CPA Practice Exam Questions and Complete
Solutions
If the business environment is experiencing a recession, the auditor most likely would focus
increased attention on which of the following accounts? answer - Allowance for doubtful
accounts
An auditor is reporting on condensed financial statements for an annual period that are derived
from the audited financial statements of an issuer. The auditor's opinion should indicate
whether the information in the condensed financial statements is fairly stated in all material
respects: answer - in relation to the complete financial statements.
An auditor observes the mailing of monthly statements to a client's customers and reviews
evidence of follow-up on errors reported by the customers. This test of controls most likely is
performed to support management's financial statement assertion of: answer - existence.
North Co., a privately held entity, asked its tax accountant, King, a CPA in public practice, to
review and generate North's interim financial statements on King's microcomputer when King
prepared North's quarterly tax return. King should not submit these financial statements to
North unless, as a minimum, King complies with the provisions of: answer - Statements on
Standards for Accounting and Review Services.
An auditor's report would be designated an audit of a special-purpose financial statement when
it is issued in connection with: answer - a basis of accounting that the entity uses to comply
with an agreement between the entity and one or more third parties other than the auditor.
An auditor most likely would not rely on controls if the payroll department supervisor is
responsible for: answer - authorizing payroll rate changes for all employees.
, Which of the following levels would most likely address the risk of material misstatement by the
auditor's consideration of an entity's control environment? answer - Financial statements
Which of the following would most likely be associated with obtaining an understanding of
relevant internal factors when satisfying the obligation to understand the entity and its
environment on an audit? answer - Revenue recognition practices
Russell CPA is auditing contingent liabilities. What generally is the primary risk of material
misstatement related to related financial statement disclosures? answer - Completeness
Nile, CPA, on completing an audit, was asked by the client to provide technical assistance in
integrating a new IT system. The set of pronouncements designed to guide Nile in this
engagement is the Statement(s) on: answer - Standards for Consulting Services.
Investment and property schedules are presented for purposes of additional analysis in an
auditor-submitted document. The schedules are not required parts of the basic financial
statements but accompany the basic financial statements. When reporting on such additional
information, the measurement of materiality is the: answer - same as that used in forming an
opinion on the basic financial statements taken as a whole.
Which of the following is required of an accountant in reviewing a company's financial
statements under the Statements on Standards for Accounting and Review Services (SSARS)?
answer - Obtain knowledge of the client's industry
Analytical procedures are required for which of the following? answer - Audit planning
In planning an audit, the auditor's knowledge about the design of relevant control activities
should be used to: answer - identify the types of potential misstatements that could occur.
A CPA firm is completing the fieldwork for an audit of Swenson Co. for the current year ended
December 31. The manager in charge of the audit is performing the final steps in the evidence
Solutions
If the business environment is experiencing a recession, the auditor most likely would focus
increased attention on which of the following accounts? answer - Allowance for doubtful
accounts
An auditor is reporting on condensed financial statements for an annual period that are derived
from the audited financial statements of an issuer. The auditor's opinion should indicate
whether the information in the condensed financial statements is fairly stated in all material
respects: answer - in relation to the complete financial statements.
An auditor observes the mailing of monthly statements to a client's customers and reviews
evidence of follow-up on errors reported by the customers. This test of controls most likely is
performed to support management's financial statement assertion of: answer - existence.
North Co., a privately held entity, asked its tax accountant, King, a CPA in public practice, to
review and generate North's interim financial statements on King's microcomputer when King
prepared North's quarterly tax return. King should not submit these financial statements to
North unless, as a minimum, King complies with the provisions of: answer - Statements on
Standards for Accounting and Review Services.
An auditor's report would be designated an audit of a special-purpose financial statement when
it is issued in connection with: answer - a basis of accounting that the entity uses to comply
with an agreement between the entity and one or more third parties other than the auditor.
An auditor most likely would not rely on controls if the payroll department supervisor is
responsible for: answer - authorizing payroll rate changes for all employees.
, Which of the following levels would most likely address the risk of material misstatement by the
auditor's consideration of an entity's control environment? answer - Financial statements
Which of the following would most likely be associated with obtaining an understanding of
relevant internal factors when satisfying the obligation to understand the entity and its
environment on an audit? answer - Revenue recognition practices
Russell CPA is auditing contingent liabilities. What generally is the primary risk of material
misstatement related to related financial statement disclosures? answer - Completeness
Nile, CPA, on completing an audit, was asked by the client to provide technical assistance in
integrating a new IT system. The set of pronouncements designed to guide Nile in this
engagement is the Statement(s) on: answer - Standards for Consulting Services.
Investment and property schedules are presented for purposes of additional analysis in an
auditor-submitted document. The schedules are not required parts of the basic financial
statements but accompany the basic financial statements. When reporting on such additional
information, the measurement of materiality is the: answer - same as that used in forming an
opinion on the basic financial statements taken as a whole.
Which of the following is required of an accountant in reviewing a company's financial
statements under the Statements on Standards for Accounting and Review Services (SSARS)?
answer - Obtain knowledge of the client's industry
Analytical procedures are required for which of the following? answer - Audit planning
In planning an audit, the auditor's knowledge about the design of relevant control activities
should be used to: answer - identify the types of potential misstatements that could occur.
A CPA firm is completing the fieldwork for an audit of Swenson Co. for the current year ended
December 31. The manager in charge of the audit is performing the final steps in the evidence
