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Prepare for the AICPA CPA Auditing and Attestation exam with our extensive collection of questions and answers. These practice Q&A are updated according to the latest syllabus, providing you with the tools needed to review and test your knowledge.
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The questions for CPA-Auditing were last updated on Mar 30, 2025.
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After considering an entity's negative trends and financial difficulties, an auditor has substantial doubt about the entity's ability to continue as a going concern. The auditor's considerations relating to management's plans for dealing with the adverse effects of these conditions most likely would include management's plans to:
Choice 'c' is correct. The auditor considers any of management's plans that might serve to mitigate the adverse effects of particular conditions and events. Typically, plans to increase ownership equity, to borrow money, to restructure debt, to sell assets, and/or to reduce or delay expenditures might all be considered mitigating factors.
Choices 'a', 'b', and 'd' are incorrect. Increasing dividend distributions, reducing lines of credit, and purchasing assets would not improve a weak cash flow situation.
In which of the following circumstances would the use of the negative form of accounts receivable confirmation most likely be justified?
Choice 'd' is correct. The use of negative confirmations most likely would be justified when there are a small number of accounts that may be in dispute and the accounts receivable balance arises from sales to many customers with small balances (e.g., utility consumer customers).
Choice 'a' is incorrect. Positive (not negative) confirmations should be used when a substantial number of accounts are expected to be in dispute, or if the accounts receivable balance is comprised of accounts from a few major customers.
Choice 'b' is incorrect. Positive (not negative) confirmations should be used when a substantial number of accounts are expected to be in dispute.
Choice 'c' is incorrect. Positive (not negative) confirmations should be used when the accounts receivable balance is comprised of accounts from a few major customers.
To be effective, analytical procedures in the overall review stage of an audit engagement should be performed by:
Choice 'c' is correct. The manager and partner on a specific job generally bear a great deal of responsibility for the audit and the report. Typically they would perform analytical procedures during the final review stage, to evaluate overall financial statement presentation and to assess the conclusions reached. In order to evaluate the results of the analysis and to perform an effective review, the manager or partner should have a comprehensive knowledge of the client's business and the industry.
Choice 'a' is incorrect. It is more effective to have a manager or partner perform this review rather than a staff accountant, because the manager or partner is generally more experienced and knowledgeable, and because it provides a double check on the work of the staff accountant.
Choices 'b' and 'd' are incorrect. The managing partner and the quality control manager or partner might not have a comprehensive knowledge of the client's business and industry.
This question presents independent factual situations an auditor might encounter in conducting an audit. List B represents the report modifications (if any) that would be necessary. Select as the best answer for each item, the action the auditor normally would take. The report modifications in List B may be selected once, more than once, or not at all.
Assume:
* The auditor is independent.
* The auditor previously expressed an unqualified opinion on the prior year's financial statements.
* Only single-year (not comparative) statements are presented for the current year.
* The conditions for an unqualified opinion exist unless contradicted in the factual situations.
* The conditions stated in the factual situations are material.
* No report modifications are to be made except in response to the factual situation.
Item to Be Answered
An entity discloses in the notes to the financial statements certain lease obligations. The auditor believes that the failure to capitalize these leases is a departure from generally accepted accounting principles.
List B
Report Modifications
Choice 'C' is the correct modification. The circumstances should be described in an explanatory paragraph preceding the opinion paragraph and the opinion paragraph should be modified.
Quality Control Standards
When an auditor qualifies an opinion because of the inability to confirm accounts receivable by direct communication with debtors, the wording of the opinion paragraph of the auditor's report should indicate that the qualification pertains to the:
Choice 'b' is correct. When an auditor qualifies his or her opinion because of a scope limitation, such as the inability to confirm A/R, the wording in the opinion paragraph should indicate that the qualification pertains to the possible effects on the FS and not to the scope limitation itself.
The opinion paragraph should not refer to the scope limitation itself, the lack of evidence, or the departure from GAAS.
Choices 'a', 'c', and 'd' are incorrect, based on the above Explanation: .
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