CPA Audit Practice Test 1

An auditor is faced with the below facts. What type of audit opinion should be expressed?

1. Management is unable to make a reasonable estimate on the amount of a potential loss.
2. The potential loss is fully disclosed in the notes of the financials excluding dollar values.
3. The company is a nonissuer
4. Management does NOT accrue for this loss in the financial statements
5. There is sufficient audit evidence that the loss is material and will occur

An accountant is determining materiality and tolerable misstatement for a client. The current assumption is that there will be a low likelihood of misstatements within the financial statements. Use the facts below to calculate materiality and tolerable misstatements.

Materiality is determined by the auditor by using the benchmark approach. The benchmark is either total assets or gross revenue. Benchmark used is the greater of the two. If total assets are used, 2% is the factor. If gross revenue is used 1% is the factor.

Revenue: $3,500,000

Gross Profit: $100,300

Total Assets: $2,750,000

Stockholders’ Equity: $1,000,000

What is the overall financial materiality?

The type of control that is designed to prevent, detect, and correct material misstatements prior to the activity occurring is a:

Of the following options, which type of audit evidence is the most conclusive?

Which type of assertion takes a bottom-up approach by the auditor?

The accounts payable turnover ratio increased from year 3 to year 4 for XYZ company. What could be the reason for this?

Which of the following is the correct hierarchy of audit evidence? (1 being most reliable and 4 being least reliable)

Option A

1. External Evidence
2. Internal Evidence
3. Oral Evidence
4. Auditor’s Personal Knowledge

Option B

1. Internal Evidence
2. External Evidence
3. Oral Evidence
4. Auditor’s Personal Knowledge

Option C

1. Auditor’s Personal Knowledge
2. External Evidence
3. Internal Evidence
4. Oral Evidence

Option D

1. Internal Evidence
2. External Evidence
3. Auditor’s Personal Knowledge
4. Oral Evidence

In the auditors report an Emphasis-of-Matter Paragraph should be added when:

True or False: A significant deficiency or material weakness may exist within a company even though an auditor has not identified any misstatements during an audit.

When auditing an issuer, an opinion must be expressed by an auditor on which of the following:

1. The audit committee’s oversight on internal controls
2. The audit committee’s oversight of financial reporting
3. The financial statements
4. The effectiveness of internal control