AICPA Auditing and Attestation 3

Question 1

Which condition must exist for an auditor to issue a going concern explanatory paragraph in an otherwise unmodified opinion?

Accepted Answer

Substantial doubt about the entity's ability to continue as a going concern

Answer

Any net loss reported during the year

Answer

A debt-to-equity ratio exceeding 2:1

Answer

Management's refusal to provide written representations

Question 2

What is the primary purpose of a management representation letter?

Accepted Answer

To obtain written confirmation of management's oral representations and acknowledge their responsibilities

Answer

To transfer legal liability for misstatements from the auditor to management

Answer

To document the auditor's understanding of internal controls

Answer

To replace substantive audit procedures for immaterial items

Question 3

Under attestation standards, a practitioner performing a review of prospective financial statements should issue a:

Accepted Answer

Report expressing limited assurance that no material modifications are needed

Answer

Standard audit report with a going concern paragraph

Answer

Compilation report with a disclaimer of opinion

Answer

Report expressing positive assurance on the reasonableness of assumptions

Question 4

Attribute sampling is most commonly used by auditors to:

Accepted Answer

Test the operating effectiveness of internal controls

Answer

Estimate the dollar amount of errors in a population

Answer

Select items for physical inventory observation

Answer

Determine the appropriate materiality threshold

Question 5

Which of the following best describes 'significant deficiency' in internal control?

Accepted Answer

A deficiency less severe than a material weakness but important enough to merit attention by those charged with governance

Answer

A deficiency that is inconsequential and does not require reporting

Answer

A deficiency that results in a material misstatement of the financial statements

Answer

Any internal control weakness identified during the audit

Question 6

An auditor uses the work of a specialist to value a unique piece of artwork owned by the client. If the specialist's findings are used as audit evidence, the auditor:

Accepted Answer

Still retains full responsibility for the audit opinion

Answer

May reduce audit risk to zero for that valuation

Answer

Must disclose the specialist's name in the audit report

Answer

Is relieved of responsibility for that portion of the audit

Question 7

When auditing related-party transactions, the primary auditor concern is that these transactions are:

Accepted Answer

Disclosed and not recorded at arm's-length terms without disclosure

Answer

Eliminated in consolidation if material

Answer

Conducted more frequently than industry norms

Answer

Approved by the board's audit committee