MaoEn/USCPA_AUD_Data huggingface dataset:
At the peak of a business cycle, which of the following conditions is most true?
A.
The overall price level is likely to be falling.
B.
Capacity constraints and labor shortages are likely to put upward pressure on the overall price level.
C.
There is likely to be an excess supply of labor and business inventories are likely to be high.
D.
Output (GDP) tends to be below the potential level of output.,"Choice "B" is correct. The peak of a business cycle marks the highest point of economic activity. At that point, firms are likely to face capacity constraints and labor shortages, which will put upward pressure on the overall price level.
Choice "A" is incorrect. The overall price level is likely to be rising not falling.
Choice "C" is incorrect. Business inventories are likely to be low, not high, and there is likely to be excess demand for labor not an excess supply of labor.
Choice "D" is incorrect. GDP is likely to be above, not below, its potential level."
PCAOB has established risk assessment standards for issuer audits. Which of the following is not a financial statement assertion as recognized by PCAOB standards?
A.
Occurrence.
B.
Disclosure.
C.
Cutoff.
D.
Presentation.,"Choice "C" is correct. Cutoff is not a financial statement assertion recognized by PCAOB standards. PCAOB standards include the assertions of Existence or Occurrence, Completeness, Valuation or Allocation, Rights and Obligations, and Presentation and Disclosure. Cuttoff testing would be covered by the Existence or Occurrence and the Completeness assertions.
Choices "A", "B", and "D" are incorrect as each represents a financial statement assertion as recognized by PCAOB standards."
Which of the following errors most likely would be detected by analyzing financial totals?
A.
A transposition error on one employee's paycheck on a weekly payroll run.
B.
A missing digit in an invoice number in a batch of daily sales.
C.
Malfeasance resulting from a receivable clerk's pocketing of a customer's payment and altering of the related records.
D.
A purchase order mistakenly entered into two different batches.,"Choice "A" is correct. A manual total will be calculated for each transaction file and compared to a computer-generated batch control total. Any financial discrepancies (such as an error on an employee paycheck) will be identified and resolved as part of this process.
Choice "B" is incorrect. Analyzing financial totals would not capture missing digits on invoice numbers.
Choice "C" is incorrect. A company should have other controls in place to ensure that all payments received are accounted for appropriately, as controls would not necessarily catch this activity.
Choice "D" is incorrect. A company should have other controls in place to prevent this, as a financial total is only designed to ensure that what is in the purchase order itself is appropriately reconciled to the computer-generated control total."
Which of the following is not a reason an auditor may apply audit data analytics (ADAs) when concluding an audit?
A.
The auditor will have a deeper knowledge of the entity being audited and may reperform tests done in the risk assessment process.
B.
To update existing analytics with numbers that were revised during the audit.
C.
To verify the assertions of accuracy and occurrence for all material transactions.
D.
To gain comfort that no material misstatements went unidentified during the audit.,"Choice "C" is correct. These assertions are tested as part of substantive procedures.
Choice "A" is incorrect. When concluding the audit, the auditor will have advanced knowledge of the entity being audited and the nature of the environment in which the entity operates. This deeper knowledge allows the auditor to apply ADAs, similar to risk assessment procedures but with a new perspective.
Choice "B" is incorrect. Using ADAs as concluding procedures may also involve updated financial figures or disclosure information that were discovered during the audit.
Choice "D" is incorrect. Using ADAs to assist when forming an overall conclusion allows the auditor to gain comfort that no material misstatements went unidentified or unassessed during the course of the audit."
Each of the following is a qualitative factor that an auditor of a nonissuer may consider relevant when evaluating whether misstatements are material, except:
A.
The risk of incorrect acceptance of a misstatement.
B.
The significance of the financial statement element affected by the misstatement.
C.
The potential effect of the misstatement on the entity's compliance with a contractual agreement.
D.
The masking effect of the misstatement on a change in earnings in the context of industry conditions.,"Choice "A" is correct. The risk of incorrect acceptance is an aspect of sampling risk that the auditor considers when designing an audit procedure where sampling is used. This is considered before any potential misstatement is identified.
Choice "B" is incorrect. If a misstatement is identified, the auditor may consider the significance of the financial statement element affected by the misstatement.
Choice "C" is incorrect. If a misstatement is identified, the auditor may consider the potential effect that it has on the entity's compliance with a contractual agreement.
Choice "D" is incorrect. If a misstatement is identified, the auditor may consider the masking effect of the misstatement on a change in earnings."
Which of the following procedures would an auditor most likely perform to test controls relating to management's assertion about the completeness of cash receipts for cash sales at a retail outlet?
A.
Compare the cash balance in the general ledger with the bank confirmation request.
B.
Inquire about employees' access to recorded but undeposited cash.
C.
Observe the consistency of the employees' use of cash registers and tapes.
D.
Trace the deposits in the cash receipts journal to the cash balance in the general ledger.,"Choice "C" is correct. Observing the consistent use of cash registers and tapes by employees would provide evidence to the auditor regarding the controls over the completeness of cash receipts.
Choices "B", "D", and "A" are incorrect. The completeness assertion relates to the recording of all transactions. Inquiries about access to recorded cash, tracing from the cash receipts journal, and testing the general ledger balance do not provide evidence regarding possible unrecorded transactions."
Which of the following factors would least likely affect the extent of the auditor's consideration of the client's internal controls?
A.
The amount of time budgeted to complete the engagement.
B.
How frequently the control is performed.
C.
The extent to which other tests provide evidence about the same assertion.
D.
The expected deviation rate from the control.,"Choice "A" is correct. The extent of the auditor's consideration of the client's controls is affected by a variety of factors, with the primary goal being to obtain a sufficient understanding of the entity and its environment, including its system of internal control. The amount of time budgeted to complete the audit should not be a primary factor in determining the extent of consideration of the client's controls—if more time is needed to adequately consider internal control, then the budget should be revised.
Choice "B" is incorrect. How frequently the control is performed would affect the extent of the auditor's consideration of the client's controls.
Choice "C" is incorrect. The extent to which other tests provide evidence about the same assertion would affect the extent of the auditor's consideration of the client's controls.
Choice "D" is incorrect. The expected deviation rate would affect the extent of the auditor's consideration of the client's controls."
After determining that a related party transaction has, in fact, occurred, an auditor should:
A.
Substantiate that the transaction was consummated on terms equivalent to an arm's-length transaction.
B.
Obtain an understanding of the business purpose of the transaction.
C.
Perform analytical procedures to verify whether similar transactions occurred, but were not recorded.
D.
Add a separate paragraph to the auditor's standard report to explain the transaction.,"Choice "B" is correct. After identifying the occurrence of a related party transaction, the auditor should apply the procedures considered necessary to obtain satisfaction concerning the purpose and nature of the transaction and its effect on the financial statements.
Choice "A" is incorrect. It will generally not be possible to substantiate representations that the transaction was consummated on terms equivalent to those that would have prevailed in an arm's-length transaction.
Choice "C" is incorrect. Analytical procedures are generally not effective in the identification of related party transactions.
Choice "D" is incorrect. While an extra paragraph may be added to emphasize a matter, there is no requirement that related party transactions be disclosed via explanatory language added to the auditor's report."
Which of the following would an auditor most likely calculate as part of audit planning?
A.
Inventory turnover rates for individual products
B.
Expected interest expense for a bond issue
C.
The average age of accounts receivable by customer type
D.
The change in gross profit percentage,"Choice "D" is correct. During audit planning, an auditor is required to perform analytical procedures. These procedures are frequently done over the balance sheet and income statement. Therefore, it would be reasonable for an auditor to calculate gross profit percentage and the change in that percentage when compared to the prior period.
Choice "A" is incorrect. Inventory turnover rates for individual products may be something that an auditor calculates while performing substantive procedures over inventory. An auditor would not typically calculate this during audit planning.
Choice "B" is incorrect. Expected interest expense for a bond may be something that an auditor calculates while performing substantive procedures over debt and interest expense. An auditor would not typically calculate this during audit planning.
Choice "C" is incorrect. The average age of accounts receivable by customer type may be something that an auditor calculates while performing substantive procedures over accounts receivable. An auditor would not typically calculate this during audit planning."
When there are numerous property and equipment transactions during the year, an auditor who plans to assess control risk at a low level usually performs:
A.
Tests of controls and extensive tests of property and equipment balances at the end of the year.
B.
Analytical procedures for property and equipment balances at the end of the year.
C.
Analytical procedures for current year property and equipment transactions.
D.
Tests of controls and limited tests of current year property and equipment transactions.,"Choice "D" is correct. Since control risk is assessed at a low level, tests of controls would be required to evaluate the effectiveness of the controls to support that assessed level. However, the need for some substantive tests of transactions is never eliminated.
Choice "A" is incorrect. Extensive tests of property and equipment balances would not typically be required when control risk is assessed at a low level.
Choice "B" is incorrect. Analytical procedures would not be particularly useful, since property and equipment transactions are subject to management discretion. Year-end balances may therefore be unpredictable.
Choice "C" is incorrect. Since control risk is to be assessed at a low level, tests of controls would be required. Analytical procedures would not be particularly useful, since property and equipment transactions are subject to management discretion."
Which of the following is not a reason justifying the use of accounting estimates?
A.
Data about past events cannot be accumulated in a timely manner.
B.
The valuation or measurement of some accounts is uncertain pending the outcome of future events.
C.
Data about future events cannot be accumulated in a cost-effective manner.
D.
Data about past events cannot be accumulated in a cost-effective manner.,"Choice "C" is correct. Accounting estimates are not used to measure future events. (Although, the measurement of some accounts may be uncertain pending the outcome of future events.)
Choice "B" is incorrect. Valuation of certain historical accounts is uncertain, and may be dependent upon the outcome of future events. Accounting estimates are used in such situations to more properly reflect the account balance.
Choices "D" and "A" are incorrect. If data about past events cannot be accumulated in a timely, cost-effective manner, accounting estimates may be required."
Which of the following best describes the purpose of an auditor's external inquiry sent to the client's attorney?
A.
To corroborate information provided by management with respect to litigation, claims, and assessments.
B.
To develop an appropriate understanding of controls in place with respect to the recognition of litigation, claims, and assessments.
C.
To evaluate the operating effectiveness of controls in place with respect to the recognition of litigation, claims, and assessments.
D.
To obtain reasonable assurance from the client's attorney regarding fair presentation of litigation, claims, and assessments in the financial statements.,"Choice "A" is correct. The primary purpose of an external inquiry of the client's attorney is to obtain corroboration of information provided by management regarding litigation, claims, and assessments.
Choices "B" and "C" are incorrect. The auditor's external inquiry of the client's attorney provides information about litigation, claims, and assessments, such as the nature of the matter, the progress of the case, the degree of likelihood of an unfavorable outcome, and an estimate of potential loss. It does not provide information about the client's controls with respect to recognizing the financial statement impact of such matters.
Choice "D" is incorrect. The client's attorney provides information such as the nature of the matter, the progress of the case, the degree of likelihood of an unfavorable outcome, and an estimate of potential loss, but does not comment or provide advice regarding the fair presentation of such matters in the financial statements."
As a result of tests of controls, an auditor assessed control risk too low and decreased substantive testing. This assessment occurred because the true deviation rate in the population was:
A.
More than the risk of assessing control risk too low, based on the auditor's sample.
B.
More than the deviation rate in the auditor's sample.
C.
Less than the risk of assessing control risk too low, based on the auditor's sample.
D.
Less than the deviation rate in the auditor's sample.,"Choice "B" is correct. If the actual deviation rate in the population exceeds the maximum deviation rate based on the sample, control risk will be understated, because the control will be less effective than sample results would indicate.
Choice "A" is incorrect. No comparison should be made between the true deviation rate and the risk of assessing control risk too low.
Choice "C" is incorrect. No comparison should be made between the true deviation rate and the risk of assessing control risk too low.
Choice "D" is incorrect. If the true deviation rate is lower than the deviation rate in the sample, control risk may be assessed at a rate that is too high, potentially leading to audit inefficiencies."
Which of the following statements extracted from a client's lawyer's letter concerning litigation, claims, and assessments most likely would cause the auditor to request clarification?
A.
"I believe that the plaintiff's case against the company is without merit."
B.
"I believe that the company will be able to defend this action successfully."
C.
"I believe that this action has only a remote chance in establishing any liability."
D.
"I believe that the plaintiff will have problems establishing any liability.","Choice "D" is correct. The lawyer's comment that the plaintiff "will have problems establishing any liability" is vague…it does not provide an evaluation of the likelihood of an unfavorable outcome. Does "will have problems" mean a loss is probable, reasonably possible, or remote? The auditor would likely want to request clarification to ensure that the situation has been properly accounted for and disclosed.
Choice "A" is incorrect. When a lawyer asserts that a contingent liability is improbable ("without merit"), it is unlikely that the auditor would require further clarification.
Choice "B" is incorrect. When a lawyer asserts that a contingent liability is improbable ("able to defend this action successfully"), it is unlikely that the auditor would require further clarification.
Choice "C" is incorrect. When a lawyer asserts that a contingent liability is improbable ("remote chance"), it is unlikely that the auditor would require further clarification."
Which of the following circumstances most likely would cause an auditor to consider whether material misstatements exist in an entity's financial statements?
A.
The board of directors makes all major financing decisions.
B.
Significant deficiencies in internal control previously communicated to management are not corrected.
C.
Transactions selected for testing are not supported by proper documentation.
D.
Management places little emphasis on meeting earnings projections.,"Choice "C" is correct. Vouching recorded transactions to supporting documentation provides support for the occurrence assertion. The lack of supporting documentation calls into question the occurrence of the transactions under examination.
Choice "A" is incorrect. As the representatives of shareholder interests, an active board of directors is considered a positive control.
Choice "B" is incorrect. The existence of significant deficiencies in internal control may represent a conscious decision by management to accept that degree of risk because of cost or other considerations. Therefore, although failure to correct such deficiencies is considered a fraud risk factor, the auditor is more likely to be concerned about transactions that are not supported by proper documentation.
Choice "D" is incorrect. Little emphasis on meeting earnings projections would be considered a positive factor in preventing material misstatements from occurring."
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.
Marketability of assets that management plans to sell.
B.
Ability to expand operations into new product lines in the future.
C.
Feasibility of plans to purchase leased equipment at less than market value.
D.
Committed arrangements to convert preferred stock to long-term debt.,"Choice "A" is correct. The adverse effects of events causing an auditor to believe there is a substantial doubt about an entity's ability to continue as a going concern would most likely be mitigated by evidence relating to the marketability of assets that management plans to sell. By providing evidence that there is a ready market for assets that could be converted to cash, management has demonstrated that the company could remain in operation for a longer period of time.
Choices "B", "C", and "D" are incorrect. Evidence regarding the ability to expand operations into new product lines in the future, the feasibility of plans to purchase leased equipment at less than market value, or committed arrangements to convert preferred stock to long-term debt would not be sufficient to mitigate doubts about an entity's ability to continue as a going concern, unless it could also be demonstrated that the events would provide adequate cash flow to fund operations for at least the next year."
An auditor's analytical procedures most likely would be facilitated if the entity:
A.
Corrects material weaknesses in internal control before the beginning of the audit.
B.
Develops its data from sources solely within the entity.
C.
Uses a standard cost system that produces variance reports.
D.
Segregates obsolete inventory before the physical inventory count.,"Choice "C" is correct. An auditor's analytical procedures are facilitated when an entity uses a standard cost system with variance reports because the comparison of actual to budget will already have been performed. In addition, it is likely that management will already be aware of significant variations from budget and will be better able to address any questions the auditor may have.
Choice "A" is incorrect. Correction of internal control weaknesses prior to the beginning of the audit would not affect analytical procedures.
Choice "B" is incorrect. Analytical procedures using data developed solely within the entity are not as reliable as analytical procedures using data developed externally.
Choice "D" is incorrect. Segregation of obsolete inventory would not be an important factor in determining whether analytical procedures would be effective."
In evaluating the reasonableness of an accounting estimate, an auditor most likely would concentrate on methods and significant assumptions that are:
A.
Consistent with prior periods.
B.
Similar to industry guidelines.
C.
Objective and not susceptible to bias.
D.
Deviations from historical patterns.,"Choice "D" is correct. In evaluating the reasonableness of an estimate, an auditor would normally concentrate on methods and assumptions that are significant or complex, susceptible to management bias, or that have changed compared to previous estimates.
Choice "A" is incorrect. The auditor need not concentrate on methods or assumptions that are consistent with those of prior periods, since estimates based on such assumptions are less likely to be misstated.
Choice "B" is incorrect. The auditor need not concentrate on methods or assumptions that are similar to industry guidelines, since estimates based on such assumptions are less likely to be misstated.
Choice "C" is incorrect. The auditor need not focus on methods or assumptions that are objective and not susceptible to bias, since estimates based on such assumptions are less likely to be misstated."
The auditor of a nonissuer would most appropriately use reperformance to obtain audit evidence for which of the following purposes?
A.
To determine whether the aging categories on the aged accounts payable trial balance are accurate.
B.
To determine the mathematical accuracy of the extended cost amount shown on an invoice sent to a customer.
C.
To test the operating effectiveness of a bank reconciliation control.
D.
To test whether the amount of FICA tax withheld from an employee's paycheck is appropriate.,"Choice "C" is correct. Reperformance occurs when an auditor independently performs procedures or controls to ensure that they were performed appropriately. This would be an effective procedure in testing the operating effectiveness of controls over bank reconciliations to ensure that the auditor reaches the same results and conclusions when reperforming the process.
Choice "A" is incorrect. Vouching or inspection, rather than reperformance, would be more appropriate for testing the accuracy of the aging categories on the aged accounts payable trial balance.
Choice "B" is incorrect. Recalculation, rather than reperformance, would be more appropriate for determining the mathematical accuracy of the extended cost amount shown on an invoice.
Choice "D" is incorrect. Recalculation, rather than reperformance, would be more appropriate for testing the accuracy of the amount of tax withheld from an employee's paycheck."
Green, CPA, concludes that substantial doubt about JKL Co.'s, a nonissuer, ability to continue as a going concern remains. If JKL's financial statements adequately disclose its financial difficulties, Green's auditor's report under U.S. auditing standards should:
Include an
emphasis-of-matter
paragraph Specifically
use the
words "going
concern" Specifically
use the
words
"substantial
doubt"
A.
Yes
Yes
Yes
B.
Yes
No
Yes
C.
Yes
Yes
No
D.
No
Yes
Yes,"Choice "D" is correct. "No - Yes - Yes."