MaoEn/USCPA_AUD_Data huggingface dataset:
Choice "C" is incorrect. Standard deviation is a measure of the variability of a frequency distribution about its mean."
Which of the following is an inaccurate statement as it pertains to the auditor’s consideration of significant risks during an audit?
A.
The impact of the client’s controls related to the perceived risk is a determinant for deciding the level of significance.
B.
Inherent risk is the only consideration.
C.
The auditor uses professional judgment to identify whether a particular risk of material misstatement is a significant risk.
D.
It exists when the inherent risk is exceptionally high.,"Choice "A" is correct. This represents a false statement. When determining whether a risk is significant or not, the auditor should ignore the impact of the client’s controls related to that risk.
Choice "B" is incorrect. The auditor determines whether a risk is significant (or not) by its inherent risk alone.
Choice "C" is incorrect. Ultimately the auditor must use his or her professional judgment when determining if a given risk of material misstatement is a significant risk.
Choice "D" is incorrect. When the inherent risk is exceptionally high, the auditor would consider the risk as significant."
The auditor requests that client management prepare a letter of inquiry to the client’s outside legal counsel. The auditor sends the letter to the attorney’s office. Because of inherent uncertainties regarding several lawsuits involving the client, the client’s attorneys are unable to form any meaningful conclusions at this time. Under this scenario, what is the auditor’s best course of action?
A.
Withdraw from the audit engagement.
B.
Continue the audit but issue a modified opinion explaining the scope limitation.
C.
Determine if the financial statement disclosure is adequate and issue an unmodified opinion.
D.
Follow up with the client’s attorneys after the audit date and issue a disclaimer of opinion.,"Choice "C" is correct. There are situations in which the inherent uncertainties regarding litigation make it impossible for outside counsel to predict the outcome of pending lawsuits. Because this is not a scope limitation, the auditor should ensure that financial disclosure regarding the lawsuit contingencies are adequate and issue an unmodified opinion assuming all other aspects of the audit are acceptable.
Choice "A" is incorrect. This is too severe an action by the auditor, given there is no scope limitation.
Choice "B" is incorrect. There is no scope limitation in this scenario, so a modified opinion is not warranted.
Choice "D" is incorrect. While follow up with client attorneys may be an acceptable course of action (assuming there is no objection from the client), there is no need to issue a disclaimer of opinion."
PCAOB standards state that the relevance of audit evidences depends on all but which of the following?
A.
Whether the audit procedure is designed to test for an understatement or overstatement.
B.
The auditor's risk assessment.
C.
Whether the audit procedure is designed to directly test an assertion.
D.
The timing of the audit procedure.,"Choice "B" is correct. The auditor's risk assessment affects the nature, extent, and timing of audit procedures, but does not determine the relevance of audit evidence.
Choice "C" is incorrect. The relevance of audit evidence depends in part on whether the audit procedure is designed to directly test an assertion. If the audit procedures is designed to directly test an assertion and the evidence doesn't tell us anything about that assertion, then the evidence would not be relevant.
Choice "D" is incorrect. The relevance of audit evidence depends in part on the timing of the audit procedure."
The auditor should consider certain factors in assessing the efficiency and effectiveness of analytical procedures as compared to tests of details. In determining whether and to what extent analytical procedures should be used, which of the following should the auditor consider?
A.
Nonfinancial information that may affect financial information.
B.
The nature of the assertion tested.
C.
Interrelationships of financial information.
D.
Explanations provided by the client.,"Choice "B" is correct. When evaluating whether and to what extent analytical procedures should be used, the auditor should consider the nature of the assertion tested. The other factors the auditor considers are the plausibility and predictability of the data relationship, availability and reliability of data used to develop the expectation, and the precision of the expectation.
Choice "A" is incorrect. The consideration of nonfinancial information and its effect on the financial information is not a direct factor that the auditor considers when assessing the efficiency and effectiveness of analytical procedures. However, the auditor may consider this when forming an expectation.
Choice "C" is incorrect. Interrelationships of financial information is not a direct factor that the auditor considers when assessing the efficiency and effectiveness of analytical procedures. However, the auditor may consider this when forming an expectation.
Choice "D" is incorrect. Explanations provided by management is not a direct factor when assessing the efficiency and effectiveness of analytical procedures. However, the auditor may consider their explanations when evaluating the results of analytical procedures."
Which of the following actions is an analytical procedure that an auditor most likely would use while auditing a company's notes payable?
A.
Reviewing the details of the company's loan and interest expense accounts to determine that all payments were properly recorded.
B.
Multiplying the average outstanding loan balance by the interest rate and comparing the result to interest expense actually recorded.
C.
Sending a confirmation to the lender requesting verification of the loan's outstanding balance.
D.
Performing calculations to determine if the company is in compliance with debt covenants.,"Choice "B" is correct. Analytical procedures involve developing an expectation (based on plausible relationships) and comparing recorded amounts or ratios based on recorded amounts to that expectation. An example of an analytical procedure related to notes payable is multiplying the average outstanding loan balance by the interest rate (auditor's expected amount) and comparing the result to interest expense actually recorded.
Choice "A" is incorrect. Reviewing the details of the company's loan and interest expense accounts to determine that all payments were properly recorded is not an analytical procedure because it does not involve the auditor developing an expectation and comparing it to the actual recorded amount.
Choice "C" is incorrect. Sending a confirmation to the lender requesting verification of the loan's outstanding balance is an example of a confirmation, not analytical, procedure.
Choice "D" is incorrect. Performing calculations to determine if the company is in compliance with debt covenants is not an analytical procedure because it does not involve the auditor developing an expectation and comparing it to the actual recorded amount."
Which of the following statements about audit sampling risks is correct for a nonissuer?
A.
Nonsampling risk can arise because an auditor failed to recognize misstatements.
B.
Nonsampling risk arises from the possibility that, when a substantive test is restricted to a sample, conclusions might be different than if the auditor had tested each item in the population.
C.
Sampling risk includes the possibility of selecting audit procedures that are not appropriate to achieve the specific objective.
D.
Sampling risk is derived from the uncertainty in applying audit procedures to specific risks.,"Choice "A" is correct. Nonsampling risk includes all aspects of audit risk that are not due to sampling. It is always present and cannot be measured; the auditor can only attempt to reduce this risk to a very low level through adequate planning and supervision of the audit and quality control of all firm practices. Nonsampling risk can arise because an auditor failed to recognize misstatements in documents examined.
Choice "B" is incorrect. Sampling risk, not nonsampling risk, arises from the possibility that, when a substantive test is restricted to a sample, conclusions might be different than if the auditor had tested each item in the population.
Choice "C" is incorrect. Nonsampling risk, not sampling risk, includes the possibility of selecting audit procedures that are not appropriate to achieve the specific objective.
Choice "D" is incorrect. Audit risk, not sampling risk, refers to uncertainty in applying audit procedures to specific risks."
Which of the following spreadsheets most likely has the highest risk of data integrity errors?
A.
A spreadsheet that displays imported comma-delimited text files from the check payment module and is reviewed by the accounts payable administrator.
B.
A spreadsheet the CFO uses that is directly linked to the company's accounting system database.
C.
A spreadsheet that captures time and attendance transactions from an automated time clock system.
D.
A spreadsheet into which the controller enters summary daily sales data from a printed report of an automated accounting system.,"Choice "D" is correct. Data integrity relates to the assurance that data is consistent and accurate. Spreadsheets with manual inputs carry a higher risk of errors than those produced from automated processes. A spreadsheet with manual entry inputs from a printed report carries a high risk of data integrity errors.
Choice "A" is incorrect. Because the spreadsheet is an output from the check payment module and is reviewed by an administrator in accounts payable who likely is responsible for check payments, the risk of data integrity errors is low.
Choice "B" is incorrect. A spreadsheet that has a direct linkage to the accounting system database should have a high degree of data integrity.
Choice "C" is incorrect. A spreadsheet with inputs from an automated clock system carries a lower risk of data integrity errors than a spreadsheet created from manual entries."
Which limitation on response from an attorney in response to auditor’s inquiry may result in a qualified opinion?
A.
The attorney's refusal to respond when the attorney has given substantial attention to the matter.
B.
The attorney limits replies to matters to which he or she has given substantial attention.
C.
An inherent uncertainty making it difficult for a lawyer to form conclusions regarding pending litigation.
D.
The client's refusal to permit inquiry of the attorney.,"Choice "A" is correct. The attorney's refusal to respond when the attorney has given substantial attention to the matter would represent a scope limitation. Depending on materiality, this may result in a qualified opinion or disclaimer of opinion.
Choice "B" is incorrect. Lawyers may limit their replies to matters to which they have given substantial attention.
Choice "C" is incorrect. If the auditor is satisfied that financial statement disclosure is adequate, no modification to the opinion would be required.
Choice "D" is incorrect. A refusal to permit inquiry will generally result in a disclaimer of opinion or withdrawal from the audit."
The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the: A.
Human resources functions from the accounting functions.
B.
Administrative function from the hiring function.
C.
Authorization of transactions from the custody of related assets.
D.
Application controls from the general controls.,"Choice "C" is correct. The hiring function provides authorization for payment. Distributing payroll is a custodial function.
Choice "A" is incorrect. Segregation of duties generally refers to the separation of authorization, recordkeeping and custody, not the separation of various functional units.
Choice "B" is incorrect. Hiring is an administrative function.
Choice "D" is incorrect. Hiring and payroll distribution are not types of application controls or general controls."
A report issued on significant deficiencies in internal control noted during a financial statement audit of a nonissuer should contain all of the following except: A.
A restriction on the use of the report.
B.
A statement of compliance with laws and regulations.
C.
The definition of material weaknesses.
D.
An indication that the purpose of the audit was to report on the financial statements.,"Choice "B" is correct. No statement of compliance with laws and regulations is required in the report.
Choices "C", "A", and "D" are incorrect. The definition of material weaknesses, a restriction on the use of the report, and an indication that the purpose of the audit was to report on the financial statements all should be part of the report."
Which of the following most likely would be an internal control procedure designed to detect errors and irregularities concerning the custody of inventory? A.
Periodic reconciliation of work in process with job cost sheets.
B.
Independent comparisons of finished goods records with counts of goods on hand.
C.
Segregation of functions between general accounting and cost accounting.
D.
Approval of inventory journal entries by the storekeeper.,"Choice "B" is correct. Independently comparing inventory records with physical inventory counts may detect discrepancies concerning the custody of inventory.
Choice "A" is incorrect. Periodic reconciliation of work in process with job cost sheets relates to the recordkeeping aspects of inventory and not to its physical custody.
Choice "C" is incorrect. Segregation of duties between general accounting and cost accounting relates to the recordkeeping aspects of inventory and not to its physical custody.
Choice "D" is incorrect. Requiring approval of journal entries relates to the recordkeeping aspects of inventory and not to its physical custody."
Which of the following is least likely to be used as a substantive test relating to cash balances? A.
Obtain cutoff bank statements and perform bank reconciliations.
B.
Count all cash on hand.
C.
Send cash confirmations to all banks with whom the client has done business.
D.
Verify that cash disbursements have been properly approved.,"Choice "D" is correct. Verifying that cash disbursements have been properly approved is a test of controls, not a substantive test.
Choices "C", "B", and "A" are incorrect. Cash confirmations, cash counts, and bank reconciliations are all a means of verifying the ending cash balance."
Which is true about accounts receivable confirmations? A.
Confirmations may be based on single transactions rather than entire customer balances.
B.
The client may mail the confirmations, but they should be returned directly to the auditor.
C.
Confirmations provide evidence about existence, rights, and valuation.
D.
Blank confirmations provide improved response rates but may be less reliable.,"Choice "A" is correct. The auditor should consider the types of information respondents will be readily able to confirm. For example, it may be easier for certain respondents to confirm individual transactions rather than entire balances. In such cases, the auditor may choose to confirm based on invoice number (i.e., single transactions).
Choice "B" is incorrect. The auditor should maintain control over the confirmation requests and responses, which means the auditor should be the one to mail the confirmations, not the client.
Choice "C" is incorrect. Accounts receivable confirmations do not provide reliable evidence about valuation. Just because a respondent confirms that he/she owes a certain amount does not mean that he/she has the intent or the ability to pay it.
Choice "D" is incorrect. Blank confirmations are those in which the recipient is requested to fill in the balance. They provide improved reliability since the respondent cannot simply sign off without actually verifying the balance. However, since more work is required, response rates are often decreased."
In testing controls over cash disbursements, an auditor most likely would determine that the person who signs the check also: A.
Approves the voucher for payment.
B.
Returns the checks to accounts payable.
C.
Is denied access to the supporting documents.
D.
Stamps, perforates or otherwise cancels supporting documents.,"Choice "D" is correct. This prevents duplicate payments of vendor invoices since cancellation occurs immediately after the check is signed.
Choice "A" is incorrect. The responsibility for authorization and custody should be separated.
Choice "B" is incorrect. Accounts payable should not get the signed checks, since this would allow one group to have both recordkeeping and custodial duties. The check signer should mail the check.
Choice "C" is incorrect. The person who signs the check should have access to the supporting documents, as they must be cancelled after payment."
Which of the following procedures is an auditor most likely to use to test the completeness assertion for fixed assets? A.
Comparison of items listed in the fixed asset ledger to actual assets observed by the auditor.
B.
Recalculation of depreciation on fixed assets.
C.
Comparison of assets acquired during the year to the approved capital budget.
D.
Review of large items charged to repairs and maintenance.,"Choice "D" is correct. When the auditor reviews large items charged to repairs and maintenance, he/she is looking for items that may have been erroneously expensed instead of capitalized. The completeness assertion focuses on just that -- items that should have been included in fixed assets but were not.
Choice "A" is incorrect. Tracing from recorded assets to actual assets tests existence, not completeness. The completeness assertion focuses on assets that are not recorded, so starting with recorded assets will not identify this problem.
Choice "B" is incorrect. Recalculation of depreciation addresses the valuation/allocation assertion, not the completeness assertion.
Choice "C" is incorrect. Verifying that acquisitions were properly approved does not address the completeness assertion, since it does not help the auditor identify items that should have been capitalized but were not."
Which of the following is not true about those charged with governance of an organization? A.
Those charged with governance bear responsibility for financial reporting.
B.
Those charged with governance typically include the board of directors.
C.
Those charged with governance bear responsibility for overseeing the strategic direction of the organization.
D.
Those charged with governance typically include the internal audit department of the organization.,"Choice "D" is correct. The internal audit department of an organization is not typically included in the term "those charged with governance."
Choice "A" is incorrect. The term "those charged with governance" refers to those who bear responsibility to oversee the obligations, financial reporting process, and strategic direction of an entity.
Choice "B" is incorrect. The term "those charged with governance" is broadly interpreted to encompass the terms "board of directors" and "audit committee."
Choice "C" is incorrect. The term "those charged with governance" refers to those who bear responsibility to oversee the obligations, financial reporting process, and strategic direction of an entity."
When performing an audit, a CPA notes that credit loss expense is unusually high relative to similar firms in the industry. The CPA should recommend which of the following controls?
A.
Send monthly statements of account to customers with outstanding balances.
B.
Reconcile accounts receivable in the general ledger with the subsidiary ledger.
C.
Use approved price lists for customer billing.
D.
Require credit checks on all new customers.,"Choice "D" is correct. Credit checks help the company determine the likelihood of a debtor's ability to pay. Credit checks on new customers may result in the company extending less credit to customers who are unlikely to pay, which may result in a lower credit loss expense.
Choice "A" is incorrect. Sending monthly statements to customers with outstanding balances is an important procedure. However, customers who are unlikely or unable to pay probably would not be persuaded by receiving monthly statements.
Choice "B" is incorrect.  Reconciling accounts receivable in the general ledger with the subsidiary ledger is an important procedure to ensure accuracy of the financial statements; however, it is unlikely to decrease credit loss expense.
Choice "C" is incorrect. Using approved price lists for customer billing would help ensure that customers are charged the correct price; however, it is unlikely to decrease credit loss expense."
An auditor's tests of controls for completeness for the revenue cycle usually include determining whether:
A.
An invoice is prepared for each shipping document.
B.
Each credit memo is properly approved.
C.
Each invoice is supported by a customer purchase order.
D.
Each receivable is collected subsequent to the year end.,"Choice "A" is correct. The auditor often traces a sample of shipping documents to sales invoices to test completeness of sales.
Choice "B" is incorrect. Verifying proper approval of credit memos provides evidence regarding the accuracy of receivables, not the completeness of sales.
Choice "C" is incorrect. Vouching sales orders to supporting documentation provides evidence of the existence of sales, not completeness.
Choice "D" is incorrect. Subsequent collections are used to verify the existence and valuation of year-end receivables."
A written communication was sent to management regarding a significant deficiency related to internal controls over accounts payable that was noted during the financial statement audit of a nonissuer. Which of the following should not be included in the communication?
A.
Management’s response.
B.
Definition of significant deficiency.
C.
Restriction on the use of the report.
D.
Description of potential effects.,"Choice “A” is correct. For nonissuers, written communication of significant deficiencies should include: definition of significant deficiency; description of the significant deficiency that includes an explanation of the potential effect; sufficient information to enable those charged with governance and management to understand the context of the communication; and a restriction regarding the use of the communication to management, those charged with governance, others within the organization, and any other governmental authority to which the auditor is required to report. Management’s response to the significant deficiency is not included within the communication.
Choice “B” is incorrect. The definition of a significant deficiency should be included in the communication.
Choice “C” is incorrect. A restriction regarding the use of the communication to management, those charged with governance, others within the organization, and any other governmental authority to which the auditor is required to report should be included in the communication.
Choice “D” is incorrect. A description of the significant deficiency that includes an explanation of the potential effect should be included in the communication."