Important AICPA-Auditing CPA Exam Questions

Answer: D

Explanation:

Choice 'd' is correct. Selecting prenumbered shipping documents and matching them with entries in the sales journal is a control that would help ensure that all credit sales transactions are recorded. (Shipping documents without corresponding sales journal entries might indicate unrecorded sales).

Choice 'a' is incorrect. Sending copies of approved sales orders to the credit department for comparison to authorized credit limits and current account balances before the sale is made controls the risk of bad debts, not the proper recording of credit sales transactions.

Choice 'b' is incorrect. Reconciling the accounts receivable subsidiary ledger to the control account ensures that the accounts receivable balance in the general ledger is properly recorded, but would not necessarily identify unrecorded credit sales. (Unrecorded credit sales would be omitted from both places, and therefore the subsidiary ledger and control account would still agree).

Choice 'c' is incorrect. Controlling the mailing of monthly statements and investigating differences reported by the customers is not an effective control over the proper recording of credit sales transactions, since it is possible that customers would not complain if they were not billed.

Answer: D

Explanation:

Choice 'd' is correct. If management (of a governmental body) declines to present information required by the GASB, the auditor should issue an unqualified opinion with an additional explanatory paragraph.

Choices 'a', 'b', and 'c' are incorrect, per the above Explanation: .

Answer: C

Explanation:

Choice 'c' is correct. The auditor's standard audit report includes a statement that 'An audit includes assessing...significant estimates made by management...'

Choice 'a' is incorrect. The standard audit report does not state that disclosures provide reasonable assurance that the financial statements are free of material misstatement. The correct statement is:

'...standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement.'

Choice 'b' is incorrect. The standard audit report does not state that the auditor evaluated the overall internal control. The correct statement is 'An audit includes...evaluating the overall financial statement presentation.' Internal control is not mentioned in the standard audit report.

Choice 'd' is incorrect. The standard audit report does not state 'The financial statements are consistent with those of the prior period.' According to the second standard of reporting, consistency is implicitly reported. Only if there is an inconsistency is an explicit statement included.

Answer: B

Explanation:

Choice 'b' is correct. By vouching to time card data, the auditor is testing the existence assertion for hours worked.

Choice 'a' is incorrect. Vouching to approved time card data would provide evidence about hours worked, not pay rates. Pay rates would be tested by comparing to personnel records.

Choice 'c' is incorrect. Vouching to approved time cards does not provide evidence about segregation of duties.

Choice 'd' is incorrect. Vouching to the approved time cards does not provide evidence about internal controls related to unclaimed paychecks. The auditor would need to observe a payroll distribution to evaluate these controls.

Answer: B

Explanation:

Choice 'b' is correct. The measure of the sufficiency of audit evidence lies in the auditor's judgment.

Choice 'a' is incorrect. To be appropriate, audit evidence should be both reliable and relevant.

Choice 'c' is incorrect. The difficulty and expense of obtaining audit evidence concerning an account balance is not a valid basis for omitting the test when there is no acceptable alternative procedure.

Choice 'd' is incorrect. By itself, a client's accounting data cannot be sufficient audit evidence to support the financial statements. Sufficient, appropriate external evidence must also be obtained to corroborate management's assertions.