 8: The auditor faces legal liability from which of the following sources?

a. audit clients

b. second party liability under common law

c. civil liability under the federal banking laws

d. criminal liability

e. civil liability under state securities laws

f. both A and D

g. both B and E

h. both C and D

Question 9: Which of the following is a defense that an auditor might use to defend himself against client lawsuits?

a. lack of duty

b. non-negligent connection

c. lack of damages

d. contributory negligence

e. absence of causal performance

f. both A and D

g. both B and E

h. both C and E

Question 10: Examples of contingent liabilities include

a. lawsuits requesting the company to pay damages for patent liability or product infringement

b. product warranty claims

c. payment of obligations of other parties

d. liabilities for discounted notes receivable

e. income tax extensions

f. both A and C

g. both B and D

h. both D and E

Question 11: The auditing standards require the auditor to design audit procedures and plan the audit to identify litigation, claims, and assessments involving the company that may increase the risk of material misstatement. The auditor does this by

a. asking management and others in the company, including the in-house legal counsel about legal liabilities

b. reviewing minutes of meetings of those charged with governance and correspondence between the company and its external counsel

c. reviewing the expense accounts related to legal expense

d. reviewing tax returns

e. investigating customer complaints

f. both A and B

g. both A and D

h. both B and C

Question 12: The auditing standards require the auditor to consider the possible effect of events occurring

a. after year-end but before the financial statements are issued to the public

b. after year-end but before the completion of fieldwork

c. during the year but before the financial statements are issued to the public

d. during the year but before the completion of fieldwork

Question 13: The requirements for Type I and Type II subsequent events are

a. Type I events are disclosed in the financial statements

b. Type II events are disclosed in the financial statements

c. neither Type I nor Type II events are recorded in the financial statements

d. Type II events are recorded in the financial statements

e. Type I events are recorded in the financial statements

f. both A and B

g. both B and E

h. both C and D

Question 14: The FASB define related parties as

a. customers of the company

b. investments accounted for using the cost method of accounting for investment securities

c. trusts for the benefit of employees, such as, pension and profit sharing trusts that are managed by management

d. principal owners of the company and their immediate families

e. employees of the company and their immediate families

f. both A and B

g. both B and E

h. both C and D

Question 15: The auditor's responsibility regarding the going concern assumption is to

a. evaluate the possibility that the company could go bankrupt

b. evaluate the appropriateness of management's use of the going concern assumption in the preparation and presentation of the financial statements

c. conclude about whether there is a material uncertainty about the company's ability to continue as a going concern

d. determine the implications for the audit report

e. estimate the net income that the company expects to earn during the current year

f. both A and B

g. both C and D

h. both D and E

Question 16: The purpose of the management representation letter is to

a. clarify all the information provided to the auditor during the audit reducing the possibility of misunderstanding between management and the auditor

b. obtain additional information to support audit conclusions

c. clarify assumptions provided to the auditor during the audit

d. obtain audit evidence that was not available during the normal course of fieldwork

Question 17: The auditing standards have listed several circumstances that might cause quantitatively immaterial misstatements to be judged material. These include

a. misstatements that change income into a loss

b. the effect of the misstatement on loan covenants, contractual agreements and regulatory provisions

c. the existence of statutory or regulatory reporting requirements that might have an impact on materiality levels

d. misstatements that have the effect of increasing management's compensation

e. the effect of misclassifying income between operating and nonrecurring

f. both A and B

g. both C and D

h. both D and E

Question 18: The issues that may lead to inconsistent financial statements include

a. a change in accounting estimate

b. a change in accounting procedure

c. adjustment to correct a misstatement in the current financial statements

d. a change in accounting principle

e. adjustment to correct a misstatement in previously issued financial statements

f. both A and B

g. both C and E

h. both D and E