Get AICPA CPA-Auditing Exam Practice Questions - Real and Updated

Answer : D

Choice 'd' is correct. Before reissuing the prior year's auditor's report on the financial statements of a former client, the auditor should 1) read the financial statements of the current period, 2) compare the prior-period information that the auditor reported on with the financial statements to be presented for comparative purposes, 3) obtain a letter of representation from the successor auditor, and 4) obtain a letter of representation from the former client's management. The representation letter from the successor auditor will state whether the successor's audit revealed any issues of a material nature that might affect the previous financial statements. The representation letter from the former client's management will indicate whether its previous representations are still accurate and whether there have been any subsequent events affecting the previous financial statements.

Choices 'a', 'b', and 'c' are incorrect. The predecessor does not request representation letters from the former client's board of directors or attorney.

Answer : D

Choice 'd' is correct. A lawyer may be unable to respond concerning the likelihood of an unfavorable outcome of litigation, claims, and assessments or the amount or range of potential loss, because of inherent uncertainties. Even if the effect of the matter on the financial statements could be material, if it is properly disclosed (and supported by available evidence), the auditor will ordinarily issue an unqualified opinion without any modification.

Choice 'a' is incorrect. The inability to form an opinion on the amount or range of potential loss would generally not be classified as a scope limitation resulting in a qualification.

Choice 'b' is incorrect. The auditor should consider withdrawing from the engagement only if the lawyer withholds information per the client's request. Given the fact pattern, there is no need for the auditor to withdraw from the engagement.

Choice 'c' is incorrect. The inability to form an opinion on the amount or range of potential loss would generally not be classified as a scope limitation resulting in a disclaimer of opinion.

Answer : B

Choice 'b' is correct. The auditor is required to communicate to management and to those charged with governance (the audit committee) any significant deficiencies in internal control that the auditor observes.

Choice 'a' is incorrect. The auditor is not obligated to search specifically for significant deficiencies in internal control.

Choice 'c' is incorrect. Significant deficiencies in internal control are not typically included in the financial statements, as they relate to controls and not to the presentation and disclosure of financial information.

Choice 'd' is incorrect. Significant deficiencies in internal control are not typically included in the footnotes to the financial statements, as they relate to controls and not to the presentation and disclosure of financial information.

Answer : B

Choice 'b' is correct. When an auditor is requested to change the engagement from an audit to a compilation, the auditor must consider the effort needed to complete the audit, the cost of completing the audit, and the reasons for the client's request. If the audit is substantially complete or an insignificant effort is needed to complete the audit, the auditor should consider the propriety of agreeing to the request.

In addition, if the reason for the request is to limit the scope of the auditor's examination, the auditor must consider whether the information affected by the scope limitation is incorrect, incomplete, or otherwise unsatisfactory.

A change in circumstance (e.g., an audit is no longer necessary) or a misunderstanding as to the nature of an audit would, on the other hand, be considered a reasonable basis for the change.

Choices 'a', 'c', and 'd' are incorrect, based on the above Explanation: .

Answer : C

Choice 'c' is correct. Shipping documents provide evidence that a sale occurred, and therefore selecting from a population of shipping documents allows the auditor to test whether corresponding invoices exist for each sale.

Choices 'a' and 'b' are incorrect. The existence of customer orders and sales orders does not necessarily imply that a sale occurred. For example, the particular item requested may be out of stock.

In such cases, there would properly be no sales invoice.

Choice 'd' is incorrect. Since the weakness the auditor is concerned about involves missing sales invoices, selecting from a sample of existing sales invoices would not identify this problem.