MaoEn/USCPA_AUD_Data huggingface dataset:
Under which of the following circumstances would an auditor be considered to be using the work of a specialist?
A.
The client engages an outside computer service organization to prepare its payroll.
B.
A tax expert employed by the auditor's CPA firm reviews the client's tax accruals.
C.
The auditor makes inquiries of the client's lawyer regarding pending litigation.
D.
The auditor engages a lawyer to interpret the provisions of a complex contract.,"Choice "D" is correct. An auditor engaging a lawyer to interpret the provisions of a complex contract would be considered to be using the work of a specialist. GAAS defines a specialist as a person or firm with special skills in a field other than accounting or auditing (e.g., actuaries, appraisers, attorneys, or engineers).
Choice "A" is incorrect. An outside computer service organization engaged by the client to prepare its payroll would not be considered to be using the work of a specialist in an audit. The client is engaging the payroll services, not the auditor.
Choice "B" is incorrect. A tax expert employed by the auditor does not meet the definition of a specialist because the tax expert's skills are in accounting.
Choice "C" is incorrect. Making inquiries of the client's lawyer is a standard audit procedure, and is not considered using the work of a specialist."
Which of the following factors most likely would influence an auditor's determination of the auditability of an entity's financial statements?
A.
The existence of related party transactions.
B.
The complexity of the information system relevant to financial reporting.
C.
The adequacy of the accounting records.
D.
The operating effectiveness of controls.,"Choice "C" is correct. Inadequate financial records may preclude the auditor from obtaining sufficient appropriate audit evidence.
Choice "A" is incorrect. The existence of related party transactions generally would not influence the auditor's determination of auditability.
Choice "B" is incorrect. The complexity of the client's information system generally would not influence an auditor's determination of auditability, although it might indicate the need for an information technology expert.
Choice "D" is incorrect. The operating effectiveness of internal controls is determined long after the decision about auditability is made."
When there is a group audit, the group engagement team should make a preliminary assessment of materiality. Which of the following is not an accurate statement of the engagement team’s responsibilities when assessing materiality?
A.
Ascertain materiality levels for specific classes of transactions, balances, or disclosures for group financial statements for which misstatements of lesser amounts than the group financial statements taken as a whole could influence user’s economic decisions.
B.
Assess materiality for the group financial statements as a whole, without an assessment of performance materiality.
C.
Determine component materiality for those components on which the group engagement team will perform an audit.
D.
Develop a threshold at which anything above would not be considered trivial to the group financial statements.,"Choice "B" is correct. The group engagement team should assess the materiality of the group financial statements as a whole as well as performance materiality.
Choices "C", "A", and "D" are incorrect as each should be performed by the group engagement team when making a preliminary assessment on a group audit."
The acceptable level of detection risk is inversely related to the:
A.
Assurance provided by substantive tests.
B.
Preliminary judgment about materiality levels.
C.
Risk of misapplying auditing procedures.
D.
Risk of failing to discover material misstatements.,"Choice "A" is correct. The acceptable level of detection risk is inversely related to the assurance provided by substantive tests. For example, if the acceptable level of detection risk decreases, more assurance is required from substantive tests.
Choice "B" is incorrect. The acceptable level of detection risk is determined independently of the preliminary judgment about materiality levels (tolerable error).
Choice "C" is incorrect. The acceptable level of detection risk is determined independently of the risk of misapplying auditing procedures (non-sampling risk).
Choice "D" is incorrect. The acceptable level of detection risk is directly related to the risk of failing to discover material misstatements (audit risk)."
The auditor is in the process of assessing the risk of material misstatement for selected client transactions and account balances considered to be significant. If the auditor decides to change the level of detection risk based on new information pertaining to the risk of material misstatement, he or she may do all of the following, except for:
A.
Eliminating the use of substantive procedures for certain relevant assertions if the assessed risk of material misstatements sufficiently declines.
B.
Changing the nature of testing by using more or less effective substantive audit procedures.
C.
Modifying the timing of the substantive tests by including year-end testing.
D.
Changing the sample size used in the related substantive procedures.,"Choice "A" is correct. This would not be done by the auditor to accommodate a change in detection risk. Even when the assessed risk of material misstatement declines to a low level warranting a change in detection risk, substantive procedures are necessary for all relevant assertions pertaining to a client’s significant transactions and account balances.
Choice "B" is incorrect. By changing the nature of the substantive procedures used, the auditor can effectively deal with an increase or decrease in detection risk during the audit.
Choice "C" is incorrect. The auditor can change the level of detection risk by modifying the timing of the substantive procedures.
Choice "D" is incorrect. If the auditor decides to decrease (increase) detection risk, the sample size can be increased (decreased)."
Which of the following is a preventive supervisory and monitoring control?
A.
Hiring guidelines
B.
Mandatory vacations
C.
Performance reviews
D.
Audits,"Choice "A" is correct. Hiring guidelines are considered a preventive supervisory and monitoring control. Organizations develop strict hiring guidelines so that only competent and capable employees are hired to perform key business processes.
Choices "C", "B", and "D" are incorrect. All these controls are detective supervisory and monitoring controls."
When a client makes extensive use of information technology, the auditor should consider the effect this may have on internal control. Which of the following is least likely to be affected?  A.
The audit objectives with respect to evaluating internal control.
B.
The audit procedures used to evaluate controls.
C.
The assessed level of control risk.
D.
The five components of internal control.,"Choice "A" is correct. The client's extensive use of information technology generally would not affect the auditor's objectives, although it might affect how those objectives are achieved.
Choice "B" is incorrect. An entity's use of information technology will affect the appropriate audit procedures to apply. For example, the extent and complexity of computer operations may require the use of computer-assisted audit techniques.
Choice "C" is incorrect. An entity's use of information technology may create additional internal control risks, such as the risk of unauthorized access to data.
Choice "D" is incorrect. An entity's use of information technology may affect any of the five components of internal control."
Which of the following are required as part of an auditor's planning process?  Understanding
the design of
controls
Determining
whether
controls have been
implemented
Evaluating
the operating
effectiveness of
controls
Documenting
the understanding
of internal
control
A.
Yes
Yes
No
Yes
B.
No
Yes
Yes
No
C.
No
No
Yes
No
D.
Yes
No,"Choice "A" is correct. As part of planning, the auditor is required to obtain an understanding of the design of controls and determine whether they have been implemented, as well as to document this understanding. The auditor is not required to evaluate the operating effectiveness of controls during the planning process.
Choices "D", "C", and "B" are incorrect, based on the above explanation."
Which of the following constitutes a weakness in control related to the revenue cycle? A.
The cash receipts clerk prepares a credit memo.
B.
The billing clerk prepares a sales invoice.
C.
The accounts receivable clerk prepares an aging schedule.
D.
The shipping clerk prepares a bill of lading.,"Choice "A" is correct. Allowing the cash receipts clerk to prepare a credit memo constitutes an inadequate segregation of duties, because the clerk can misappropriate cash and cover the theft by issuing a credit memo.
Choice "B" is incorrect. The billing clerk should prepare a sales invoice.
Choice "C" is incorrect. The accounts receivable clerk should prepare an aging schedule.
Choice "D" is incorrect. The shipping clerk should prepare a bill of lading."
Which of the following economic indicators tends to occur as a result of economic activity?
A.
Average new unemployment claims.
B.
Average duration of unemployment.
C.
Building permits for residences.
D.
Manufacturing and trade sales.,"Choice "B" is correct. The average duration of unemployment is a lagging economic indicator. Lagging economic indicators tend to follow economic activity, or occur as a result of economic activity. If the average duration of unemployment increases, it is likely a result of employers being reluctant to hire due to economic results. Other lagging indicators include the prime rate charged by banks and bank loans outstanding. Lagging indicators give signals after the fact.
Choice "A" is incorrect. The average new unemployment claims is an example of a leading economic indicator. Leading indicators tend to occur before the fact or predict economic activity. An increase in the number of new unemployment claims is a signal that the economy is heading for falling economic activity and growth. Other leading indicators include the average length of the workweek, money supply, prices of selected stocks, orders for goods, price changes of materials and index of consumer expectations.
Choice "C" is incorrect. Building permits for new residences is an example of a leading economic indicator. Leading indicators tend to occur before the fact or predict economic activity. A decrease in the number of new building permits is one factor that would tend to signal the economy is heading toward a downturn.
Choice "D" is incorrect. Manufacturing and trade sales are coincident indicators and occur contemporaneously with economic activity. Industrial production is another example of a coincident indicator."
Which of the following procedures would an auditor most likely perform regarding litigation?
A.
Confirm directly with the clerk of the court that the client's litigation is properly disclosed.
B.
Confirm the details of pending litigation with the client's adversaries' legal representatives.
C.
Inspect the legal documents in the client's lawyer's possession regarding pending litigation.
D.
Discuss with management its policies and procedures for identifying and evaluating litigation.,"Choice "D" is correct. The auditor should discuss with management the controls adopted to identify, evaluate, and account for litigation.
Choice "A" is incorrect. The clerk of the court would not have any information regarding whether or not litigation is properly disclosed in the financial statements.
Choice "B" is incorrect. It would be inappropriate for the auditor to contact the legal representatives of the client's adversaries.
Choice "C" is incorrect. The auditor does not generally inspect documents held by the client's lawyer, but rather relies on the lawyer's written response to the audit inquiry letter."
In evaluating the reasonableness of an entity's accounting estimates, an auditor most likely concentrates on methods and significant assumptions that are:
A.
Deviations from historical patterns.
B.
Stable and not sensitive to variation.
C.
Similar to industry guidelines.
D.
Objective and not susceptible to bias.,"Choice "A" is correct. In evaluating the reasonableness of estimates, the auditor focuses on assumptions that are significant to the estimate, sensitive to variations, deviations from historical patterns, or subjective and susceptible to misstatement or bias.
Choice "B" is incorrect. In evaluating the reasonableness of estimates, the auditor would not normally concentrate on assumptions that are stable and insensitive to variation. Estimates based on such assumptions are less likely to be misstated.
Choice "C" is incorrect. In evaluating the reasonableness of estimates, the auditor would not normally concentrate on assumptions that are similar to industry guidelines. Estimates based on such assumptions are less likely to be misstated.
Choice "D" is incorrect. In evaluating the reasonableness of estimates, the auditor would not normally concentrate on assumptions that are objective and not susceptible to bias. Estimates based on such assumptions are less likely to be misstated."
An auditor of a nonissuer used an audit data analytic to perform tests of details, which resulted in the identification of a high number of possible misstatements. In this situation, the auditor would most appropriately:
A.
Conclude that the account contains misstatements that are not clearly inconsequential in the aggregate.
B.
Group possible misstatements by similar characteristics and perform further analysis on each group.
C.
Refine and reperform the analytic until the number of possible misstatements identified is low.
D.
Manually test each possible misstatement identified to determine whether it is an actual misstatement.,"Choice "B" is correct. After performing an audit data analytic procedure, the auditor should group the data for items that have common characteristics. For the groups that contain possible misstatements that are not clearly inconsequential (in aggregate), the auditor should perform further analysis of the groups to determine whether they may represent actual misstatements.
Choice "A" is incorrect. After the auditor performs the audit data analytic procedure, the auditor should group the data for items that have common characteristics. It would be premature to reach a conclusion on the whole account without further analysis.
Choice "C" is incorrect. After the auditor performs the audit data analytic procedure, the results cannot be ignored. It is important that the auditor ensures that the ADA technique fits the intended purpose and objectives.
Choice "D" is incorrect. It is not practical for an auditor to manually test each possible misstatement. Rather, the auditor would group data for items that have common characteristics and then perform further analysis on each group."
When applying analytical procedures during an audit, which of the following is the best approach for developing expectations?
A.
Identifying reasonable explanations for unexpected differences before talking to client management.
B.
Considering unaudited account balances and ratios to calculate what adjusted balances should be.
C.
Considering the pattern of several unusual changes without trying to explain what caused them.
D.
Comparing client data with client-determined expected results to reduce detailed tests of account balances.,"Choice "A" is correct. Identifying reasonable explanations for unexpected differences before talking to client management helps the auditor in assessing if management's explanation is reasonable. Management's explanation should always be corroborated with other evidence.
Choice "B" is incorrect. Unaudited account balances are less reliable.
Choice "C" is incorrect. Analytical procedures assume that plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary. Conditions that might cause variations in these relationships include unusual events. Expectations cannot be developed when there is no explanation of what caused a pattern of unusual changes.
Choice "D" is incorrect. Since the data is obtained from sources within the entity, it is not as reliable for developing expectations."
Kane, CPA, concludes that there is substantial doubt about Lima Co.'s ability to continue as a going concern for a reasonable period of time. If Lima's financial statements adequately disclose its financial difficulties, Kane's auditor's report is required to include a separate report section that specifically uses the phrase(s):
"Possible
discontinuance
of operations" "Reasonable period
of time, not to
exceed one year"
A.
Yes
Yes
B.
Yes
No
C.
No
Yes
D.
No
No,"Choice "D" is correct. If, after considering identified conditions and events and management's plans, the auditor concludes that substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time remains, the audit report should include a separate section with the heading "Substantial Doubt About the Entity's Ability to Continue as a Going Concern" to reflect that conclusion. This conclusion should be expressed through the use of the phrase "substantial doubt about its (the entity's) ability to continue as a going concern" [or similar wording that includes the terms "substantial doubt" and "going concern"]. The "reasonable period...not to exceed one year" is inherent in the definition of going concern and is not explicitly stated in the audit report. The phrase "possible discontinuation of operations" may be included in the going concern disclosure but is not specifically required.
Choices "A", "B", and "C" are incorrect, as per the above explanation."
Which of the following statements extracted from a client's lawyer's letters concerning litigation, claims, and assessments most likely would cause the auditor to request clarification?
A.
"I believe that the action can be settled for less than the damages claimed."
B.
"I believe that the possible liability to the company is nominal in amount."
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.","Choice "A" is correct. The auditor is concerned with preventing an understatement of contingent liabilities. The auditor would therefore request clarification before determining that a reduction in such liability (from damages claimed to some lesser amount) is reasonable.
Choices "B", "C", and "D" are incorrect. When a lawyer asserts that a contingent liability is immaterial ("nominal") or improbable ("without merit" and "successful defense likely"), it is unlikely that the auditor would require further clarification."
An auditor of an issuer 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 disclosures concerning this matter are adequate, the audit report may include a(an):
Disclaimer
of opinion "Except for"
qualified opinion
A.
Yes
Yes
B.
No
No
C.
No
Yes
D.
Yes
No,"Choice "D" is correct. Yes - No.
If an auditor concludes that there is substantial doubt about an entity's ability to continue as a going concern and that the entity's disclosures are adequate, then the audit report may be either:
Unqualified with explanatory paragraph, or
Disclaimed.
Generally, an unqualified opinion is issued, but the auditor is not prohibited from choosing to issue a disclaimer.
Choice "A" is incorrect. An "except for" qualified opinion would be appropriate if the entity's disclosures were inadequate.
Choice "B" is incorrect. While an unqualified opinion is generally issued, the auditor is not prohibited from choosing to issue a disclaimer; for example, in areas involving a high degree of uncertainty.
Choice "C" is incorrect, based on the explanation above."
Under which of the following circumstances would an auditor of a non-issuer issue an unmodified opinion and have the option of including an emphasis-of-matter paragraph related to substantial doubt about the entity's ability to continue as a going concern?
A.
The going concern basis of accounting is appropriate, substantial doubt about the entity's ability to continue as a going concern remains, and related disclosures are adequate.
B.
The going concern basis of accounting is appropriate, substantial doubt about the entity's ability to continue as a going concern has been alleviated, but related disclosures are inadequate.
C.
The going concern basis of accounting is appropriate, substantial doubt about the entity's ability to continue as a going concern has been alleviated, and related disclosures are adequate.
D.
The going concern basis of accounting is appropriate, substantial doubt about the entity's ability to continue as a going concern remains, but related disclosures are inadequate.,"Choice "C" is correct. If management's plans have alleviated the substantial doubt about the entity's ability to continue as a going concern and the related disclosures are adequate, the auditor has the option of including an emphasis-of-matter paragraph in the auditor's report.
Choice "A" is incorrect. If management's plans have not alleviated the substantial doubt about the entity's ability to continue as a going concern and the related disclosures are adequate, a separate section with the heading "Substantial Doubt About the Entity's Ability to Continue as a Going Concern" must be added to the auditor's report rather than an emphasis-of-matter paragraph.
Choices "B" and "D" are incorrect. Inadequate disclosure is a GAAP departure and may result in a qualified or adverse opinion. "
Which of the following parties should request inquiry of a client's lawyer?
A.
The stockholders.
B.
Client management.
C.
The auditor's attorney.
D.
The auditor.,"Choice "B" is correct. The letter of inquiry to the client's attorneys is a request made by client management. Due to attorney-client privilege, the attorney would not be able to respond to such a request made by any other party. Note that management would request the attorney to respond directly to the auditor.
Choice "A" is incorrect. The stockholders would not have any involvement in the letter of audit inquiry.
Choice "C" is incorrect. The auditor's attorney would not have any involvement in the letter of audit inquiry related to specific client engagements.
Choice "D" is incorrect. The auditor may request that the client include certain matters in the letter, but technically speaking, the request itself comes from client management."
In evaluating the reasonableness of an accounting estimate, an auditor would be least likely to use which of the following approaches?
A.
Review and test the process used to develop the estimate.
B.
Review subsequent events or transactions occurring prior to audit completion.
C.
Develop an independent expectation of the estimate.
D.
Review the minutes of board of directors and shareholder meetings for discussion of the estimate.,"Choice "D" is correct. Even if estimates were discussed during board meetings and/or shareholder meetings, it is unlikely that review of such discussion would provide evidence that the estimate is reasonable.
Choices "B", "C", and "A" are incorrect. Reviewing subsequent events, developing an independent expectation, and reviewing and testing the process used to develop the estimate are all appropriate methods used to evaluate the reasonableness of an accounting estimate."
When testing the completeness assertion for a given transaction cycle, the auditor may perform all of the following audit procedures except for:
A.
Observing processes and procedures.
B.
Tracing a sample of transactions from the source documents to the accounting entries and financial statements.
C.
Performing analytical review procedures.
D.
Inspecting documents that support a transaction.,"Choice "D" is correct. The primary audit procedures used to test the completeness assertion are observation, tracing, and performing analytical review procedures. Inspecting documents that support a transaction may be done when testing the: rights and obligations assertion; understandability and classification assertion; and, valuation, allocation, and accuracy assertion.