A single audit is required of:
A federal or nonfederal entity that receives more than $500,000 in a year.
A nonfederal entity that received more than $100,000 in a year.
Nonfederal entities that expend $500,000 or more in federal awards in a year.
During a review of the financial statements of a nonpublic entity, the CPA finds that the financial statements contain a material departure from generally accepted accounting principles. If management refuses to correct the financial statement presentations, the CPA should
Disclose the departure in a separate paragraph of the report
Issue an adverse opinion
Attach a footnote explaining the effects of the departure
Issue a compilation report
A CPA auditing an electric utility wishes to determine whether all customers are being billed. The CPA's best direction of test is from the
Meter department records to the billing (sales) register
Billing (sales) register to the meter department records
Accounts receivable ledger to the billing (sales) register
Billing (sales) register to the accounts receivable ledger
Generally, loss contingencies that are judged to be remote:
Should be disclosed in the footnotes
Should be recorded in the financial statements
Should not be disclosed in the footnotes
Should be recorded in the financial statements and the footnotes
For an engagement in which the auditor performs a set of agreed-upon procedures, the auditor should do any of the following except
Compare the procedures to be applied to the specified users’ written requirements
Discuss the procedures with a representative of the users
Perform procedures similar to those applied in a review engagement
Review contracts or correspondence from the specified users
The auditor’s best course of action with respect to “other financial information” included in an annual report containing the auditor’s report is to
Indicate in the auditor’s report that the “other financial information” is unaudited
Consider whether the “other financial information” is accurate by performing a limited review
Obtain written representations from management as to the material accuracy of the “other financial information.”
Read and consider the manner of presentation of the “other financial information
An auditor’s study and evaluation of the internal accounting control system made in connection with an annual audit is usually not sufficient to express an opinion on an entity’s system because
The evaluation of weaknesses is subjective enough that an auditor should not express an opinion on the internal accounting controls alone.
The audit cost-benefit relationship permits an auditor to express only reasonable assurance that the system operates as designed.
Management may change the internal accounting controls to correct weaknesses.
Only those controls on which an auditor intends to rely are reviewed, tested, and evaluated
Before issuing a report on the compilation of financial statements of a nonpublic entity, the accountant should
Apply analytical procedures to selected financial data to discover any material misstatements.
Corroborate at least a sample of the assertions management has embodied in the financial statements.
Inquire of the client’s personnel whether the financial statements omit substantially all disclosures.
Read the financial statements to consider whether the financial statements are free from obvious material errors
Auditors are more concerned with the occurrence assertion for revenues than the completeness assertion because:
Clients are more likely to overstate than understate revenues
Clients are more likely to understate than overstate revenues
It is difficult to determine when services have been performed
The allowance for doubtful accounts often is understated
In auditing accounts payable, an auditor's procedures most likely would focus primarily on management's assertion of
Rights and obligations
Valuation and allocation
Once a CPA has determined that accounts receivable have increased because of slow collection in a "tight money" environment, the CPA would be likely to
Increase the balance in the allowance for bad debts account
Review the going concern ramifications
Require the client to tighten their credit policy
Expand tests regarding the collectability of receivables
In the first audit of a client, because of the client’s record retention policies, an auditor was not able to gather sufficient evidence about the consistent application of accounting principles between the current and the prior year, as well as the amounts of assets or liabilities at the beginning of the current year. If the amounts in question could materially affect current operating results, the auditor would
Be unable to express an opinion on the current year’s results of operations and cash flows
Express a qualified opinion on the financial statements because of a client-imposed scope limitation
Withdraw from the engagement and refuse to be associated with the financial statements
Specifically state that the financial statements are not comparable to the prior year because of an uncertainty
When expressing an opinion on a specified account or item in the financial statements, the auditor need only consider that account or item. However, the auditor must have audited the entire set of financial statements if this engagement requires a report on the entity’s
Which of the following statements about the single audit is correct?
It does not apply to nongovernmental not-for-profit organizations
It is intended to ensure maximum effectiveness, by conducting audits on a grant-by-grant basis.
Its purpose is to improve the financial management of state and local government with respect to federal financial assistance programs
All of the above are correct
An examination of a financial forecast is a professional service that involves
Compiling or assembling a financial forecast that is based on management’s assumptions
Limiting the distribution of the accountant’s report to management and the board of directors
Assuming responsibility to update management on key events for one year after the report’s date
Evaluating the preparation of a financial forecast and the support underlying management’s assumptions
Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?
Trace a sample of accounts payable entries recorded just before year-end to the unmatched receiving report file
Compare a sample of purchase orders issued just after year-end with the year-end accounts payable trial balance
Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices
Scan the cash disbursements entries recorded just before year-end for indications of unusual transactions
Which of the following misstatements is not related to the completeness assertion for revenue?
Goods are shipped, but revenue is not recorded
This year's revenue is recorded next year
Next year's revenue is recorded this year
Revenue is not recognized for services that have been performed
Auditors sometimes use ratios as audit evidence. For example, an unexplained increase in the ratio of gross profit to sales may suggest which of the following possibilities?
Selling and general expenses erroneously being recorded as merchandise purchases
When an auditor reports on financial statements prepared on an entity’s income tax basis, the auditor’s report should
Disclose that the statements are not intended to conform with generally accepted accounting principles
Disclaim an opinion on whether the statements were examined in accordance with generally accepted auditing standards
Not express an opinion on whether the statements are presented in conformity with the comprehensive basis of accounting used
Include an explanation of how the results of operations differ from the cash receipts and disbursements basis of accounting
Which of the following would the accountant most likely investigate during the review of financial statements of a nonpublic entity if accounts receivable did not conform to a predictable pattern during the year?
Sales returns and allowances
Sales of consigned goods
Which of the following audit procedures would provide the least reliable evidence that the client has legal title to inventories?
Confirmation of inventories at locations outside the client's facilities
Analytical review of inventory balances compared to purchasing and sales activities
Observation of physical inventory counts
Examination of paid vendors' invoices
When a CPA is associated with the preparation of forecasts, all of the following should be disclosed except the
Sources of information
Character of the work performed by the CPA
Major assumptions in the preparation of the forecasts
Probability of achieving estimates
An auditor most likely would limit substantive tests of sales transactions when control risk is assessed as low for the existence or occurrence assertion concerning sales transactions and the auditor has already gathered evidence supporting
Opening and closing inventory balances
Cash receipts and accounts receivable
Shipping and receiving activities
Cutoffs of sales and purchases
A client's physical count of inventories was lower than the inventory quantities shown in its perpetual records. This situation could be the result of the failure to record
Which of the following statements is not true about selecting federal award programs to be audited in a single audit?
At least 50 percent of total federal awards expended must be audited.
A risk-based approach is used for selecting major programs for audit
Low risk programs include those that have previously been audited with no audit findings, and are relatively stable, among other considerations.
A major program is one that is large and relatively risky and always includes new programs
For the purpose of determining proper cutoff for inventory, the auditor will select a sample from which of the following for a few days before and after year-end?
If payables turnover has increased significantly since the prior year, this is an indication that which of the following assertions for accounts payable might be violated?
Existence or occurrence
Rights and obligations
Valuation and allocation
While performing a substantive test of details during an audit, the auditor determined that the sample results supported the conclusion that the recorded account balance was materially misstated. It was, in fact, not materially misstated. The situation illustrates the risk of
Assessing control risk too high.
Unable to determine
Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity’s ability to continue as a going concern?
Significant related party transactions are pervasive
Unusual trade credit from suppliers is denied
Arrearages in preferred stock dividends are paid
Restrictions on the disposal of principal assets are present
The purpose of analytical procedures at the completion of the audit includes all of the following except
Revising the audit plan
Considering overall reasonableness of the financial statements
Reviewing adequacy of evidence gathered to investigate unusual fluctuations
Recalculating some of the ratios examined during audit planning