AUD

A CPA firm is auditing a large public company. The audit partner's spouse has just been promoted to a new role at the audit client. Under which of the following scenarios would the firm's independence be considered IMPAIRED according to AICPA and PCAOB independence rules?

During the acceptance phase of a new audit engagement for a private company, the successor auditor requests permission to make inquiries of the predecessor auditor. The potential client refuses to grant permission. What is the most appropriate course of action for the successor auditor?

A CPA firm is designing its system of quality control. Which of the following policies would most likely satisfy the element of 'Engagement Performance' regarding consultation?

An auditor is establishing an understanding with a client regarding the services to be performed for a non-issuer. Which of the following must be included in the engagement letter?

Under the AICPA Code of Professional Conduct, which of the following fee arrangements is prohibited for an audit client?

An auditor is documenting the results of an audit engagement. According to auditing standards, which of the following is the primary requirement regarding the completion of audit documentation?

Which of the following situations most likely represents a violation of the AICPA Code of Professional Conduct regarding 'Acts Discreditable'?

In an audit of a non-issuer, the auditor discovers a material weakness in internal control. The auditor is not engaged to perform an audit of internal control over financial reporting. Which of the following is the auditor's responsibility regarding communication?

Which of the following statements best describes the concept of 'Professional Skepticism' as defined in auditing standards?

A CPA firm is subject to the independence rules of the Government Accountability Office (GAO) because it audits a government entity. Which of the following non-audit services would most likely impair independence under the GAO 'Yellow Book' standards?

According to the AICPA Code of Professional Conduct, which of the following actions by a CPA would be considered a violation of the 'Integrity and Objectivity' rule?

An auditor is determining the appropriate materiality for a new audit client. Which of the following factors would most likely lead the auditor to select a LOWER percentage for determining performance materiality?

An auditor uses the Audit Risk Model (AR = IR x CR x DR) to plan the audit. If the auditor assesses Inherent Risk (IR) as High and Control Risk (CR) as High, how must the auditor manipulate Detection Risk (DR) to maintain a low overall Audit Risk?

Which of the following factors would most likely increase Inherent Risk for the valuation assertion of the inventory account?

An auditor is assessing control risk for the sales cycle. The auditor observes that the software automatically prevents the processing of a sales order if the customer's credit limit is exceeded. This is an example of:

While understanding the entity and its environment, the auditor learns that the industry is experiencing a significant downturn and price war. Which component of the fraud triangle does this most directly affect?

Which of the following scenarios represents the greatest segregation of duties conflict in the revenue cycle?

An auditor is performing analytical procedures during the planning stage. The auditor notes that the company's gross margin has increased significantly while sales volume has remained flat. Which of the following is a plausible explanation for this relationship?

In the context of the COSO Internal Control framework, which of the following best describes the 'Monitoring' component?

An auditor decides to use the work of an internal auditor to assist in the audit of accounts payable. Which of the following steps is the external auditor REQUIRED to perform?

During the risk assessment of a manufacturing client, the auditor identifies that the company has complex derivative instruments used for hedging. The audit team lacks experience with these specific instruments. What is the most appropriate response?

Which of the following would be considered a 'General Control' in an IT environment?

An auditor is reviewing a client's use of a service organization for payroll processing. The auditor receives a Type 2 SOC 1 report. What does this report provide that a Type 1 report does not?

When planning an audit, the auditor should consider the concept of 'materiality' for the financial statements as a whole. Which of the following is the primary benchmark generally used for a profit-oriented entity?

An auditor identifies a risk of material misstatement due to fraud related to management override of controls. Which of the following procedures is REQUIRED to address this specific risk?

Which of the following statements correctly describes the relationship between 'Significant Risks' and internal control testing?

An auditor is planning the audit of a new client. Which of the following procedures is required to be performed regarding the client's opening balances?

Which of the following is a 'Control Activity' component of internal control?

An auditor is calculating the sample size for a test of controls using attribute sampling. Which of the following changes would result in a DECREASE in the required sample size?

In performing a search for unrecorded liabilities, which of the following procedures would be most effective?

An auditor sends positive confirmation requests to 50 customers. One customer replies indicating that the balance is overstated because they returned the goods on December 28 (year-end is December 31). The auditor verifies that the goods were received by the client on January 4. The shipping terms were FOB Destination. What is the correct conclusion?

Which of the following procedures would be most appropriate for testing the existence of the client's investments in marketable securities held by a custodian?

An auditor is testing the completeness of the sales account. Which of the following audit procedures would be most relevant?

Which of the following situations would most likely require the auditor to use 'Variables Sampling' rather than 'Attribute Sampling'?

An auditor is reviewing the 'Repair and Maintenance' expense account. The primary objective of this procedure is to obtain evidence regarding which assertion for Property, Plant, and Equipment (PPE)?

Kiting is a fraud scheme involving the transfer of money between bank accounts. Which of the following procedures is most effective in detecting kiting?

An auditor is evaluating the results of a variables sampling plan for accounts receivable. The calculated point estimate of the population is $1,000,000. The recorded book value is $1,050,000. The allowance for sampling risk (precision) is calculated as $40,000. What is the auditor's conclusion?

Which of the following subsequent events would require adjustment to the financial statements (Type I event)?

An auditor is concerned about the valuation of the allowance for doubtful accounts. Which of the following procedures provides the best evidence?

Which of the following is an example of 'Sampling Risk' of the type that leads to an incorrect acceptance (Type II error)?

An auditor is auditing the fair value measurements of Level 3 assets (unobservable inputs). Which of the following is the most appropriate audit procedure?

During the audit of inventory, the auditor observes the client's physical count. The auditor notices that several pallets of goods are tagged as 'Consignment - Do Not Count'. What should the auditor do?

An auditor is preparing a management representation letter. Which of the following dates should be used for the letter?

Which of the following circumstances would most likely cause an auditor to issue a 'Qualified Opinion'?

An auditor is engaged to review the financial statements of a non-issuer under SSARS. During the review, the auditor discovers a material departure from the applicable financial reporting framework. Management refuses to correct it. What should the auditor do?

Which of the following is a requirement for an auditor to accept an engagement to audit a client's compliance with specific requirements (Compliance Audit)?

In a Group Audit, the group engagement partner decides not to make reference to the audit of a component auditor. What does this imply?

An auditor is performing a compilation engagement under SSARS. The client has omitted substantially all disclosures required by GAAP. The auditor decides to issue the compilation report. Which of the following is required?

Which of the following best describes the auditor's responsibility for 'Other Information' included in the annual report containing the audited financial statements?

An auditor is engaged to report on summary financial statements derived from audited financial statements. Which of the following is true?

Which of the following procedures is most likely to assist an auditor in identifying related party transactions?

An auditor is testing the 'Rights and Obligations' assertion for accounts payable. Which procedure is most relevant?

Which of the following is a 'Type 2' subsequent event (Non-recognized event)?

An auditor is testing the completeness of the payroll expense. Which of the following analytical procedures would be most effective?

Which of the following statements is true regarding the auditor's communication with those charged with governance (the Audit Committee)?

An auditor is testing the 'Presentation and Disclosure' assertion. Which of the following is a primary concern?

In an agreed-upon procedures engagement under SSAE, which of the following is prohibited?

Which of the following is a key difference between a Review engagement and an Audit engagement?

An auditor discovers that the client has not capitalized a material lease that meets the criteria for a finance lease. The client refuses to correct the error. The effect is material but not pervasive. What opinion should be issued?

Which of the following is required for an auditor to issue an audit report with 'Dual Dating'?

An auditor concludes there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. Management's plans do not alleviate this doubt. The financial statements adequately disclose the uncertainty. What type of report should be issued?

Which of the following is a mitigating factor that might alleviate an auditor's substantial doubt about a going concern?

An auditor is testing the 'Occurrence' assertion for sales. Which procedure is most appropriate?

Under PCAOB standards, which of the following is a requirement regarding 'Critical Audit Matters' (CAMs)?

An auditor is unable to observe the counting of physical inventory at the beginning of the year. The auditor was able to observe the year-end count and is satisfied with the ending balance. However, the auditor cannot verify the opening inventory balance by alternative procedures. Which opinion is most appropriate for the Statement of Income?

Which of the following is a requirement for 'Preparation' engagements under SSARS?

An auditor is auditing a client that uses a 'Special Purpose Framework' (e.g., Cash Basis). Which of the following is true regarding the auditor's report?

Which of the following is a 'Type 1' error in audit sampling?

An auditor is testing the 'Cutoff' assertion for inventory. Which procedure is most relevant?

Which of the following is an 'Examination' engagement under SSAE?

When auditing a client's accounting estimates (e.g., warranty reserve), which of the following is NOT a required procedure?

An auditor is using 'Probability-Proportional-to-Size' (PPS) sampling. Which of the following is a characteristic of this method?

Which of the following would be considered a 'Material Weakness' in internal control?

An auditor is performing a review of interim financial information for a public company. Which of the following procedures is REQUIRED?

Which of the following is true regarding the 'Management Representation Letter'?

An auditor is auditing the 'Completeness' of the cash balance. Which procedure is most appropriate?

Which of the following is a 'Pro Forma' financial statement engagement?

An auditor is testing the 'Existence' of accounts receivable. The auditor sends positive confirmations. A customer responds stating, 'We do not owe this amount because we paid it on December 28.' The auditor verifies that the check was received by the client on January 3. What is the conclusion?

An auditor is performing an audit of a nonissuer's financial statements. During the engagement, the auditor encounters a situation involving a threat to compliance with the Integrity and Objectivity Rule of the AICPA Code of Professional Conduct. The threat is not explicitly addressed by the Code's rules or interpretations. According to the Conceptual Framework for Members in Public Practice, which of the following steps should the auditor take FIRST?

A CPA firm is auditing the financial statements of an issuer, TechGlobal Inc. The lead audit partner, Sarah, has served in that capacity for five consecutive years ending December 31, Year 5. Under PCAOB rules and the Sarbanes-Oxley Act, which of the following roles may Sarah perform for the TechGlobal audit for the year ending December 31, Year 6?

An auditor is conducting an audit of a nonissuer in accordance with GAO Government Auditing Standards (the Yellow Book). The auditor has been asked to perform a non-audit service: preparing the entity's indirect cost proposal for a federal grant. Which of the following statements BEST describes the auditor's independence responsibilities?

During the audit of a nonissuer, the auditor identifies a significant risk of fraud related to revenue recognition. The auditor decides to incorporate an element of unpredictability into the audit procedures. Which of the following procedures would BEST satisfy this objective?

An auditor is accepting an engagement to audit the financial statements of a new nonissuer client. The predecessor auditor's response to inquiries indicates that there were significant disagreements with management regarding accounting principles and audit procedures. Which of the following is the auditor's MOST appropriate initial course of action upon receiving this information?

An auditor is documenting the results of an audit of a nonissuer. The auditor has identified a complex accounting estimate regarding the fair value of Level 3 derivatives. Which of the following statements BEST describes the documentation requirement for the professional judgment exercised in this area?

In an audit of an issuer, the auditor identifies a material weakness in internal control over financial reporting (ICFR). The auditor also determines that the financial statements are materially correct and issues an unqualified opinion on the financial statements. Which of the following describes the appropriate reporting on ICFR?

An auditor is communicating with those charged with governance (the Audit Committee) of a nonissuer. The auditor has identified several significant deficiencies in internal control that are not material weaknesses. Which of the following statements regarding the required communication is CORRECT?

During the planning phase of an audit of a manufacturing nonissuer, the auditor performs analytical procedures on the entity's gross margin. The auditor notes that the gross margin percentage has increased significantly from the prior year, while industry competitors have seen a decline due to rising raw material costs. Which of the following is the MOST likely audit risk indicated by this finding?

An auditor is assessing the risk of material misstatement for a nonissuer's complex financial instruments. The entity uses a third-party pricing service to value its portfolio of mortgage-backed securities. Which of the following procedures should the auditor perform to assess the reliability of the pricing service's data?

An auditor is testing the operating effectiveness of a user entity's internal controls. The user entity outsources its payroll processing to a service organization. The auditor obtains a SOC 1 Type 2 report from the service organization. The report identifies several exceptions in the testing of the service organization's controls. Which of the following factors is MOST important for the user auditor to consider in determining the effect of these exceptions on the user entity's audit?

An auditor is determining performance materiality for the audit of a nonissuer. The auditor has established materiality for the financial statements as a whole at $500,000. The entity operates in a high-risk industry and has a history of numerous audit adjustments. Which of the following represents the MOST appropriate judgment for setting performance materiality?

An auditor is planning the audit of a nonissuer's inventory. The entity has multiple warehouse locations. The auditor assesses the risk of material misstatement related to the existence of inventory as high due to weak internal controls. Which of the following audit procedures is MOST responsive to this assessed risk?

An auditor is using audit data analytics (ADA) to identify high-risk journal entries in the audit of a nonissuer. The auditor is specifically looking for entries that might indicate management override of controls. Which of the following characteristics would be MOST indicative of such entries?

An auditor is performing a single audit of a governmental entity under the Uniform Guidance. The auditor has determined that the entity is a low-risk auditee. Which of the following represents the minimum percentage of total federal awards expended that the auditor must test as major programs?

An auditor is evaluating the results of attribute sampling performed on a population of 2,000 purchase orders to test the authorization control. The sample size was 100. The auditor found 2 deviations. The calculated upper deviation rate at a 95% confidence level is 6.3%. The tolerable deviation rate established during planning was 7%. What is the auditor's MOST appropriate conclusion?

An auditor uses probability-proportional-to-size (PPS) sampling to select a sample of accounts receivable for confirmation. A customer account with a recorded balance of $10,000 was selected. The audit value was determined to be $8,000. The sampling interval is $50,000. What is the projected misstatement for this item?

An auditor is performing substantive analytical procedures on the payroll expense of a nonissuer. The auditor develops an expectation of payroll expense based on the number of employees and average pay rates. The difference between the auditor's expectation and the recorded amount exceeds the auditor's established threshold. Which of the following is the MOST appropriate next step?

An auditor is auditing the financial statements of a nonissuer that uses a service organization for its investment transaction processing. The auditor is unable to obtain a SOC 1 Type 2 report and the user entity's controls over the investment activities are not sufficient to provide evidence. Which of the following is the auditor's MOST appropriate course of action?

An auditor is reviewing the financial statements of a nonissuer and notes that the entity has changed its method of accounting for inventory from LIFO to FIFO. Management has justified the change as preferable. The auditor agrees with the change and the change is properly accounted for and disclosed. How should this be reflected in the auditor's report?

An accountant is engaged to perform a compilation of a nonissuer's financial statements. The entity omits substantially all disclosures required by GAAP. The accountant decides to accept the engagement. Which of the following statements must be included in the compilation report?

An auditor is testing the completeness assertion for accounts payable of a nonissuer. Which of the following procedures would provide the MOST reliable evidence?

An auditor is engaged to report on summary financial statements derived from the audited financial statements of a nonissuer. The auditor issued an unmodified opinion on the full financial statements. Which of the following is a requirement for the auditor to accept the engagement to report on the summary financial statements?

An auditor is auditing the allowance for doubtful accounts of a nonissuer. The auditor is concerned that management has understated the allowance by failing to account for deteriorating economic conditions affecting a major customer. Which of the following procedures would provide the MOST persuasive evidence regarding the adequacy of the allowance?

An auditor is performing an integrated audit of an issuer. The auditor identifies a control deficiency: the person who authorizes purchases also has the ability to enter new vendors into the master file. No material misstatements were found in the financial statement audit. How should the auditor classify this deficiency?

An auditor is reviewing the work of a component auditor who audited a significant subsidiary of a nonissuer group financial statement audit. The group auditor decides to assume responsibility for the work of the component auditor. Which of the following reporting options is appropriate?

An auditor is performing a review of a nonissuer's interim financial information. The entity is also subject to an annual audit. During the review, the auditor inquires about the entity's internal control. Which of the following statements is TRUE regarding the auditor's responsibility for internal control in an interim review?

An auditor is auditing the fair value of a complex derivative instrument held by a nonissuer. The auditor engages an auditor's specialist to assist in evaluating the valuation model. Which of the following is the auditor's responsibility regarding the specialist's findings?

An auditor is performing a compliance audit of a government entity. The auditor identifies a material instance of noncompliance with a grant requirement. The entity has corrected the noncompliance and the grantor agency has waived any penalties. How should the auditor report this finding?

An auditor is considering the use of the internal audit function in the audit of a nonissuer. The auditor plans to use internal auditors to provide direct assistance in performing substantive tests of details. Which of the following is a requirement for this use?

An auditor is designing confirmation requests for a nonissuer's accounts receivable. The auditor anticipates a low response rate and several disputed balances. Which type of confirmation request is MOST appropriate to maximize response rates and evidence quality?

An auditor is performing an audit of a nonissuer's financial statements. The auditor identifies a subsequent event occurring after the balance sheet date but before the financial statements are issued: the settlement of a lawsuit for an amount significantly different from the year-end accrual. The cause of the lawsuit existed at the balance sheet date. How should this event be treated?

An auditor is engaged to examine the prospective financial statements (financial forecast) of a nonissuer. Which of the following is a requirement for the accountant's report?

An auditor is performing an audit of a nonissuer and identifies a related party transaction that was not previously disclosed to the auditor. Which of the following is the auditor's FIRST responsibility?

An auditor is evaluating the sufficiency of audit evidence for a nonissuer's fair value estimate of investment property. The auditor has tested management's significant assumptions and found them to be reasonable. However, the auditor notes that the valuation is highly sensitive to minor changes in the capitalization rate. What is the auditor's BEST course of action?

An auditor is performing a review of a nonissuer's financial statements under SSARS. The auditor becomes aware of a material departure from GAAP. Management refuses to correct the departure. The auditor determines that the departure is so pervasive that a modification to the conclusion is not adequate to communicate the deficiencies. What should the auditor do?

An auditor is testing the design effectiveness of a nonissuer's internal controls over cash disbursements. Which of the following procedures is MOST appropriate for this purpose?

An auditor is auditing the financial statements of a nonissuer. The auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time. Management has developed a plan that the auditor concludes is probable of being effectively implemented and probable of mitigating the conditions. The financial statements adequately disclose the conditions and the plan. What type of report should the auditor issue?

An auditor is performing a statistical sample of inventory counts. The recorded book value of the population is $1,000,000. The auditor selects a sample with a book value of $100,000. The audit value of the sample is $98,000. Using ratio estimation, what is the projected misstatement for the population?

An auditor is auditing the financial statements of an issuer. The auditor discovers that the client has not disclosed a significant related party transaction in the footnotes. The transaction is material. Management refuses to correct the omission. Which of the following opinions should the auditor issue?

An auditor is preparing an engagement letter for the audit of a nonissuer. Which of the following is a REQUIRED component of the engagement letter under AU-C 210?

An auditor is performing an audit of a nonissuer's accounts receivable. The auditor decides to use probability-proportional-to-size (PPS) sampling. Which of the following is a DISADVANTAGE of this method compared to classical variables sampling?

An auditor is testing the valuation of a nonissuer's inventory. The auditor notes that the company uses a standard cost system. Which of the following procedures is MOST appropriate to determine if the standard costs approximate actual costs?

An auditor is performing an audit of an issuer. The auditor identifies a material weakness in internal control. The client remediates the weakness one month before year-end. The auditor tests the remediated control and finds it effective. What is the appropriate reporting conclusion?

An auditor is performing an agreed-upon procedures engagement regarding a client's compliance with a specific lease agreement. Which of the following statements is TRUE regarding the practitioner's report?

An auditor is auditing the financial statements of a nonissuer. The auditor uses a specialist to value the pension liability. The auditor concludes that the specialist's findings support the financial statement assertions. However, the auditor decides to modify the opinion due to a separate material misstatement in inventory. Can the auditor reference the specialist in the audit report?

An auditor is performing a review of Management's Discussion and Analysis (MD&A) for a nonissuer. Which of the following statements is TRUE regarding this engagement?

An auditor is testing the rights and obligations assertion for a nonissuer's inventory. The auditor notes that a significant portion of inventory is segregated in the warehouse. Which of the following inquiries is MOST relevant?

An auditor is auditing the cash account of a nonissuer. The auditor suspects that the cashier is misappropriating cash receipts and covering the theft by lapping accounts receivable collections. Which of the following procedures would be MOST effective in detecting this fraud?

An auditor is using non-statistical sampling to test the operating effectiveness of a control. The auditor selects a sample of 50 items and finds 0 deviations. The auditor concludes that the control is operating effectively. Which of the following statements is TRUE regarding this conclusion?

An auditor is auditing the financial statements of a nonissuer. The auditor identifies a material misstatement in the prior year's financial statements that was not corrected. The current year's financial statements are presented in comparative form. Management has restated the prior year statements to correct the error. How should the auditor report on the prior year statements?

An auditor is performing a review of a nonissuer's financial statements. The auditor inquires about subsequent events. Which of the following events occurring after the balance sheet date but before the report date would MOST likely require adjustment to the financial statements?

An auditor is auditing the opening balances of a new nonissuer client. The prior year financial statements were audited by a predecessor auditor who issued an unmodified opinion. Which of the following procedures is the auditor REQUIRED to perform regarding the opening balances?

An auditor is performing a preparation engagement under SSARS for a nonissuer. Which of the following is TRUE regarding the independence requirement?

An auditor is testing the completeness of sales for a nonissuer. Which of the following audit procedures is MOST relevant?

An auditor is performing an audit of an issuer's internal control over financial reporting (ICFR). The auditor identifies a control deficiency. To determine if this deficiency is a material weakness, the auditor must evaluate:

An auditor is auditing the financial statements of a nonissuer. The auditor sends a confirmation request to a bank. The bank confirms the cash balance but does not answer the specific question regarding contingent liabilities (loans). What should the auditor do?

An auditor is performing a review of a nonissuer's financial statements. The auditor notes that the gross profit percentage has declined significantly. Management explains that this is due to a new product line with lower margins. Which of the following procedures is MOST appropriate to corroborate this explanation?

An auditor is auditing the financial statements of a nonissuer. The auditor identifies a material misstatement in the financial statements. Management corrects the misstatement. What is the effect on the auditor's assessment of internal control?

An auditor is performing an audit of a nonissuer. The auditor decides to use the work of an internal auditor to assist in the audit of accounts receivable. Which of the following judgments must the external auditor make?

An auditor is auditing the financial statements of a nonissuer. The auditor identifies a risk of material misstatement due to fraud related to management override of controls. Which of the following procedures is REQUIRED to address this risk?

An auditor is performing an audit of a nonissuer. The auditor is unable to obtain the audited financial statements of a significant equity method investee. The investment is material to the auditor's client. Which of the following is the MOST likely effect on the auditor's report?

An auditor is performing a review of a nonissuer's financial statements. The auditor discovers that the entity has not accrued for a material vacation pay liability. Management refuses to correct the error. The error is material but not pervasive. Which of the following conclusions should the auditor express?

An auditor is testing the existence of a nonissuer's investments in securities. The securities are held by a custodian. Which of the following procedures provides the MOST reliable evidence?

An auditor is performing an audit of a nonissuer. The auditor identifies a significant deficiency in internal control. Which of the following is TRUE regarding the auditor's communication responsibility?

An auditor is auditing the financial statements of a nonissuer. The auditor uses a service organization for payroll. The auditor receives a SOC 1 Type 1 report. Which of the following is a limitation of this report?

An auditor is performing an audit of a nonissuer. The auditor identifies a risk that the entity may be capitalizing repairs and maintenance expenses to inflate assets. Which of the following procedures is MOST appropriate to address this risk?

An auditor is determining the sample size for a test of controls. Which of the following factors has an INVERSE relationship with sample size?

An auditor is auditing the financial statements of a nonissuer. The auditor identifies a material inconsistency between the audited financial statements and the other information included in the annual report. The financial statements are correct, but the other information is incorrect. Management refuses to correct the other information. What should the auditor do?

An auditor is performing an audit of a nonissuer. The auditor identifies a significant risk related to the valuation of complex financial instruments. The auditor determines that substantive procedures alone cannot provide sufficient appropriate audit evidence. What should the auditor do?

An auditor is auditing the financial statements of a nonissuer. The auditor identifies a material misstatement in the inventory balance. Management adjusts the financial statements to correct the misstatement. The auditor is now evaluating the risk of material misstatement for the remaining account balances. How should this finding affect the audit?

An auditor is performing a review of a nonissuer's financial statements. The auditor is not independent. Which of the following is the auditor's responsibility?

An auditor is auditing the financial statements of a nonissuer. The auditor identifies a material related party transaction that was properly authorized and disclosed. The auditor wants to draw attention to this transaction in the audit report. What should the auditor do?

An auditor is performing an audit of a nonissuer. The auditor uses a classical variables sampling plan (mean-per-unit) to estimate the value of inventory. The recorded book value is $2,000,000. The point estimate of the population is $1,800,000. The precision (allowance for sampling risk) is $150,000. The tolerable misstatement is $250,000. What is the auditor's conclusion?

An auditor is auditing the financial statements of a nonissuer. The auditor identifies a fraud involving the theft of inventory by a warehouse employee. The amount is immaterial to the financial statements. To whom should the auditor report this fraud?

An auditor is performing an audit of a nonissuer. The auditor assesses control risk at the maximum level for all assertions. Which of the following statements is TRUE?

An auditor is auditing the financial statements of a nonissuer. The auditor identifies a material weakness in internal control. The auditor's report on the financial statements is unmodified. Which of the following is TRUE regarding the communication of the material weakness?

An auditor is performing an audit of a nonissuer. The auditor is testing the allocation of the purchase price in a business combination. The auditor determines that the valuation of intangible assets requires specialized skills. The auditor decides to use an auditor's specialist. Which of the following is TRUE?

A CPA firm is performing an audit of a nonissuer in accordance with GAO Government Auditing Standards (the Yellow Book). The auditor has been asked to perform a non-audit service: preparing the entity's indirect cost proposal for a federal grant. The auditor has determined that this service creates a self-review threat. Which of the following statements BEST describes the auditor's responsibility regarding independence?

During the audit of an issuer, the engagement partner learns that the firm's tax partner, who provides 15 hours of tax services to the audit client annually, has a spouse who just purchased 50 shares of the client's stock. The stock is held in a blind trust. Under PCAOB and SEC independence rules, which of the following conclusions is CORRECT?

An auditor is planning an audit of a nonissuer's financial statements. The auditor decides to use the work of the entity's internal audit function to obtain audit evidence. Which of the following factors would LEAST likely influence the auditor's determination of the extent to which to use the internal auditors' work?

An auditor is assessing control risk for a nonissuer's revenue cycle. The auditor identifies that the entity uses a complex IT system where sales orders are automatically processed, credit limits are checked via an algorithm, and invoices are generated without manual intervention. In this environment, which of the following strategies is MOST appropriate?

During the audit of a manufacturing company's inventory, the auditor utilizes a variables sampling plan to estimate the total value of inventory. The recorded book value is $5,000,000. The auditor's sample results indicate a projected misstatement of $150,000 (overstatement). The allowance for sampling risk is calculated at $75,000. Tolerable misstatement is $200,000. Which of the following conclusions is MOST appropriate?

An auditor is performing a review engagement under SSARS (AR-C 90) for a nonissuer. The auditor becomes aware of a material departure from the applicable financial reporting framework. Management refuses to correct the departure. The auditor determines that the departure is material but NOT pervasive. Which of the following is the MOST appropriate report modification?

An auditor is conducting an audit of a nonissuer's financial statements. The auditor identifies a significant deficiency in internal control that is NOT considered a material weakness. Which of the following communications is REQUIRED?

Scenario: An auditor is testing the completeness assertion for accounts payable of a nonissuer. The auditor selects a sample of cash disbursements made subsequent to year-end and examines the supporting documentation (invoices and receiving reports).<br/><br/>Which of the following findings would represent a misstatement related to the completeness of accounts payable?

An auditor is engaged to report on summary financial statements derived from the audited financial statements of a nonissuer. The auditor issued an unmodified opinion on the audited financial statements. The auditor concludes that the summary financial statements are consistent, in all material respects, with the audited financial statements. Which of the following statements is TRUE regarding the auditor's report on the summary financial statements?

Scenario: During the audit of a nonissuer, the auditor identifies a fraud risk related to management override of controls. To address this risk, the auditor plans to test journal entries.<br/><br/>Which of the following characteristics would MOST likely lead the auditor to select a specific journal entry for testing?

An auditor is performing an integrated audit of an issuer. The auditor identifies a material weakness in internal control over financial reporting (ICFR). Management corrects the material weakness two months before year-end. The auditor tests the corrected control and finds it operating effectively. Which of the following is the auditor's MOST appropriate course of action regarding the opinion on ICFR?

Which of the following scenarios BEST illustrates a violation of the 'Integrity and Objectivity' rule of the AICPA Code of Professional Conduct?

An auditor is calculating the sample size for a test of details of balances using probability-proportional-to-size (PPS) sampling. The recorded amount of the population is $1,000,000. The auditor determines a reliability factor of 3.0 (based on risk of incorrect acceptance), a tolerable misstatement of $50,000, and an expected misstatement of $10,000. The expansion factor is 1.6. What is the sampling interval?

An auditor is reviewing the minutes of the board of directors meetings of a nonissuer. The auditor discovers that the board authorized a significant guarantee of a loan for a related party. This guarantee was not disclosed in the financial statements. The auditor considers this omission to be material. Management refuses to amend the financial statements. What is the appropriate audit opinion?

Scenario: An auditor is planning the audit of a nonissuer. The entity has a complex bonus structure for executives based on 'Adjusted EBITDA'. The auditor notes that 'Adjusted EBITDA' excludes 'non-recurring expenses', a definition that is subject to significant management judgment.<br/><br/>Which of the following is the MOST significant fraud risk associated with this scenario?

An auditor is performing a Single Audit under the Uniform Guidance (2 CFR 200). The auditor is determining major programs. The entity has two Type A programs and four Type B programs. One of the Type A programs is identified as 'low-risk'. Which of the following is TRUE regarding the auditor's testing requirements?

An auditor is evaluating the sufficiency of evidence regarding the fair value of a complex financial instrument (Level 3 input) held by a nonissuer. Management has used a specialist to value the instrument. The auditor has tested the specialist's competence and objectivity. Which of the following additional procedures is MOST appropriate?

Which of the following statements accurately describes the difference between a 'reportable condition' under the old standards and a 'significant deficiency' under current AU-C 265?

An auditor is performing a compilation engagement for a nonissuer under SSARS. The client has omitted substantially all disclosures required by GAAP. The auditor decides to issue the compilation report. Which of the following statements MUST be included in the report?

Scenario: An auditor is testing the existence of inventory for a retail client with multiple locations. The auditor observes the physical count at the main warehouse but not at the smaller retail stores. The retail stores hold 30% of the total inventory value. The auditor performs analytical procedures on the retail store inventory and finds the gross margins to be consistent with prior years. <br/><br/>Is this evidence sufficient and appropriate to support the existence assertion for the retail store inventory?

An auditor is performing an audit of a nonissuer. The auditor sends a confirmation request to a bank. The bank responds but includes a disclaimer stating: 'Information is furnished as a matter of courtesy and without responsibility on the part of the bank or its officers.' How should the auditor assess the reliability of this confirmation?

Which of the following procedures would an auditor LEAST likely perform during the planning stage of an audit?

An auditor is testing the operating effectiveness of a control that requires the credit manager to approve all sales over $10,000. The auditor selects a sample of 50 sales over $10,000. The auditor finds that for 2 items, the credit manager's signature is missing, but the credit manager claims to have verbally approved them. How should the auditor classify these items?

Scenario: An auditor is engaged to audit the financial statements of a nonissuer. The entity uses a service organization for payroll processing. The auditor obtains a SOC 1 Type 2 report. The report states that 'Control X' at the service organization was not operating effectively during the period. Control X relates to the reconciliation of payroll tax withholdings.<br/><br/>What is the auditor's MOST appropriate response?

Which of the following events occurring after the balance sheet date but before the auditor's report date would require ADJUSTMENT to the financial statements?

An auditor is engaged to perform an agreed-upon procedures (AUP) engagement regarding a client's compliance with a specific lease agreement. Which of the following is a REQUIRED condition for this engagement?

Scenario: During the audit of a nonissuer, the auditor identifies a material misstatement in the financial statements. Management corrects the misstatement. The auditor concludes that the misstatement was an isolated error and not indicative of a material weakness in internal control. <br/><br/>Does the auditor need to communicate this to those charged with governance?

An auditor is auditing the financial statements of an issuer. The auditor is using Audit Data Analytics (ADA) to test the revenue account. The auditor analyzes 100% of the sales transactions for the year and identifies 50 transactions that fall outside the auditor's expected range (notable items). What is the auditor's NEXT step?

Which of the following is a PRECONDITION for an audit of a nonissuer?

An auditor is testing the completeness of the dividend income account for a nonissuer investor. Which of the following audit procedures is MOST effective?

Scenario: An auditor is auditing the allowance for doubtful accounts of a nonissuer. The auditor notes that the company's aging schedule shows a significant increase in receivables over 90 days past due. Management argues that these are due to a few large customers who are 'slow payers but reliable'.<br/><br/>Which of the following procedures provides the MOST persuasive evidence regarding the valuation of these receivables?

Under the AICPA Code of Professional Conduct, which of the following situations would NOT impair a covered member's independence?

An auditor is preparing the audit report for a nonissuer. The auditor decides to emphasize that the entity has significant related party transactions. Which of the following is the correct presentation?

Scenario: An auditor is auditing the revenue cycle of a software company (Issuer). The company recognizes revenue from multi-year software licenses. The auditor identifies a risk that revenue might be recognized upfront rather than ratably over the license term. <br/><br/>Which of the following controls would BEST address this risk?

An auditor is performing a search for unrecorded liabilities. Which of the following document populations should the auditor sample from?

Which of the following statements is TRUE regarding the auditor's responsibility for 'Other Information' included in an annual report containing audited financial statements (e.g., the President's Letter)?

Scenario: An auditor is auditing the financial statements of a nonissuer. The auditor has determined that the risk of material misstatement for the existence of accounts receivable is high. Which of the following confirmation strategies is MOST appropriate?

An auditor is reviewing the work of a component auditor in a group audit of a nonissuer. The group engagement partner decides to assume responsibility for the work of the component auditor. Which of the following is TRUE regarding the auditor's report?

Which of the following is a required procedure in a review engagement of a nonissuer under SSARS?

An auditor is testing the rights and obligations assertion for a client's machinery. Which of the following procedures would provide the BEST evidence?

Scenario: An auditor is auditing the financial statements of a nonissuer. The auditor identifies a material weakness in internal control. The auditor's report on the financial statements is unmodified. The auditor has not been engaged to audit internal control. <br/><br/>How should the material weakness be handled in the auditor's report on the financial statements?

An auditor is using attribute sampling to test a control. The auditor specifies a tolerable deviation rate of 5%, a risk of assessing control risk too low of 5%, and an expected population deviation rate of 1%. The sample size is 93. The auditor finds 1 deviation. The table shows that for 1 deviation in a sample of 93, the upper deviation rate is 4.8%. What is the auditor's conclusion?

Which of the following is a specific requirement for an audit of a defined contribution plan under ERISA (Employee Retirement Income Security Act)?

An auditor is performing analytical procedures as a substantive test for payroll expense. The auditor develops an expectation of payroll expense by multiplying the average number of employees by the average wage rate. Which of the following factors would MOST significantly affect the precision of this expectation?

Scenario: An auditor is auditing the financial statements of a nonissuer. The auditor discovers that the client has been sued for patent infringement. Management's legal counsel refuses to provide an estimate of the potential loss, stating only that the outcome is 'uncertain'. Management has disclosed the lawsuit in the notes but has not accrued a liability. <br/><br/>What is the auditor's responsibility?

Which of the following is a prohibited non-audit service for an auditor of an issuer (public company) under Sarbanes-Oxley and PCAOB rules?

An auditor is performing a review of a nonissuer's interim financial information. The entity is also subject to an annual audit. Which of the following procedures is REQUIRED for the interim review?

Scenario: An auditor is auditing the inventory of a jewelry manufacturer. The inventory consists of loose diamonds and gold bars. The auditor does not have the expertise to distinguish real diamonds from fakes. <br/><br/>What is the auditor's BEST course of action?

An auditor is testing the design effectiveness of a control. Which of the following procedures is MOST appropriate?

Which of the following is a component of the COSO Internal Control—Integrated Framework?

An auditor is preparing a report on compliance with aspects of a contractual agreement (e.g., debt covenants) in connection with the audit of financial statements. Which of the following is a requirement for this report?

Scenario: An auditor is auditing the cash account of a nonissuer. The auditor suspects that the controller is writing checks to pay vendors but holding them in her desk to manage cash flow, while recording them as paid to reduce accounts payable. <br/><br/>Which audit procedure would BEST detect this 'held check' scheme?

An auditor is determining the sample size for a test of controls. Which of the following changes would result in a DECREASE in sample size?

Which of the following is an example of an 'Inherent Risk' factor?

An auditor is preparing a letter of audit inquiry to the client's legal counsel. Which of the following is the primary objective of this letter?

Scenario: An auditor is auditing the financial statements of a nonissuer. The auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time. Management has adequate plans to alleviate this doubt, and the plans are properly disclosed in the notes. <br/><br/>What is the appropriate audit opinion?

An auditor is testing the valuation of a client's investment in a non-traded equity security. The client uses the cost method. The auditor observes that the investee company has reported significant recurring losses and has lost a major customer. What is the auditor's primary concern?

Which of the following statements regarding the 'Management Representation Letter' is CORRECT?

An auditor is performing a compilation of a nonissuer's financial statements. The auditor is NOT independent. Which of the following is the correct reporting requirement?

Scenario: An auditor is testing the allocation of overhead to inventory. The client uses a standard costing system. The auditor notes that production volume dropped significantly this year, but the overhead absorption rate remained the same as the prior year. <br/><br/>What is the likely impact on the financial statements?

An auditor is testing the completeness of the liability for claims and assessments. Which of the following procedures is MOST appropriate?

Which of the following is a requirement for an auditor to accept an engagement to audit a nonissuer?

An auditor is testing the valuation of inventory. The auditor notes that the client has a large quantity of 'slow-moving' electronic components. The client has not written them down. Which of the following procedures provides the BEST evidence of the net realizable value of these items?

Scenario: An auditor is auditing the financial statements of a nonissuer. The auditor identifies a material related party transaction that was not authorized in accordance with the entity's policies. <br/><br/>What is the auditor's primary concern?

An auditor is performing a 'review' of the Management's Discussion and Analysis (MD&A) of a nonissuer. Which of the following is a requirement for this engagement?

Which of the following is a 'Type 2' subsequent event?

An auditor is using 'probability-proportional-to-size' (PPS) sampling. Which of the following is a characteristic of this method?

Scenario: An auditor is auditing the financial statements of a nonissuer. The auditor identifies a material weakness in internal control. The auditor's report on the financial statements is unmodified. The client requests that the auditor NOT communicate the material weakness to the audit committee because 'they already know about it'. <br/><br/>What is the auditor's responsibility?

Which of the following is a 'substantive analytical procedure'?

An auditor is auditing the financial statements of a nonissuer. The auditor is unable to obtain the audited financial statements of a significant equity method investee. The investment is material to the client's financial statements. Management is unable to provide other sufficient appropriate evidence regarding the investment's value. <br/><br/>What is the appropriate audit opinion?

Which of the following is an objective of a 'walkthrough'?

An auditor is testing the 'occurrence' assertion for sales. Which of the following directions of testing is appropriate?

Scenario: An auditor is auditing the financial statements of a nonissuer. The auditor identifies a material misstatement in the opening balances that affects the current period's financial statements. The prior period was audited by another auditor, and the predecessor's report is not reissued. Management refuses to adjust the opening balances. <br/><br/>What is the appropriate audit opinion on the current period financial statements?

Which of the following is a 'safeguard' created by the profession, legislation, or regulation under the AICPA Conceptual Framework?

An auditor is performing a 'preparation' engagement under SSARS. Which of the following is TRUE?

Scenario: An auditor is testing the fair value of a Level 2 financial asset. The client uses a matrix pricing model based on similar securities. <br/><br/>Which of the following is the MOST important audit consideration?

An auditor is performing a Single Audit. The auditor identifies $20,000 of questioned costs in a major program. The total expenditures for that program are $5,000,000. The threshold for reporting questioned costs is $25,000. <br/><br/>Must the auditor report this finding?

Which of the following statements BEST describes the concept of 'Performance Materiality'?

A CPA firm is performing an audit of a nonissuer, TechInnovate Inc. The engagement partner's spouse recently inherited 50 shares of stock in TechInnovate Inc. The value of the stock is $2,500, which is considered immaterial to the spouse's net worth and the partner's net worth. The spouse plans to sell the stock within 30 days. According to the AICPA Code of Professional Conduct, which of the following statements is correct regarding the firm's independence?

An auditor is performing an audit of an issuer, Global Corp, in accordance with PCAOB standards. The auditor discovers that the client's Chief Financial Officer (CFO) was the lead engagement partner on the audit five years ago. The CFO left the CPA firm four years ago. Which of the following correctly describes the independence implications under SEC and PCAOB rules?

A CPA is performing an audit of a county government entity that receives federal financial assistance. The audit is conducted in accordance with GAO Government Auditing Standards (the Yellow Book). The CPA also provides non-audit services to the county, specifically assisting in drafting the financial statements based on the trial balance provided by management. Which of the following is the auditor's responsibility regarding independence?

During the audit of an employee benefit plan subject to ERISA, the auditor discovers that the plan administrator has not filed the required Form 5500 with the Department of Labor (DOL). The auditor is concerned about the plan's compliance with laws and regulations. Under DOL independence rules, which of the following relationships would IMPAIR the auditor's independence with respect to the plan?

An auditor is evaluating the 'integrity' principle of the AICPA Code of Professional Conduct. Which of the following situations most clearly represents a violation of the integrity principle, rather than just the objectivity or due care principles?

During the planning phase of an audit of a nonissuer, the auditor is establishing an understanding with the client regarding the services to be performed. The client requests that the engagement be changed from an audit to a review due to a misunderstanding of the cost involved. Under AU-C 210, which of the following is the auditor's BEST course of action?

An auditor is documenting the engagement terms for the audit of a nonissuer. Which of the following matters is LEAST likely to be included in the engagement letter?

In an audit of a nonissuer, the auditor identifies a significant deficiency in internal control that is not considered a material weakness. Under AU-C 265, which of the following statements correctly describes the auditor's communication responsibility?

An auditor is finalizing the audit documentation for a nonissuer client. The audit report release date was March 15. According to AU-C 230, by what date must the auditor complete the assembly of the final audit file, and how long must it be retained?

Under the Quality Management standards (SQMS 1 / QM Section 10), a CPA firm must establish a risk-based approach to quality management. Which of the following is a NEW component introduced by SQMS 1 that was not explicitly a component in the previous QC standards?

REVISED Q10: Under the Quality Management standards (SQMS 1), which of the following represents a component that was explicitly added as a NEW component compared to the previous Quality Control standards to drive the risk-based approach?

An auditor is planning the audit of a nonissuer. Which of the following statements BEST describes the concept of 'performance materiality'?

In the context of the COSO Internal Control—Integrated Framework, which of the following principles is associated with the 'Control Environment' component?

An auditor is assessing the risk of material misstatement for a manufacturing client. The auditor notes that the industry is experiencing rapid technological obsolescence. This factor primarily increases which type of risk?

An auditor is performing analytical procedures during the planning stage of an audit. The auditor observes that the client's gross margin percentage has increased significantly from the prior year, while sales volume has remained flat. Which of the following is the MOST likely explanation for this trend that would indicate a risk of material misstatement due to fraud?

An auditor is understanding the internal control of a client that uses a service organization for payroll processing. The auditor obtains a SOC 1 Type 2 report. Which of the following is the auditor PRIMARILY looking for in this report to support a lower assessment of control risk?

During the audit of a nonissuer, the auditor identifies a risk of management override of controls. According to AU-C 240, which of the following procedures is REQUIRED to address this specific fraud risk?

An auditor is using Audit Data Analytics (ADA) to perform risk assessment procedures on the revenue cycle. The auditor creates a visualization plotting sales price per unit against quantity sold for all transactions. The auditor notices a cluster of transactions with high quantities and extremely low prices compared to the standard price list. What is the auditor's MOST appropriate next step?

In an audit of an issuer, the auditor is testing the design effectiveness of User Access Controls within the IT environment. Which of the following observations would represent the MOST significant deficiency in design?

An auditor is planning the audit of a nonissuer and intends to use the work of the client's internal audit function to assist in obtaining audit evidence. Under AU-C 610, which of the following tasks may the auditor assign to the internal auditors to perform under direct assistance?

An auditor is performing a 'test of details' on the existence of accounts receivable. The auditor selects a sample of customers and sends positive confirmations. This procedure primarily addresses which type of risk?

An auditor is using attribute sampling to test the operating effectiveness of a control. The auditor specifies a tolerable deviation rate of 5%. The sample of 100 items yields 2 deviations. The calculated upper deviation rate at the 95% confidence level is 6.2%. What is the auditor's MOST appropriate conclusion?

In probability-proportional-to-size (PPS) sampling, which of the following accounts would have the HIGHEST probability of being selected?

An auditor sends positive confirmation requests to a sample of customers. A customer responds stating, 'We do not owe $15,000; we paid this amount on December 28.' The auditor's client has a year-end of December 31. The auditor investigates and finds the check was received and deposited by the client on January 3. Which of the following is the MOST likely conclusion?

An auditor is testing the completeness assertion for accounts payable. Which of the following procedures is MOST appropriate?

An auditor is auditing the fair value of Level 3 assets (complex derivatives) for an issuer. Management has used a specialist to develop the valuation model. Under PCAOB standards, which of the following is the auditor's responsibility regarding the specialist's assumptions?

An auditor is reviewing the legal letter received from the client's external counsel. The letter states that the outcome of a significant lawsuit against the client is 'probable' and the potential loss is 'reasonably estimable' at $1,000,000. The client has disclosed the lawsuit in the notes but has NOT accrued a liability. What is the appropriate audit response?

An auditor is performing a Single Audit under the Uniform Guidance (2 CFR 200). The auditor has identified a 'major program' to test. Which of the following determines the auditor's testing strategy for internal controls over compliance for this major program?

An auditor concludes that there is substantial doubt about a nonissuer client's ability to continue as a going concern for a reasonable period of time. Management has developed a plan to alleviate this doubt, and the auditor concludes the plan is effective and the doubt is alleviated. How should this be reported?

An auditor is auditing the financial statements of a nonissuer. The auditor identifies a material misstatement in the inventory balance. Management refuses to correct the misstatement. The auditor concludes the misstatement is material but NOT pervasive. Which opinion should be issued?

An auditor is engaged to perform a review of a nonissuer's financial statements under SSARS (AR-C 90). Which of the following procedures is REQUIRED?

An accountant is engaged to perform a compilation of a nonissuer's financial statements. The accountant is NOT independent of the entity. Which of the following is correct regarding the accountant's report?

An auditor is reporting on a nonissuer's compliance with a regulatory requirement in connection with a financial statement audit. The auditor has expressed an adverse opinion on the financial statements. Can the auditor issue a report on compliance providing 'negative assurance'?

Which of the following engagements is an 'Attestation' engagement governed by SSAE (Statements on Standards for Attestation Engagements)?

An auditor is testing the 'Rights and Obligations' assertion for inventory. Which of the following procedures is MOST relevant?

An auditor is preparing a report on the audit of a nonissuer's financial statements prepared in accordance with the Cash Basis of accounting (a special purpose framework). Which of the following is a required element of the auditor's report?

An auditor is performing a review of interim financial information for an issuer under PCAOB standards. Which of the following procedures is the auditor REQUIRED to perform?

An auditor is testing the valuation of a client's allowance for doubtful accounts. The auditor reviews the aging of receivables and discusses the collectibility of large overdue balances with the credit manager. This approach is best described as:

Which of the following statements is CORRECT regarding the auditor's responsibility for 'Other Information' included in the annual report containing the audited financial statements?

An auditor is planning the audit of a new client, a nonissuer. The auditor requests permission to contact the predecessor auditor. The client refuses to grant permission. What is the auditor's MOST appropriate response?

During the audit of a nonissuer, the auditor identifies a material weakness in internal control. The auditor's report on the financial statements is unmodified. Which of the following is correct regarding the reporting of this material weakness?

An auditor is performing a 'search for unrecorded liabilities' and selects a sample of cash disbursements recorded in January (subsequent period). The auditor identifies a payment of $5,000 for utility services covering the period December 1 to December 31. The payment was recorded as an expense in January. The client's year-end is December 31. The materiality threshold is $10,000. What is the auditor's conclusion?

Which of the following scenarios represents a 'Self-Interest Threat' to independence under the AICPA Conceptual Framework?

An auditor is performing a 'review' of the Management's Discussion and Analysis (MD&A) of an issuer. This engagement is performed under which set of standards?

An auditor is testing the 'Existence' of equipment. Which of the following procedures is MOST appropriate?

An auditor is performing an integrated audit of an issuer. The auditor identifies a material weakness in internal control over financial reporting. The client remediates the weakness 20 days before year-end. The auditor tests the remediated control and finds it effective. What is the appropriate opinion on internal control?

An auditor uses the 'ratio estimation' method for variables sampling. The book value of the population is $1,000,000. The sample has a book value of $100,000 and an audited value of $110,000. What is the point estimate of the audited value of the population?

An auditor is preparing a report on a nonissuer's compliance with a contractual agreement related to a bank loan (e.g., debt covenants). The auditor has audited the financial statements and issued an unmodified opinion. Which of the following is a requirement for the compliance report?

An auditor is performing a 'preparation' engagement under SSARS (AR-C 70). Which of the following statements is correct?

An auditor is evaluating the sufficiency of evidence regarding the valuation of a complex financial instrument. The auditor decides to use the work of an auditor's specialist. Which of the following is NOT a requirement for the auditor regarding the specialist?

An auditor is auditing the cash account. Which of the following procedures is MOST effective for detecting 'kiting'?

An auditor is performing a 'review' of a nonissuer's financial statements. The auditor inquires about subsequent events. Which of the following events occurring after year-end but before the report release date would require adjustment to the financial statements?

An auditor is testing the completeness of sales. Which of the following audit trails represents the correct direction of testing?

Which of the following is a 'Precondition for an Audit' that the auditor must establish with management before accepting the engagement?

An auditor is testing the 'Presentation and Disclosure' assertion. Which of the following procedures is MOST relevant?

An auditor is auditing the financial statements of a nonissuer. The auditor discovers that the client has omitted the Statement of Cash Flows. Management refuses to present it. What is the appropriate opinion?

In an audit of an issuer, which of the following is a 'Critical Audit Matter' (CAM) that must be communicated in the auditor's report?

An auditor is performing a 'Agreed-Upon Procedures' (AUP) engagement. Which of the following is a requirement for the report?

An auditor is testing the 'Valuation' of inventory. The auditor notes that the client uses a standard cost system. Which of the following procedures is necessary to ensure the inventory is valued correctly?

An auditor is using 'Stop-or-Go' sampling (Sequential Sampling). This method is most appropriate when the auditor expects:

An auditor is reviewing the work of a component auditor in a group audit. The group auditor decides NOT to make reference to the component auditor in the audit report. Which of the following is the group auditor's responsibility?

An auditor is performing a 'Single Audit'. The auditor identifies $20,000 of questioned costs in a major program. The total expenditures for that program are $5,000,000. The threshold for reporting questioned costs is $25,000. What is the auditor's reporting responsibility?

An auditor is auditing the financial statements of a nonissuer. The auditor has substantial doubt about the entity's ability to continue as a going concern, but the doubt is NOT alleviated by management's plans. The financial statements adequately disclose the uncertainty. What is the appropriate audit opinion?

An auditor is performing a 'comfort letter' engagement for underwriters. Which of the following is correct regarding the assurance provided?

An auditor is testing the 'Completeness' of the dividend income account. Which of the following procedures is MOST appropriate?

An auditor is auditing the financial statements of a nonissuer. The auditor decides to issue a qualified opinion due to a material misstatement. Which of the following is the correct placement of the paragraph describing the matter?

REVISED Q66: An auditor is auditing the financial statements of a nonissuer under current AICPA standards (SAS 134). The auditor issues a qualified opinion. Where does the 'Basis for Qualified Opinion' section appear in the report?

An auditor is testing the 'Cutoff' assertion for sales. Which of the following procedures is MOST appropriate?

An auditor is using 'Mean-per-unit' estimation in variables sampling. The sample mean is $50. The population contains 10,000 items. The standard error of the mean is $2. What is the point estimate of the total population value?

An auditor is auditing the financial statements of a nonissuer. The auditor is unable to obtain sufficient appropriate audit evidence regarding a material foreign investment due to government restrictions. The possible effects of undetected misstatements could be material and pervasive. What is the appropriate opinion?

Which of the following is an example of an 'Advocacy Threat' to independence?

An auditor is performing a review of a nonissuer's financial statements. The auditor becomes aware of a material departure from GAAP. Management refuses to correct it. The auditor decides to modify the report. Which of the following is the correct conclusion to express?

An auditor is testing the 'Rights and Obligations' assertion for accounts receivable. Which of the following procedures is MOST appropriate?

An auditor is using 'stratification' in sampling. What is the primary benefit of this technique?

An auditor is performing a 'compilation' of a nonissuer's financial statements that omit substantially all disclosures required by GAAP. The auditor concludes that the omission is NOT intended to mislead users. Which of the following is correct?

An auditor is testing the 'Accuracy' of the payroll expense. Which of the following procedures is MOST appropriate?

An auditor is auditing the financial statements of a nonissuer. The auditor identifies a material related party transaction that was NOT disclosed in the notes. Management agrees it is a related party but refuses to disclose it. What is the appropriate opinion?

An auditor is performing an audit of an issuer. The auditor discovers an illegal act (noncompliance with laws and regulations) that has a material effect on the financial statements. Management and the Audit Committee have failed to take appropriate remedial action. Under Section 10A of the Securities Exchange Act of 1934, what is the auditor's required next step?

A CPA firm is auditing the financial statements of a nonissuer, TechInnovate Inc. The lead engagement partner's spouse has recently been promoted to a position at TechInnovate. Under the AICPA Code of Professional Conduct, which of the following positions held by the spouse would NOT automatically impair the firm's independence?

During the audit of an issuer, Gamma Corp, the audit firm proposes to provide tax services to the company's CEO. Under PCAOB rules and the Sarbanes-Oxley Act, which of the following statements is correct regarding this proposed service?

An auditor is performing a Yellow Book audit (GAO Government Auditing Standards) for a state agency. The agency requests the auditor to prepare its financial statements in their entirety from the trial balance. Which of the following best describes the auditor's responsibility regarding independence?

A CPA is engaged to audit the financial statements of a nonissuer. During the audit, the CPA encounters a complex valuation issue involving a derivative. The CPA decides to use an auditor's specialist. To maintain the appropriate level of professional skepticism, the CPA should:

Before accepting an audit engagement for a new nonissuer client, the successor auditor is required to communicate with the predecessor auditor. If the predecessor auditor refuses to provide information regarding the reason for the change in auditors, the successor auditor should:

An auditor is documenting the results of an audit of a nonissuer. The auditor has identified a significant finding related to a material misstatement that was corrected by management. Regarding the documentation of this finding, which of the following is required by AU-C 230?

During the audit of a nonissuer, the auditor identifies a deficiency in internal control. The auditor determines that the deficiency is not a material weakness but is significant enough to merit attention by those charged with governance. Which of the following is the correct communication requirement?

A firm is designing its system of quality management. According to SQMS No. 1 (Statement on Quality Management Standards), which of the following is a required component of the system of quality management?

An auditor is planning the audit of a nonissuer. The auditor intends to use the work of the client's internal audit function to assist in obtaining audit evidence. Which of the following factors would LEAST likely influence the auditor's determination of the extent to which the internal auditors' work can be used?

In an audit of an issuer, the auditor is assessing the control environment. Which of the following situations would most likely represent a significant deficiency or material weakness in the control environment?

An auditor is calculating materiality for a nonissuer client. The client has fluctuating net income over the past three years due to non-recurring gains and losses. Which of the following benchmarks would be MOST appropriate for determining overall materiality?

Which of the following scenarios most likely creates a 'presumption of fraud risk' in revenue recognition that the auditor must address?

An auditor is assessing the risk of material misstatement for a nonissuer's inventory. The company manufactures high-tech components that are subject to rapid obsolescence. Which assertion is MOST at risk?

During the planning phase of an audit, the auditor performs analytical procedures on the client's draft financial statements. The auditor observes that the gross margin percentage has increased significantly while sales volume has declined. Which of the following is a plausible explanation that would require further investigation?

An auditor is evaluating the design of an entity's internal controls over cash disbursements. Which of the following segregation of duties would BEST reduce the risk of misappropriation of assets?

An auditor is auditing a client that uses a service organization for payroll processing. The auditor obtains a SOC 1 Type 2 report. Which of the following is the auditor PRIMARILY interested in regarding this report?

In an integrated audit of an issuer, the auditor identifies a material weakness in internal control over financial reporting. The auditor determines that the financial statements are NOT materially misstated. Which of the following reports should the auditor issue?

An auditor is using audit data analytics (ADA) to identify high-risk transactions in the revenue cycle. The auditor visualizes the data and notices a cluster of sales transactions posted on Sundays, when the business is closed. This is an example of:

Which of the following IT general controls (ITGC) would be MOST effective in preventing unauthorized program changes from being moved into the production environment?

An auditor is performing a 'test of details' on the existence of accounts receivable. The auditor sends positive confirmations. A customer responds stating, 'We do not owe this amount; we paid it on December 28.' The auditor verifies that the check was received by the client on January 3 and recorded then. The year-end is December 31. This finding represents:

An auditor uses attribute sampling to test internal controls. The auditor establishes a tolerable deviation rate of 5%. The sample results indicate a sample deviation rate of 3% and an allowance for sampling risk of 3%. The auditor should conclude:

In a probability-proportional-to-size (PPS) sampling application, the sampling interval is determined to be $10,000. An account with a recorded amount of $50,000 is selected. The auditor finds a misstatement of $500 in this account. What is the projected misstatement for this item?

An auditor is reviewing the minutes of board meetings for a nonissuer. The auditor discovers that the company is a defendant in a patent infringement lawsuit filed two weeks before year-end. Management did not disclose this to the auditor. This discovery most likely affects the auditor's assessment of:

Which of the following procedures would be MOST effective in detecting unrecorded liabilities (completeness of accounts payable)?

An auditor is auditing the fair value of Level 3 assets (illiquid, no observable market). Management uses a complex proprietary model. The auditor does not have the expertise to evaluate the model. The auditor should:

An auditor is performing a Single Audit under the Uniform Guidance. The auditor identifies a material instance of noncompliance with federal grant requirements. The noncompliance does NOT result in a material misstatement of the financial statements. The auditor should:

Which of the following subsequent events would require adjustment to the financial statements for the year ended December 31, Year 1?

An auditor is engaged to perform a review of a nonissuer's financial statements under SSARS. The auditor learns that the client has omitted substantially all disclosures required by GAAP. The auditor concludes that the omission is not intended to mislead users. The auditor should:

An auditor is issuing a report on compliance with contractual agreements in connection with the audit of financial statements. The auditor expressed an adverse opinion on the financial statements. Can the auditor issue a report on compliance providing negative assurance?

In an examination engagement under SSAE (Attestation Standards), the practitioner's report must include:

An auditor is evaluating the sufficiency of audit evidence. Which of the following combinations of evidence would provide the HIGHEST level of assurance regarding the existence of inventory?

An auditor is testing the completeness of sales. Which of the following audit procedures should the auditor perform?

A CPA is performing an agreed-upon procedures engagement regarding a client's compliance with a specific lease agreement. Which of the following statements should be included in the practitioner's report?

Which of the following matters is an auditor required to communicate to those charged with governance?

An auditor is testing the valuation of a client's allowance for doubtful accounts. The auditor reviews the aging of receivables and subsequent cash receipts. This approach is best described as:

Which of the following is a 'precondition for an audit' that must be established before accepting an engagement?

An auditor is performing a review of interim financial information for an issuer. The auditor finds that the interim data does not comply with GAAP. Management refuses to correct it. The auditor should:

An auditor is testing the 'Rights and Obligations' assertion for a client's inventory. Which of the following procedures is MOST relevant?

When auditing a nonissuer's compliance with laws and regulations, the auditor's responsibility differs based on the nature of the law. For laws that have a 'direct effect' on the determination of material amounts and disclosures in the financial statements (e.g., tax laws), the auditor must:

An auditor is preparing a report on the financial statements of a nonissuer prepared in accordance with the cash basis of accounting (a special purpose framework). The report should include:

During the audit of a nonissuer, the auditor identifies a material misstatement in the prior year's financial statements that was not discovered during the prior audit. The prior year statements are presented for comparative purposes. The auditor should:

An auditor is testing the operating effectiveness of a control that leaves no documentary evidence (e.g., the controller's review of the budget vs. actual report). Which audit procedure is MOST appropriate?

Which of the following statements correctly describes the 'cooling-off' period for a lead audit partner of an issuer under Sarbanes-Oxley and PCAOB rules?

An auditor is performing substantive analytical procedures on payroll expense. The auditor develops an expectation of payroll expense by multiplying the number of employees by the average wage rate. Which of the following factors would MOST likely reduce the precision of this expectation?

An auditor is testing the completeness of the liability for claims and assessments. The auditor sends a letter of inquiry to the client's external legal counsel. The lawyer's response states that the outcome of a material pending lawsuit is 'uncertain' and 'unable to be estimated'. How should this be reported in the financial statements?

An auditor is performing a compilation engagement for a nonissuer. The client refuses to provide a representation letter. The auditor should:

In the audit of a nonissuer, the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time. Management's plans do not alleviate this doubt. The financial statements adequately disclose the uncertainty. The auditor should issue:

An auditor is testing the design effectiveness of a client's bank reconciliation control. Which of the following observations would indicate a design deficiency?

Which of the following statements is correct regarding the auditor's responsibility for 'other information' included in the annual report containing audited financial statements?

An auditor is testing the existence of equipment. Which of the following procedures is MOST appropriate?

Which of the following is a requirement for an auditor to issue a report on the application of requirements of an applicable financial reporting framework (a 'second opinion' engagement)?

An auditor is testing the 'Presentation and Disclosure' assertion for a client's debt. The auditor is most concerned with:

In a statistical sampling application for substantive testing (Variables Sampling), the auditor calculates a point estimate of the population misstatement. If the point estimate plus the allowance for sampling risk exceeds the tolerable misstatement, the auditor should:

An auditor is using 'generalized audit software' (GAS) to extract data from a client's system. Which of the following is the primary advantage of using GAS?

In the audit of a nonissuer, the auditor identifies a material weakness in internal control. The auditor's report on the financial statements is unmodified. The auditor is NOT engaged to audit internal control. The auditor must:

An auditor is testing the 'Valuation' assertion for a client's long-term investments in equity securities. The securities are not traded on an active market (Level 2 inputs). Which procedure is most appropriate?

Which of the following scenarios represents a 'self-interest threat' under the AICPA Code of Professional Conduct?

An auditor is planning the audit of a new client. The auditor notes that the client operates in a highly regulated industry with complex environmental liabilities. The auditor does not have previous experience in this industry. The auditor should:

An auditor is testing the 'Accuracy' assertion for payroll expense. Which procedure is most relevant?

Which of the following is a key difference between a Review engagement and an Audit engagement regarding fraud?

An auditor is evaluating the results of a test of controls. The auditor set the tolerable deviation rate at 7%. The sample deviation rate was 4%. The allowance for sampling risk was calculated as 4%. The auditor should:

Which of the following is an example of an 'inherent limitation' of internal control?

An auditor is preparing an audit report for a nonissuer. The auditor decides to emphasize that the entity is a component of a larger business enterprise. This disclosure should be made in:

An auditor is testing the 'Cutoff' assertion for sales. Which procedure is most appropriate?

Under Department of Labor (DOL) independence rules for auditing employee benefit plans, which of the following would impair independence?

An auditor is performing a ratio analysis. The 'Inventory Turnover' ratio has decreased significantly from the prior year. This most likely indicates:

Which of the following is a required procedure in a review of a nonissuer's financial statements?

An auditor is auditing the financial statements of a group. The group engagement partner decides to assume responsibility for the work of a component auditor. In this case, the group engagement partner should:

An auditor is testing the 'Occurrence' assertion for sales. The auditor should select a sample from:

Which of the following is a 'Type 2' subsequent event?

An auditor is performing an audit of a nonissuer. The auditor identifies a fraud involving senior management. The fraud is not material to the financial statements. The auditor should communicate this matter to:

Which of the following is a 'substantive procedure'?

An auditor is preparing a report on a nonissuer's internal control over financial reporting. This engagement is performed under:

An auditor is using 'stratification' in a sampling application for accounts receivable. The primary objective of stratification is to:

An auditor is reviewing the work of a component auditor. The component auditor's findings indicate a material misstatement in the component's financial statements. The component is not material to the group financial statements. The auditor should:

Which of the following describes the 'completeness' assertion for inventory?

An auditor is performing a 'preparation' engagement under SSARS. Which of the following is true?

An auditor is auditing the statement of cash flows. Which of the following procedures is most likely to detect a misclassification between operating and investing activities?