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Please Note: These questions are released to the CPA Review providers
with the letter answer only (i.e. no explanation given).

This document contains copyrighted material from the American Institute of

Certified Public Accountants and is licensed to NINJA CPA Review for use
by its customers only.

Answer s are on page 14.

1. Which of the following statements correctly defines the term reasonable

assurance?

 A substantial level
le vel of assurance
assura nce to allow an
a n auditor to detect a material
mate rial
misstatement.

 A significant level
lev el of assurance
assuran ce to allow an auditor to detect
det ect a material
misstatement.

 An absolute level

leve l of assurance
assuranc e to allow an auditor
a uditor to detect
det ect a material
misstatement.

 A high, but not

no t absolute, level of assurance
assura nce to allow an
a n auditor to detect
d etect
a material misstatement.

!"# %&'() #*++*,-./ ' 0001234/5678'1,49

2. A practitioner may perform an agreed-upon procedures engagement on
prospective financial statements provided that which of the following is
met?

Use of the agreed-upon procedures report is not restricted.

The practitioner sets the criteria to be used in the determination of

findings.

The client agrees that the practitioner will decide appropriate

procedures to be performed.

The prospective financial statements include a summary of significant

assumptions.

3. If the predecessor auditor refuses to give the current auditor of a

nonissuer access to the documentation, what should the current auditor
do?

Review the risk assessment of the opening balances of the financial

statements.

Withdraw from the engagement.

Disclaim an opinion due to a scope limitation.

Discuss the matter with the client's legal counsel.

!"# %&'() #*++*,-./ % 0001234/5678'1,49

4. Analytical procedures used in planning an audit should focus on:

Identifying material weaknesses in internal control.

Enhancing the auditor's understanding of the client's business.

Testing individual account balances that depend on accounting

estimates.

Evaluating the adequacy of the evidence gathered concerning unusual

balances.

5. If an auditor is obtaining an understanding of an issuer's information and

communication component of internal control, which of the following factors
should the auditor assess?

The integrity and ethical values of top management.

The philosophy and operating style of management to promote

effective internal control over financial reporting.

The classes of transactions in the issuer's operations that are

significant to the issuer's financial statements.

The oversight responsibility over financial reporting and internal control

by the board or audit committee.

!"# %&'() #*++*,-./ : 0001234/5678'1,49

6. Which of the following is not a role of the risk assessment in an
integrated audit of a nonissuer?

Concluding on the effectiveness of a given control.

Selecting controls to test.

Determining significant accounts and relevant assertions.

Determining evidence necessary to conclude on the effectiveness of a

given control.

7. Which of the following situations represents a limitation, rather than a

failure, of internal control?

 A jewelry store employee steals a small necklace from a display

cabinet.

 A bank teller embezzles several hundred dollars from the cash drawer.

 A purchasing employee and an outside vendor participate in a kickback

scheme.

 A movie theater cashier sells reduced-price tickets to full-paying

customers and pockets the difference.

!"# %&'() #*++*,-./ ; 0001234/5678'1,49

8. An audit client has substantial assets held in a trust that is managed by
the trust department of a bank. Which of the following actions by the auditor
is the most efficient way to obtain information about the trust department's
internal controls?

Perform a review or compilation of the trust department.

Perform tests of controls on a sample of the client's transactions with

the trust department.

Rely on the trust department's audit report on internal controls placed in

operation and their operating effectiveness.

 Ask management of the trust department to complete a questionnaire

about internal controls and provide flowcharts for related processes.

9. 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?

Financial statements.

Disclosures.

Classes of transactions.

Specific account balances.

!"# %&'() #*++*,-./ ( 0001234/5678'1,49

10. In addition to descriptions of the nature, timing, and extent of planned
risk assessment procedures and planned further audit procedures, which of
the following additional pieces of information should be documented in the
audit plan?

Procedures performed to assess independence and the ability to

perform the engagement.

The understanding of the terms of the engagement, including scope,

fees, and resource allocation.

Other audit procedures to be performed to comply with generally

accepted auditing standards.

Issues with management integrity that could affect the decision to

continue the audit engagement.

11. An audit team has concluded that inventory is highly susceptible to

misappropriation and that a potential misstatement would be material to the
financial statements. How should the audit team address the audit
procedures to the increased risk?

Review the client's control procedures over the safeguarding of

inventory, and perform a physical inventory count on the last day of the
current year.

Review the client's control procedures over the safeguarding of

inventory, incorporate the use of substantive analytical procedures, and
develop an expectation.

Review the client's control procedures over the safeguarding of

inventory, but do not modify substantive procedures over inventory.

Review the client's control procedures over the safeguarding of

inventory, and perform physical inventory counts throughout the current
year.

!"# %&'() #*++*,-./ < 0001234/5678'1,49

12. When planning an engagement to examine the effectiveness of the
entity's internal control in an integrated audit of a nonissuer, a practitioner
would least likely consider which of the following factors?

Preliminary judgments about the effectiveness of internal control.

The extent of recent changes in the entity and its operations.

The type of available evidential matter pertaining to the effectiveness of

the entity's internal control.

The evaluation of the operating effectiveness of the controls.

13. In the audit of a nonissuer, which of the following statements is correct

regarding the use of external confirmations to obtain audit evidence?

Management's refusal to allow an auditor to perform external

confirmation procedures is considered a departure from GAAP sufficient to
qualify the opinion.

Negative confirmations provide more persuasive audit evidence than

positive confirmations.

Negative confirmations should be used only if a very high exception

rate is expected.

 A factor for an auditor to consider when designing confirmation

requests is the assertion being tested.

!"# %&'() #*++*,-./ 8 0001234/5678'1,49

14. After performing a compliance audit of an entity that received federal
funds, what conclusion would the auditor draw if the entity does not have
adequate documentation to support $5 million in operating expenses paid
from federal program funds?

The entity spent $5 million in operating expenses that were not

approved.

Questioned costs of $5 million for operating expenses have been

identified.

The entity spent $5 million of government funds for services that were
not required.

The entity submitted unauthorized invoices for expenses.

15. An auditor of a nonissuer is most likely to conclude that a misstatement

identified during an audit that is below the quantitative materiality limit is
qualitatively material if it

Changes the company's operating results from a net loss to a net

income.

 Arises from a transaction cycle with controls that were determined to be

operating effectively.

Is the first time a misstatement has arisen from the relevant transaction
cycle.

Decreases management's incentive compensation for the period.

!"# %&'() #*++*,-./ = 0001234/5678'1,49

16. What is the maximum number of days in which a nonissuer's auditor
should complete the assembly of the final audit file following the report
release date?

30 days.

45 days.

60 days.

75 days.

17. In an integrated audit of a nonissuer, if an auditor concludes that a

material weakness exists as of the date specified in management's
assertion, the auditor should take which of the following actions?

Obtain written representations from management relating to such

matters.

Communicate, in writing, to the entity's outside legal counsel that the

material weakness exists.

Issue an adverse opinion.

Disclaim an opinion.

!"# %&'() #*++*,-./ > 0001234/5678'1,49

18. A nonissuer requests that a CPA change an audit engagement to a
review engagement. If the accountant agrees to the change, how, if at all,
should the accountant's review report be modified?

The accountant should issue the review report without mentioning the
change in engagement.

The accountant should include in the review report a disclaimer of an

audit opinion.

The accountant should include in the review report the circumstances

that resulted in the change in engagement.

The accountant should include in the review report a reference to the

original engagement but not the reason for the change.

19. Which of the following procedures regarding notes payable would an

accountant most likely perform during a nonissuer's review engagement?

Confirming the year-end outstanding note payable balance with the

lender.

Examining records indicating proper authorization of the notes payable.

Making inquiries of management regarding maturities, interest rate, and

collateral.

Documenting control procedures for payment calculations of the notes'

principal and interest.

!"# %&'() #*++*,-./ '& 0001234/5678'1,49

20. When financial statements that an accountant has compiled in
accordance with Statements on Standards for Accounting and Review
Services  omit substantially all disclosures required by generally accepted
accounting principles, the accountant's report should include

Management's justification for its decision to elect to omit substantially

all the disclosures.

No modification of the standard compilation report because

compilations do not require disclosures that are required for audited
financial statements.

Information alerting readers about omission of the disclosures and

notification that the omission may influence the user's conclusions about
the financial statements.

 A separate paragraph in the compilation report stating that the financial

statements are misleading due to the lack of disclosures by management.

21. The standard accountant's report issued after reviewing the financial

statements of a nonissuer in accordance with SSARS should state that the

 Accountant is not aware of any material modifications that should be

made to the financial statements for them to be in conformity with GAAP.

 Accountant does not express an opinion or any other form of

assurance on the entity's internal control system.

 Accountant has no responsibility to update the report for circumstances

occurring after the date of the report.

Financial statements present fairly the entity's financial position and the
results of its operations and cash flows in conformity with GAAP.

!"# %&'() #*++*,-./ '' 0001234/5678'1,49

22. According to the AICPA Code of Professional Conduct, which of the
following activities results in an act discreditable to the profession?

 A CPA solicits recent Uniform CPA Examination questions without

written authorization from the AICPA.

 A CPA signs a document containing immaterial false and misleading

information, or permits or directs another CPA to do so.

 A CPA who is engaged to perform a government audit neglects to

follow certain government auditing requirements and discloses in the audit
report the fact that such requirements were not followed and the reasons
for it.

 A CPA fails to give a client copies of the CPA's workpapers related to a

completed and issued work product upon the client's request because the
client has not paid fees payable to the CPA for the work product.

23. An issuer's auditor is prohibited from providing tax services to which of

the following individuals?

The chair of the board of directors.

The chair of the audit committee.

The CEO.

The CFO of an affiliate of the issuer audited by another firm.

!"# %&'() #*++*,-./ '% 0001234/5678'1,49

24. Each of the following is an ethical principle that should guide the work
of auditors in the conduct of audits under government auditing standards,
except

Materiality.

Integrity.

The public interest.

Proper use of government information.

25. According to the IFAC Code of Ethics for Professional Accountants,

audit teams are required to be independent of the audit client during the
engagement period and during which other period?

The fiscal year following the period covered by the financial statements.

The period covered by the financial statements.

The calendar years that include any part of the period covered by the
financial statements.

The two years prior to the period covered by the financial statements.

!"# %&'() #*++*,-./ ': 0001234/5678'1,49

Answers:

1. Which of the following statements correctly defines the term reasonable

assurance?

 A substantial level of assurance to allow an auditor to detect a material

misstatement.

 A significant level of assurance to allow an auditor to detect a material

misstatement.

 An absolute level of assurance to allow an auditor to detect a material

misstatement.

A high, but not absolute, level of assurance to allow an auditor to

detect a material misstatement.

2. A practitioner may perform an agreed-upon procedures engagement on

prospective financial statements provided that which of the following is
met?

Use of the agreed-upon procedures report is not restricted.

The practitioner sets the criteria to be used in the determination of

findings.

The client agrees that the practitioner will decide appropriate

procedures to be performed.

The prospective financial statements include a summary of

significant assumptions.

!"# %&'() #*++*,-./ '; 0001234/5678'1,49

3. If the predecessor auditor refuses to give the current auditor of a
nonissuer access to the documentation, what should the current auditor
do?

Review the risk assessment of the opening balances of the

financial statements.

Withdraw from the engagement.

Disclaim an opinion due to a scope limitation.

Discuss the matter with the client's legal counsel.

!"# %&'() #*++*,-./ '( 0001234/5678'1,49

4. Analytical procedures used in planning an audit should focus on:

Identifying material weaknesses in internal control.

Enhancing the auditor's understanding of the client's business.

Testing individual account balances that depend on accounting

estimates.

Evaluating the adequacy of the evidence gathered concerning unusual

balances.

5. If an auditor is obtaining an understanding of an issuer's information and

communication component of internal control, which of the following factors
should the auditor assess?

The integrity and ethical values of top management.

The philosophy and operating style of management to promote

effective internal control over financial reporting.

The classes of transactions in the issuer's operations that are

significant to the issuer's financial statements.

The oversight responsibility over financial reporting and internal control

by the board or audit committee.

!"# %&'() #*++*,-./ '< 0001234/5678'1,49

6. Which of the following is not a role of the risk assessment in an
integrated audit of a nonissuer?

Concluding on the effectiveness of a given control.

Selecting controls to test.

Determining significant accounts and relevant assertions.

Determining evidence necessary to conclude on the effectiveness of a

given control.

7. Which of the following situations represents a limitation, rather than a

failure, of internal control?

 A jewelry store employee steals a small necklace from a display

cabinet.

 A bank teller embezzles several hundred dollars from the cash drawer.

A purchasing employee and an outside vendor participate in a

kickback scheme.

 A movie theater cashier sells reduced-price tickets to full-paying

customers and pockets the difference.

!"# %&'() #*++*,-./ '8 0001234/5678'1,49

8. An audit client has substantial assets held in a trust that is managed by
the trust department of a bank. Which of the following actions by the auditor
is the most efficient way to obtain information about the trust department's
internal controls?

Perform a review or compilation of the trust department.

Perform tests of controls on a sample of the client's transactions with

the trust department.

Rely on the trust department's audit report on internal controls

placed in operation and their operating effectiveness.

 Ask management of the trust department to complete a questionnaire

about internal controls and provide flowcharts for related processes.

9. 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?

Financial statements.

Disclosures.

Classes of transactions.

Specific account balances.

!"# %&'() #*++*,-./ '= 0001234/5678'1,49

10. In addition to descriptions of the nature, timing, and extent of planned
risk assessment procedures and planned further audit procedures, which of
the following additional pieces of information should be documented in the
audit plan?

Procedures performed to assess independence and the ability to

perform the engagement.

The understanding of the terms of the engagement, including scope,

fees, and resource allocation.

Other audit procedures to be performed to comply with generally

accepted auditing standards.

Issues with management integrity that could affect the decision to

continue the audit engagement.

11. An audit team has concluded that inventory is highly susceptible to

misappropriation and that a potential misstatement would be material to the
financial statements. How should the audit team address the audit
procedures to the increased risk?

Review the client's control procedures over the safeguarding of

inventory, and perform a physical inventory count on the last day of
the current year.

Review the client's control procedures over the safeguarding of

inventory, incorporate the use of substantive analytical procedures, and
develop an expectation.

Review the client's control procedures over the safeguarding of

inventory, but do not modify substantive procedures over inventory.

Review the client's control procedures over the safeguarding of

inventory, and perform physical inventory counts throughout the current
year.

!"# %&'() #*++*,-./ '> 0001234/5678'1,49

12. When planning an engagement to examine the effectiveness of the
entity's internal control in an integrated audit of a nonissuer, a practitioner
would least likely consider which of the following factors?

Preliminary judgments about the effectiveness of internal control.

The extent of recent changes in the entity and its operations.

The type of available evidential matter pertaining to the effectiveness of

the entity's internal control.

The evaluation of the operating effectiveness of the controls.

13. In the audit of a nonissuer, which of the following statements is correct

regarding the use of external confirmations to obtain audit evidence?

Management's refusal to allow an auditor to perform external

confirmation procedures is considered a departure from GAAP sufficient to
qualify the opinion.

Negative confirmations provide more persuasive audit evidence than

positive confirmations.

Negative confirmations should be used only if a very high exception

rate is expected.

A factor for an auditor to consider when designing confirmation

requests is the assertion being tested.

!"# %&'() #*++*,-./ %& 0001234/5678'1,49

14. After performing a compliance audit of an entity that received federal
funds, what conclusion would the auditor draw if the entity does not have
adequate documentation to support $5 million in operating expenses paid
from federal program funds?

The entity spent $5 million in operating expenses that were not

approved.

Questioned costs of $5 million for operating expenses have been

identified.

The entity spent $5 million of government funds for services that were
not required.

The entity submitted unauthorized invoices for expenses.

15. An auditor of a nonissuer is most likely to conclude that a misstatement

identified during an audit that is below the quantitative materiality limit is
qualitatively material if it

Changes the company's operating results from a net loss to a net

income.

 Arises from a transaction cycle with controls that were determined to be

operating effectively.

Is the first time a misstatement has arisen from the relevant transaction
cycle.

Decreases management's incentive compensation for the period.

!"# %&'() #*++*,-./ %' 0001234/5678'1,49

16. What is the maximum number of days in which a nonissuer's auditor
should complete the assembly of the final audit file following the report
release date?

30 days.

45 days.

60 days.

75 days.

17. In an integrated audit of a nonissuer, if an auditor concludes that a

material weakness exists as of the date specified in management's
assertion, the auditor should take which of the following actions?

Obtain written representations from management relating to such

matters.

Communicate, in writing, to the entity's outside legal counsel that the

material weakness exists.

Issue an adverse opinion.

Disclaim an opinion.

!"# %&'() #*++*,-./ %% 0001234/5678'1,49

18. A nonissuer requests that a CPA change an audit engagement to a
review engagement. If the accountant agrees to the change, how, if at all,
should the accountant's review report be modified?

The accountant should issue the review report without mentioning

the change in engagement.

The accountant should include in the review report a disclaimer of an

audit opinion.

The accountant should include in the review report the circumstances

that resulted in the change in engagement.

The accountant should include in the review report a reference to the

original engagement but not the reason for the change.

19. Which of the following procedures regarding notes payable would an

accountant most likely perform during a nonissuer's review engagement?

Confirming the year-end outstanding note payable balance with the

lender.

Examining records indicating proper authorization of the notes payable.

Making inquiries of management regarding maturities, interest

rate, and collateral.

Documenting control procedures for payment calculations of the notes'

principal and interest.

!"# %&'() #*++*,-./ %: 0001234/5678'1,49

20. When financial statements that an accountant has compiled in
accordance with Statements on Standards for Accounting and Review
Services  omit substantially all disclosures required by generally accepted
accounting principles, the accountant's report should include

Management's justification for its decision to elect to omit substantially

all the disclosures.

No modification of the standard compilation report because

compilations do not require disclosures that are required for audited
financial statements.

Information alerting readers about omission of the disclosures

and notification that the omission may influence the user's
conclusions about the financial statements.

 A separate paragraph in the compilation report stating that the financial

statements are misleading due to the lack of disclosures by management.

21. The standard accountant's report issued after reviewing the financial

statements of a nonissuer in accordance with SSARS should state that the

Accountant is not aware of any material modifications that should

be made to the financial statements for them to be in conformity with
GAAP.

 Accountant does not express an opinion or any other form of

assurance on the entity's internal control system.

 Accountant has no responsibility to update the report for circumstances

occurring after the date of the report.

Financial statements present fairly the entity's financial position and the
results of its operations and cash flows in conformity with GAAP.

!"# %&'() #*++*,-./ %; 0001234/5678'1,49

22. According to the AICPA Code of Professional Conduct, which of the
following activities results in an act discreditable to the profession?

A CPA solicits recent Uniform CPA Examination questions without

written authorization from the AICPA.

 A CPA signs a document containing immaterial false and misleading

information, or permits or directs another CPA to do so.

 A CPA who is engaged to perform a government audit neglects to

follow certain government auditing requirements and discloses in the audit
report the fact that such requirements were not followed and the reasons
for it.

 A CPA fails to give a client copies of the CPA's workpapers related to a

completed and issued work product upon the client's request because the
client has not paid fees payable to the CPA for the work product.

23. An issuer's auditor is prohibited from providing tax services to which of

the following individuals?

The chair of the board of directors.

The chair of the audit committee.

The CEO.

The CFO of an affiliate of the issuer audited by another firm.

!"# %&'() #*++*,-./ %( 0001234/5678'1,49

24. Each of the following is an ethical principle that should guide the work
of auditors in the conduct of audits under government auditing standards,
except

Materiality.

Integrity.

The public interest.

Proper use of government information.

25. According to the IFAC Code of Ethics for Professional Accountants,

audit teams are required to be independent of the audit client during the
engagement period and during which other period?

The fiscal year following the period covered by the financial statements.

The period covered by the financial statements.

The calendar years that include any part of the period covered by the
financial statements.

The two years prior to the period covered by the financial statements.

!"# %&'() #*++*,-./ %< 0001234/5678'1,49