AICPA CPA-Auditing Quiz 1 Topic 2 Questions 1-5

Question: 1

The accounts receivable turnover ratio increased significantly over a two-year period. This trend could indicate that:

AThe accounts receivable aging has deteriorated.

BThe company has eliminated its discount policy.

CThe company is more aggressively collecting customer accounts.

DCustomer sales have substantially decreased.

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Question: 2

Green, CPA, was engaged to audit the financial statements of Essex Co. after its fiscal year had ended. The timing of Green's appointment as auditor and the start of fieldwork made confirmation of accounts receivable by direct communication with the debtors ineffective. However, Green applied other procedures and was satisfied as to the reasonableness of the account balances. Green's auditor's report most likely contained a(an):

AUnqualified opinion.

BUnqualified opinion with an explanatory paragraph.

CQualified opinion due to a scope limitation.

DQualified opinion due to a departure from generally accepted auditing standards.

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Question: 3

An accountant's compilation report on a financial forecast should include a statement that:

AThe forecast should be read only in conjunction with the audited historical financial statements.

BThe accountant expresses only limited assurance on the forecasted statements and their assumptions.

CThere will usually be differences between the forecasted and actual results.

DThe hypothetical assumptions used in the forecast are reasonable in the circumstances.

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Question: 4

An annual shareholders' report includes audited financial statements and contains supplementary information required by GAAP. Is it permissible for the auditor to report on such information?

ANo, because such reporting may lead to the belief that the auditor is responsible for the information.

BNo, because the auditor has no responsibility to read the other information in a document containing audited financial statements.

CYes, provided the report provides negative assurance only.

DYes, provided the auditor performs sufficient audit procedures to determine whether the information is fairly stated, in all material respects, in relation to the financial statements.

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Question: 5

Which of the following is true about the term "likely misstatement?"

AIt refers to misstatements that have not been specifically identified, but which are likely to exist based on the auditor's judgment.

BIt refers to the cumulative effect of misstatements from prior years on the current year's financial statements.

CIt refers to misstatements that have been specifically identified by the auditor.

DIt includes both identified misstatements and an estimate of unidentified misstatements.
Explanation
Choice 'a' is correct. A 'likely misstatement' is one that has not been specifically identified, but which is likely to exist based on the auditor's judgment.
Choice 'b' is incorrect. 'Likely misstatement' does not refer to the cumulative effect of prior year errors.
It is a measure of misstatements the auditor considers likely to exist, that have not been specifically identified.
Choice 'c' is incorrect. 'Likely misstatement' is a measure of misstatements the auditor considers likely to exist, that have not been specifically identified.
Choice 'd' is incorrect. The term 'likely misstatement' includes only an estimate of potential errors. It does not include specific misstatements identified during the audit.

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AICPA CPA-Auditing Quiz:1 Topic:2 Questions:1-5