CPA Auditing & Assurance Services 4

Question 1

Which assertion is primarily tested when an auditor verifies that all recorded liabilities represent valid obligations of the entity?

Accepted Answer

Existence/occurrence

Answer

The existence/occurrence assertion for liabilities confirms that recorded obligations actually exist and represent real debts of the entity.

Question 2

What is the auditor's primary concern when a client has a related-party transaction?

Accepted Answer

Whether the transaction was conducted at arm's length and properly disclosed

Answer

Auditors focus on whether related-party transactions were conducted at arm's length and are adequately disclosed in the financial statements per ASC 850.

Question 3

An auditor uses substantive analytical procedures and expects revenue to be $5 million but the recorded amount is $5.8 million. The difference exceeds the threshold for investigation. What should the auditor do?

Accepted Answer

Obtain corroborating evidence to explain the difference

Answer

When an unexplained difference exceeds the threshold, the auditor must perform additional procedures to obtain corroborating evidence explaining the variance.

Question 4

Which standard governs the audit of internal control over financial reporting for large accelerated filers?

Accepted Answer

PCAOB AS 2201

Answer

PCAOB Auditing Standard AS 2201 establishes requirements for audits of internal control over financial reporting integrated with audits of financial statements for public companies.

Question 5

Which of the following best describes 'audit risk'?

Accepted Answer

The risk that the auditor may unknowingly fail to modify an opinion on materially misstated financial statements

Answer

Audit risk is the risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated.

(CPA) Certified Practicing Accountant Practice Test

(CPA) Certified Practicing Accountant Practice Test

CPA Auditing & Assurance Services 4