FREE Certified Public Accountant (CPA) Audit Questions and Answers
When: An emphasis-of-matter paragraph must be added to the auditors' report.
Explanation:
The auditor must include an explanation that uses the terms "serious doubt" and "going concern" where there is ambiguity about the going concern.
Which sort of audit evidence among the following is the most convincing?
Explanation:
The most convincing evidence comes from external audits. In this scenario, the auditor would obtain the bank statement from bank records. Since the bank is an outside entity, it has no motivation to alter the correct dollar amount on the bank statement.
An auditor must consider the facts listed below. What kind of audit opinion ought to be given?
-Management cannot accurately estimate a prospective loss's magnitude.
-The financial notes, excluding dollar amounts, completely disclose the probable loss.
-The company is a nonissue
-In the financial statements, management does not account for this loss.
-There is enough audit information proving the loss will be significant.
Explanation:
The auditor may offer an unqualified opinion if a likely loss is not estimable but is mentioned in the financial statements' footnotes. A contingent obligation would be noted on the financial accounts if the loss could be estimated.
Note: The test creators are asking for the tester to comprehend the essential words in the answer description that are bolded.
The kind of control that is intended to stop, catch, and fix significant misstatements before the action takes place is called a
Explanation:
Preventive measures. A corporation implements preventative control to find problems before they happen. Making the manager evaluate an adjusting journal entry created by a senior accountant before booking illustrates this.
For a customer, an accountant is considering materiality and allowable misrepresentation. The prevailing presumption is that there will be little chance of financial statement errors. Calculate relevancy and allowable misstatements using the information given.
The auditor determines materiality by applying the benchmark approach. Either total assets or gross revenue serves as the benchmark. The higher of the two serves as the benchmark. If all purchases are employed, the factor is 2%. In the case of gross income, the element is 1%.
Revenue: $3,500,000
Gross Profit: $100,300
Total Assets: $2,750,000
Stockholders' Equity: $1,000,000
What is the overall financial materiality?
Explanation:
Materiality = Applicable Benchmark x applicable percentage
Materiality = $3,500,000 x .01
Materiality = $35,000
Which form of statement does the auditor tackle from the bottom up?
Hint: This refers to the following transactions, from their initial source documents through the accounting process to the financial statements.
Explanation:
An auditor must start with the source document, follow each item through the process, and confirm that they appear in the financial statements to verify the completeness and ensure that nothing is being falsified.
For Geeks Company, the ratio of accounts payable turnover grew from year 3 to year 4. What might be the cause of this?
Explanation:
Accounts payable turnover ratio = Cost of Goods Sold / Average reports payable.
If the numerator increases, the ratio will increase.