Most Recent AICPA CPA-Auditing Exam Questions & Answers

Choice 'c' is correct. After identifying the occurrence of a related party transaction, the auditor should apply the procedures considered necessary to obtain satisfaction concerning the purpose and nature of the transaction and its effect on the financial statements.

Choice 'a' is incorrect. While an extra paragraph may be added to emphasize a matter, there is no requirement that related party transactions be disclosed via explanatory language added to the auditor's report.

Choice 'b' is incorrect. Analytical procedures are generally not effective in the identification of related party transactions.

Choice 'd' is incorrect. It will generally not be possible to substantiate representations that the transaction was consummated on terms equivalent to those that would have prevailed in an arm's-length transaction.

Choice 'c' is correct. In a review engagement, the auditor should possess a level of knowledge of the accounting principles and practices of the industry in which the entity operates. This will provide, through the performance of inquiry and analytical procedures, a reasonable basis for expressing limited assurance that there are no material modifications that should be made to the financial statements to be in conformity with generally accepted accounting principles.

Choice 'a' is incorrect. Assessing the risk that a material misstatement could occur in a financial statement assertion is an audit procedure, not a review procedure.

Choice 'b' is incorrect. Confirmation with the entity's attorney is an audit procedure, not a review procedure.

Choice 'd' is incorrect. Development of audit programs are part of an audit engagement, not a review procedure.

Choice 'd' is correct. Reconciling control totals for sales invoices with the accounts receivable subsidiary ledger is not an effective control related to the billing process, since errors that exist in the preparation of invoices would likely carry through to accounts receivable.

Choice 'a' is incorrect. Comparing shipping totals with sales invoice totals is an effective control to reduce billing errors.

Choice 'b' is incorrect. Computer controls related to pricing and mathematical accuracy will reduce billing errors.

Choice 'c' is incorrect. Matching shipping documents with approved sales orders ensures that invoices are properly authorized and only goods ordered have been shipped.

Choice 'a' is correct. After performing a count of negotiable securities, the auditor would generally obtain an acknowledgment from the client that the securities were returned intact. This helps maintain accountability for the securities, and reduces the likelihood of employee misappropriation (e.g., if a client employee were to steal a security and blame the auditor).

Choice 'b' is incorrect. The auditor generally would not include an analysis of realized gains and losses on a security count worksheet, although this information would be included elsewhere in the audit documentation.

Choice 'c' is incorrect. The auditor generally would not include an evaluation of the client's internal control on a security count worksheet, although this information would be included elsewhere in the audit documentation.

Choice 'd' is incorrect. The auditor generally would not include a description of the client's control procedures on a security count worksheet, although this information might be included elsewhere in the audit documentation.