CPA Auditing & Assurance Services 3

Question 1

Which procedure provides the highest level of assurance about the existence of accounts receivable?

Accepted Answer

Sending positive confirmation requests to customers

Answer

Positive confirmations require the recipient to respond whether or not they agree, providing direct external evidence about existence.

Question 2

What is the auditor's responsibility regarding fraud under AU-C 240?

Accepted Answer

Obtain reasonable assurance that financial statements are free of material misstatement due to fraud or error

Answer

AU-C 240 requires auditors to obtain reasonable assurance that financial statements are free from material misstatement due to fraud or error, not to guarantee detection.

Question 3

Which element of the fraud triangle refers to the perpetrator's ability to rationalize the fraudulent act?

Accepted Answer

Rationalization

Answer

Rationalization is the third element of the fraud triangle, where the perpetrator justifies the fraudulent behavior to themselves.

Question 4

An auditor is evaluating going concern issues. Which condition would most likely raise substantial doubt about an entity's ability to continue as a going concern?

Accepted Answer

Recurring operating losses and negative cash flows from operations

Answer

Recurring operating losses combined with negative cash flows from operations are classic indicators that raise substantial doubt about going concern.

Question 5

What type of assurance engagement provides a conclusion in the form 'nothing has come to our attention' (negative assurance)?

Accepted Answer

Review engagement

Answer

A review engagement results in negative (limited) assurance, expressed as nothing coming to the accountant's attention indicating material modifications are needed.

(CPA) Certified Practicing Accountant Practice Test

(CPA) Certified Practicing Accountant Practice Test

CPA Auditing & Assurance Services 3