AICPA CPA-Auditing Quiz 2 Topic 2 Questions 6-10

Question: 1

Which of the following types of audit evidence generally is the most reliable?

AInquiries made of management.

BConfirmation of account information.

CAnalytical procedures.

DReview of prior-year audit procedures.

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Question: 2

Which of the following procedures would an auditor most likely include in the initial planning of a financial statement audit?

AObtaining a written representation letter from the client's management.

BExamining documents to detect illegal acts having a material effect on the financial statements.

CConsidering whether the client's accounting estimates are reasonable in the circumstances.

DDetermining the extent of involvement of the client's internal auditors.
Explanation
Choice 'd' is correct. The auditor considers several factors in planning the nature, timing and extent of auditing procedures. One of these factors is the extent of involvement of the client's internal auditors.
Choice 'a' is incorrect. Representation letters are obtained by the auditor at the end of the audit. The representation letter should not be dated earlier than the date of the auditor's report.
Choice 'b' is incorrect. The auditor does not perform tests to detect illegal acts during the planning process.
Choice 'c' is incorrect. The auditor does obtain and evaluate evidence to support significant accounting estimates, but this occurs subsequent to initial planning.

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Question: 3

An accountant's compilation report on a financial forecast should include a statement that:

AThe forecast should be read only in conjunction with the audited historical financial statements.

BThe accountant expresses only limited assurance on the forecasted statements and their assumptions.

CThere will usually be differences between the forecasted and actual results.

DThe hypothetical assumptions used in the forecast are reasonable in the circumstances.

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Question: 4

Green, CPA, was engaged to audit the financial statements of Essex Co. after its fiscal year had ended. The timing of Green's appointment as auditor and the start of fieldwork made confirmation of accounts receivable by direct communication with the debtors ineffective. However, Green applied other procedures and was satisfied as to the reasonableness of the account balances. Green's auditor's report most likely contained a(an):

AUnqualified opinion.

BUnqualified opinion with an explanatory paragraph.

CQualified opinion due to a scope limitation.

DQualified opinion due to a departure from generally accepted auditing standards.

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Question: 5

Which of the following is true about the term "likely misstatement?"

AIt refers to misstatements that have not been specifically identified, but which are likely to exist based on the auditor's judgment.

BIt refers to the cumulative effect of misstatements from prior years on the current year's financial statements.

CIt refers to misstatements that have been specifically identified by the auditor.

DIt includes both identified misstatements and an estimate of unidentified misstatements.
Explanation
Choice 'a' is correct. A 'likely misstatement' is one that has not been specifically identified, but which is likely to exist based on the auditor's judgment.
Choice 'b' is incorrect. 'Likely misstatement' does not refer to the cumulative effect of prior year errors.
It is a measure of misstatements the auditor considers likely to exist, that have not been specifically identified.
Choice 'c' is incorrect. 'Likely misstatement' is a measure of misstatements the auditor considers likely to exist, that have not been specifically identified.
Choice 'd' is incorrect. The term 'likely misstatement' includes only an estimate of potential errors. It does not include specific misstatements identified during the audit.

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AICPA CPA-Auditing Quiz:2 Topic:2 Questions:6-10