MaoEn/USCPA_AUD_Data huggingface dataset:
Each of the following items should be included in a presentation of pro forma financial statements, except:
A.
An indication that the pro forma information is not necessarily indicative of results.
B.
The significant assumptions used in developing the pro forma information.
C.
All direct and indirect effects attributed to the related transaction.
D.
The source of the historical information on which the pro forma information is based.,"Choice "C" is correct. A presentation of pro forma financial statements should include all significant direct effects related to the transaction. The presentation does not need to include indirect effects related to the transaction.
Choice "A" is incorrect. A presentation of pro forma financial statements should include an indication that the pro forma information is not necessarily indicative of results.
Choice "B" is incorrect. A presentation of pro forma financial statements should include the significant assumptions used in developing the pro forma information.
Choice "D" is incorrect. A presentation of pro forma financial statements should include the source of the historical information on which the pro forma information is based."
On receiving a client's bank cutoff statement, an auditor most likely would trace:
A.
Deposits recorded in the cash receipts journal after year-end to the cutoff statement.
B.
Prior-year checks listed in the cutoff statement to the year-end outstanding checklist.
C.
Checks dated after year-end listed in the cutoff statement to the year-end outstanding checklist.
D.
Deposits in transit listed in the cutoff statement to the year-end bank reconciliation.,"Choice "B" is correct. The auditor should obtain bank cutoff statements that include transactions for 10 to 15 days after year-end. The outstanding checks and deposits in transit at year-end on the bank reconciliation should agree with the information in the bank cutoff statement.
Choice "A" is incorrect. Deposits recorded in the cash receipts journal after year-end do not affect the cash balance at year-end, and therefore the auditor would not perform audit procedures with respect to those deposits.
Choice "C" is incorrect. Checks dated after year-end would not be included in the year-end outstanding checklist.
Choice "D" is incorrect. Companies may have a tendency to overstate their cash balance. A company that is trying to improve its balance sheet will have a tendency to accelerate recording of deposits, so a deposit that wasn't really made until January might be erroneously listed as a deposit in transit at year-end. Tracing deposits from the cutoff statement to the year-end bank reconciliation won't identify this error, since there is no mention in this option of identifying the actual dates the deposits were made."
An auditor's purpose in reviewing the renewal of a note payable shortly after the balance sheet date most likely is to obtain evidence concerning management's assertions about:
A.
Occurrence.
B.
Understandability of presentation and classification.
C.
Valuation and accuracy.
D.
Completeness.,"Choice "B" is correct. An auditor's purpose in reviewing the renewal of a note payable shortly after the balance sheet date most likely is to obtain evidence concerning management's assertions about understandability of presentation and classification (i.e., classification of the note as current or noncurrent).
Choice "A" is incorrect. Occurrence relates to whether recorded transactions have actually occurred during the given period. Since the renewal took place subsequent to year-end, the auditor would not be concerned about how the transaction was actually recorded until the next reporting period.
Choice "C" is incorrect. Valuation and accuracy pertains to the fair disclosure of financial and other information at appropriate amounts. The renewal of a note payable shortly after year-end generally would not affect its valuation or its accuracy.
Choice "D" is incorrect. Completeness relates to whether all transactions occurring in the period have been recorded. Since the renewal took place subsequent to year-end, it is not relevant to the completeness assertion for the year under audit."
When auditing a client’s property, plant, and equipment transactions, which of the following test of details can be used to support the existence and occurrence assertion?
A.
Examine a sample of material charges to repairs and maintenance expense to determine if any items should have been capitalized.
B.
Vouch a sample of purchases to the vendor invoice and receiving report.
C.
Recalculate any revaluation losses or surplus transactions made to property, plant, and equipment during the year.
D.
Review fixed asset purchases and dispositions right before and after year-end to determine if recorded in the correct period.,"Choice "B" is correct. By vouching a sample of purchases to the vendor invoice and receiving report, the auditor is testing the existence and occurrence assertion.
Choice "A" is incorrect. This procedure is used to test the understandability of presentation and classification assertion as well as the completion assertion.
Choice "C" is incorrect. This procedure is used by the auditor to test the valuation, allocation, and accuracy assertion.
Choice "D" is incorrect. This procedure is used to test the cutoff assertion for property, plant, and equipment transactions."
Which of the following statements is correct about an auditor's required communication with those charged with governance? Assume those charged with governance are not involved in managing the entity.
A.
The auditor is required to inform those charged with governance about significant errors discovered by the auditor and subsequently corrected by management.
B.
Significant deficiencies in internal control previously reported to those charged with governance that have not been corrected need not be communicated again.
C.
Any matters communicated to those charged with governance also are required to be communicated to the entity's management.
D.
Disagreements with management about the application of accounting principles are not required to be communicated to those charged with governance if they have been appropriately resolved.,"Choice "A" is correct. If those charged with governance are not involved with managing the entity, the auditor should communicate material, corrected misstatements brought to management's attention as a result of the audit.
Choice "B" is incorrect. Previously communicated significant deficiencies that have not been corrected should be communicated again, in writing, during the current audit.
Choice "C" is incorrect. Certain matters communicated to those charged with governance, such as those related to the competence and integrity of management, might not be appropriate for discussion with management.
Choice "D" is incorrect. The auditor should communicate disagreements with management, whether or not resolved."
A control deficiency would be considered a material weakness when the likelihood that potential financial statement misstatements will not be prevented, or detected/corrected, and the magnitude of such misstatements are at a minimum:
Likelihood
Magnitude
A.
Probable
More than inconsequential
B.
Reasonable
Material
C.
Probable
Material
D.
Reasonable
More than inconsequential,"Choice "B" is correct. A material weakness is a deficiency, or combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented or detected/corrected.
Choices "C", "D", and "A" are incorrect, based on the explanation above."
An auditor would consider a cashier's job description to contain compatible duties if the cashier receives remittances from the mailroom and also prepares the:
A.
Monthly bank reconciliation.
B.
Prelist of individual checks.
C.
Daily deposit slip.
D.
Remittance advices.,"Choice "C" is correct. An auditor would consider a cashier's job description to contain compatible duties if the cashier receives remittances from the mailroom and also prepares the daily deposit slip. (That is his or her job).
Choice "A" is incorrect. The monthly bank reconciliation is prepared by an internal auditor or someone else that is independent of the cash receipts and cash disbursements functions.
Choice "B" is incorrect. The prelist of individual checks is prepared by a clerk in the mailroom upon opening the mail.
Choice "D" is incorrect. The remittance advice is prepared by the customer and is mailed along with the check (remittance)."
Which of the following represents an insufficient control over cash receipts for a large company?
A.
The accounts receivable department matches the details from the bank deposit ticket with the details from the remittance advices.
B.
A triplicate detail listing of cash receipts is sent to the cashier (along with the cash receipts), accounting department, and accounts receivable department.
C.
A lockbox is used for customer payments.
D.
Checks received are endorsed by the cashier and deposited by the mail custodian on a daily basis.,"Choice "D" is correct. The cashier is responsible for preparation and making of the bank deposit on a daily basis. Because cash collections must be restrictively endorsed and deposited by the cashier, allowing the mail custodian to make the deposits, which have already been endorsed, is an internal control weakness over cash receipts.
Choice "A" is incorrect. This is a good control over cash receipts because it helps find discrepancies.
Choice "B" is incorrect. Having the cash receipts sent to the cashier along with copies of the cash receipts detail to the cashier, accounting department (for input into general ledger), and accounts receivable department (for input into accounts receivable subsidiary ledgers) is an adequate control over cash receipts.
Choice "C" is incorrect. Using a lockbox is a good control over cash receipts."
While auditing a client’s purchase transactions, an auditor selects a sample of vouchers and then compares the dates on the vouchers to the dates the corresponding transactions were actually recorded in the client’s purchase journal. The audit procedure is most likely designed to test the:
A.
Existence and occurrence assertion.
B.
Cut-off assertion.
C.
Completeness assertion.
D.
Valuation, allocation, and accuracy assertion.,"Choice "B" is correct. The scenario above indicates that the auditor is most likely testing the cut-off assertion. This is evidenced by the auditor’s comparison (focus) of dates on the sample of vouchers to the dates of the transactions recorded in the purchase journal.
Choice "A" is incorrect. To test the existence and occurrence assertion, the auditor would review a sample of vouchers for authorization and to determine if the transactions exist on the receiving report.
Choice "C" is incorrect. Although testing the completeness assertion could also involve tracing a sample of transactions to the purchase journal, the auditor’s focus on comparing the dates for transactions on the vouchers and purchase journal indicate the auditor is most likely testing the cut-off assertion.
Choice "D" is incorrect. In order to test the valuation, allocation, and accuracy assertion, the auditor would perform a re-computation on a sample of vendor invoices to determine mathematical accuracy."
Which of the following would an auditor least likely consider with respect to fair values?
A.
Whether the valuation methods used are appropriate in relation to the industry in which the entity operates.
B.
The role of information technology in determining fair value measurements and disclosures.
C.
The effect on fair value measurement and disclosures of information available subsequent to the audit.
D.
Segregation of duties between those committing the entity to certain transactions and those responsible for undertaking the valuations related to those transactions.,"Choice "C" is correct. The auditor would consider subsequent events and transactions occurring before the completion of the audit, not after. The auditor is not responsible for predicting the future, and would not be expected to evaluate the effect of conditions arising subsequent to the audit, that, if known at the time of the audit, might have affected fair value measurements and disclosures.
Choice "A" is incorrect. The auditor should evaluate whether the valuation model is appropriate given the entity's circumstances. As part of this evaluation, the auditor should consider whether the valuation method is appropriate in relation to the business, industry, and environment in which the entity operates.
Choice "B" is incorrect. The auditor is responsible for understanding the entity's process for determining fair value measurements and disclosures. Considering the role of information technology in determining fair value measurements and disclosures is part of understanding this process.
Choice "D" is incorrect. The auditor is responsible for understanding relevant controls. Segregation of duties between those committing the entity to certain transactions and those responsible for undertaking the valuations related to those transactions is a relevant control."
In auditing an entity's computerized payroll transactions, an auditor would be least likely to use test data to test controls concerning:
A.
Overpayment of employees for hours not worked.
B.
Control and distribution of unclaimed checks.
C.
Withholding of taxes and Social Security contributions.
D.
Missing employee identification numbers.,"Choice "B" is correct. In auditing an entity's computerized payroll transactions, an auditor would be least likely to use test data to test controls concerning control and distribution of unclaimed checks, since these sorts of controls are typically not automated. Controls surrounding unclaimed checks typically rely on proper segregation of duties, which is best evaluated through the auditor's direct observation.
Choice "A" is incorrect. In auditing an entity's computerized payroll transactions, an auditor might use test data to test controls concerning overpayment of employees for hours not worked. For example, the auditor might input fictitious additional hours to determine whether any controls identify the problem.
Choice "C" is incorrect. In auditing an entity's computerized payroll transactions, an auditor might use test data to test controls concerning withholding of taxes and Social Security contributions. For example, the auditor might input fictitious amounts, or attempt to change the current amounts, to determine whether any controls identify the problem.
Choice "D" is incorrect. In auditing an entity's computerized payroll transactions, an auditor might use test data to test controls concerning missing employee identification numbers. For example, the auditor might try to input employee payroll data without an appropriate identification number, to determine whether any controls identify the problem."
Which of the following internal controls most likely would prevent direct labor hours from being charged to manufacturing overhead?
A.
Use of time tickets to record actual labor worked on production orders.
B.
Reconciliation of work-in-process inventory with periodic cost budgets.
C.
Comparison of daily journal entries with approved production orders.
D.
Periodic independent counts of work-in-process for comparison to recorded amounts.,"Choice "A" is correct. The use of time tickets to record actual labor worked on production orders is the best way to prevent direct labor from being charged to manufacturing overhead.
Choice "B" is incorrect. The work-in-process inventory contains not only labor, but also materials and overhead.
Choice "C" is incorrect. Daily journal entries are made to record the use of labor and materials. Reconciliation of the amount of daily labor to approved production orders would not prevent direct labor from being charged to manufacturing overhead.
Choice "D" is incorrect. The work-in-process inventory contains not only labor, but also materials and overhead."
In an integrated audit of a nonissuer, which of the following is not required of management:
A.
Acceptance of responsibility for the effectiveness of internal control.
B.
Evaluation of the effectiveness of the entity’s internal control.
C.
Identifying and documenting control objectives and the controls that meet those objectives.
D.
Providing a written assessment about the effectiveness of the entity’s control that is dated as of the date of issuance of the assessment.,"Choice “D” is correct. In an integrated audit of a nonissuer, management should provide a written assessment about the effectiveness of the entity’s control in a report that accompanies the auditor’s report. The as-of date in management’s assessment should coincide with the date of the financial statements.
Choice “A” is incorrect. Management must accept responsibility for the effectiveness of internal control.
Choice “B” is incorrect. Management is required to perform an evaluation of the effectiveness of the entity’s internal control.
Choice “C” is incorrect. Management is required to identify and document control objectives and the controls that meet those objectives."
A report on a nonissuer's internal control based on an audit of internal control should include a statement indicating that:
I.
Because there are inherent limitations in internal control, misstatements may occur and not be detected.
II.
Projections of the evaluation of internal control to future periods are subject to the risk that the internal control may become inadequate.
III.
The report is intended solely for the information and use of the audit committee, management, and other specified parties.
A.
II and III, only.
B.
I and II only.
C.
I, II, and III.
D.
I and III only.,"Choice "B" is correct. Each of the first two statements would be included in the inherent limitations paragraph of the report. The third statement, indicating restricted use, would not be included as there is no restriction on the use of this report. (A report on internal control matters noted during an audit would, however, include a restricted use paragraph.)
Choices "D", "C", and "A" are incorrect, based on the above explanation."
A subsequent event occurred after the date of the auditor’s report on an integrated audit. What is the auditor’s responsibility regarding this subsequent event?
A.
Revoke the audit report and issue an adverse opinion.
B.
Inquire of management and keep the documentation for the following year’s audit.
C.
There is no responsibility to stay informed of events that occur after the date of the auditor’s report.
D.
Obtain information about the conditions that arose after the date of the auditor’s report to include in a letter written to management and to those charged with governance.,"Choice “C” is correct. The auditor has no responsibility to stay informed with respect to events that occur after the date of the auditor’s report when performing an integrated audit. But if the auditor becomes aware of conditions that existed at the report date, appropriate action should be taken.
Choices “D”, “A”, and “B” are incorrect, based on the above explanation."
Which of the following standards should a CPA firm apply in a review of Management Discussion and Analysis?
A.
Statements on Standards for Consulting Services.
B.
Statements on Auditing Standards.
C.
Statements on Standards for Accounting and Review Services.
D.
Statements on Standards for Attestation Engagements.,"Choice "D" is correct. A CPA should refer to Statements on Standards for Attestation Engagements (SSAE) for a review of Management and Discussion Analysis.
Choice "A" is incorrect. A CPA should refer to Statements on Standards for Consulting Services when performing consulting services.
Choice "B" is incorrect. A CPA should refer to Statements on Auditing Standards when performing an audit for a nonissuer.
Choice "C" is incorrect. A CPA should refer to Statements on Standards for Accounting and Review Services when performing a preparation, compilation, or review of historical financial statements for nonissuers. SSARS also applies to preparation and compilations of pro forma and prospective financial information."
Robbins Company uses an outside service organization called Payroll Plus to process its payroll. Matthews, CPA is the auditor of Payroll Plus, and Stevens, CPA is Robbins' auditor. Stevens' assessment of the risk of material misstatement may be based on the effective operation of controls surrounding payroll if:
A.
Matthews provides a report on controls placed in operation and tests of operating effectiveness.
B.
Matthews’ audit report indicates that none of the significant deficiencies in internal control identified at Payroll Plus constitute material weaknesses in internal control.
C.
Matthews provides a report on controls placed in operation.
D.
Matthews issues a standard, unmodified opinion on the financial statements of the service organization.,"Choice "A" is correct. Stevens may assume controls are operating effectively if Matthews provides a report on controls placed in operation and tests of operating effectiveness, and if this report supports a reduction in the assessed level of control risk. A SOC 1® Type 2 report provides the user auditor with assurance about the design, implementation, and operating effectiveness of the service organization's internal controls.
Choice "B" is incorrect. The fact that none of the significant deficiencies in internal control are serious enough to be material weaknesses is not sufficient to support a reduction in the assessed level of control risk.
Choice "C" is incorrect. A report on controls placed in operation does not provide evidence about operating effectiveness and therefore cannot be used to support a reduction in the assessed level of control risk. A SOC 1® Type 1 report does not include the testing of the operating effectiveness of controls at a service organization and therefore cannot be used as a basis for assessing control risk below maximum.
Choice "D" is incorrect. An audit report on the financial statements of Payroll Plus does not indicate whether controls are operating effectively. It only indicates that the financial statements are fairly stated, and this could be the case regardless of how controls are functioning."
Management's written representation to the auditor in connection with a governmental audit would most likely include:
A.
Negative assurance that the government has complied with compliance requirements.
B.
Representation that all known noncompliance had been reported or negative assurance that other noncompliance likely does not exist.
C.
A statement that management has disclosed any communications from grantors concerning possible noncompliance.
D.
A statement that management had identified and disclosed all material government programs to the auditor.,"Choice "C" is correct. The management letter will include a statement that management has disclosed any communications from grantors concerning possible noncompliance.
Choice "A" is incorrect. The representation letter should include a statement that management believes that the entity has complied with compliance requirements. Management representations do not provide negative assurance.
Choice "B" is incorrect. Management will assert that they have disclosed all known noncompliance or positively state that there was no such noncompliance. Management representations do not provide negative assurance.
Choice "D" is incorrect. The representation letter should include a statement that management has disclosed all governmental programs to the auditor. Management's representation is not limited to only material government programs."