Auditing CPA Exam: 10 Practice Questions 1. Which of the following acts is generally prohibited by the professional standards? A. Witholding an audit report because fees charged to client are past due and the client has demanded their return. . B. Witholding an audit report due to Outstanding audit issues and the client has demanded their return. C. Witholding an incomplete audit report requested by client. D. Retaining client records after an en terminated Prior to com demanded their return, gagement is pletion and the Client has 1. ANSWER: p According to Interpretatio Engagement is termi the Member records.” nN 501-1 “If an Nated prior to Completion, 'S Tequired to return only client2. Which of the following is not a close relative of the covered member? A. Sibling B. Nondependent child C. Parent D. Dependent child. ANSWER: D This answer is correct because a dependent child is considered to be immediate family of the covered member. 3. Which type of conduct would not result in an automatic expulsion from AICPA? A. Preparation of a fraudulent tax return. B. Felony conviction. C. Accidentally failing to file a personal tax return. D. Preparation of fraudulent tax return for a client.4. According to AICPA standards, which of the following situations will compromise the independence of the CPA performing an audit? A. Acting as an executor of an estate that had an immaterial indirect financial interest in the client. B. Receving a private loan from a hedge fund manager who owns 9% of the outstanding shares of the client company. C. Owning 9% of a client's outstanding shares. D. Refinancning an automobile loan from a bank client. ANSWER: C is correct. According to Rule 101, a partner or professional cannot own more than 5% of the client's outstanding shares. 5. According to AICPA standards, which of the following situations will not compromise the independence of the CPA performing an audit?A. CPA's wife works as an executive assistant for the client. B. CPA’s nondependent son has a material financial interest in the client that the CPA is not aware of. C. CPA's brother works as a stock promoter for the client. D. CPA's father works as the CFO for the client. ANSWER: A According to the exception to Rule 101, a spouse may be employed by a client if s/he was not employed in a key position. Someone in a key position exerts significant influence over the contents of the client’s financial statements. 6. When nonattest service are provided, the client must:A. Assume all responsibilities of decision making. B. Designate an individual in senior management with requisite skills and knowledge to oversee these services. C. Must be responsible for establishing internal controls. D. All of the above. ANSWER: D. The client must oversee, evaluate and accept responsibility for results. In addition the client must establish and maintain internal controls. 7. In performance of any professional service, a member shall A. Maintain objectivity and integrity B. Avoid conflicts of interest C. Not knowingly misrepresent facts or subordinate judgment D. All of the aboveRule 102 Integrity and Objectivity states all three requirements. 8. Acustomer that provides 9% of revenues for an audit client experiences a flood in their head offices prior to completion of year-end fieldwork. The audit client believes that this event could have a significant direct effect on the financial statements. The auditor should: A. Withhold submission of the auditor’s report. B. Advise management to disclose the event in notes to the financial statements. C. Submit the auditor's report because disclosures are only required for events that effect more than 10% of revenues. D. Advise management to adjust the financial statements at a point in the future when the extent of the flood and the direct effect on the financial statements is known.Conditions which come into existence after year- end which may have a significant direct effect on the financial statements should be disclosed in the notes to the financial statements. 9. Which of the following is an example of an advocacy threat to member independence? A. An engagement team member sells securities of the attest client’s company. B. An engagement team member is the CFO of the attest client's company. C. An engagement team member is litigating a bill for unpaid invoices by the attest client. D. An engagement team member's spouse has a direct financial interest in the attest client. ANSWER A: An advocacy threat stems from action that promote the client's interests. Selling securities is an example of an activity that promotes a client’s interests.10. The following would most likely be a violation of the profession's ethical standards A. CPA provides consulting services with a contingent fee based on reducing the client's tax burden by 5%. B. CPA provides tax preparation service with a contingent fee based on reducing the client's tax burden by 5%. C. CPA represents that consulting services will cost approximately $25,000 when the CPA knew the services would most likely cost twice that amount. D. CPA provides consulting services and charges less than a competitive rate in order to win the business of the client. 10. ANSWER: CAccording to Rule 102, in performance of any professional service, a member shall maintain objectivity and integrity, avoid conflicts of interest, and not knowingly misrepresent facts. The CPA would be knowingly misrepresenting the facts by providing a bid that was clearly off the mark. 11.The process of cleaning data for it to be used in an audit data analytic is called: A. Data extraction. B. Data transformation. C. Data loading. D. Data smoothing. Answer: BData must be cleaned to ensure format consistency, blank fields are accurate, field types are correct, etc. Cleaning data as part of the data analysis process is called data transformation. 12. Your firm, Mac CPA, has been engaged to audit a mobile phone hardware manufacturer. The client provided data files for all sales transactions for the year under audit. The audit team will use the data files to perform a non- Statistical analysis of sales revenue trends by product type. The following information pertains to the files obtained: ¢ The record count of transactions in the file agrees with the number of transactions completed for the year under audit. * The file provided is encrypted. * The data does not include a field for product type. * Total sales revenue agrees to the general ledaer =¢ Total sales revenue agrees to the general ledger. What primary concern should the auditor have with the data files obtained? A. Data integrity. B. Data clarity and relatedness. C. Data freshness. D. Data accuracy. ANSWER: B Your objective is to evaluate sales trends by product. Data clarity and relatedness answers whether the data has the elements requested and needed for the objective. The auditor will not be able to perform the desired analysis without the product type field.