AA Exam Training Practice Tests (CPA Audit & Insurance)]

Question 1

Pahari Robert has been appointed the auditor of Safe Haven which has a year end of 31 May. Safe Haven is a small registered charity based in a small town in Warshire. The organisation provides shelter for abandoned dogs and puppies with the aim of finding new homes for as many as possible.
Safe Haven also employs a number of paid employees. The shelter is managed by John and Jane Sheldon, who are husband and wife. Safe Haven has a high turnover of staff in the accounts department.
Which type of risk has been illustrated in Safe Haven?

A. Inherent risk B. Detection risk C. Control risk D. Audit risk

Correct Answer: C

Question 2

During the audit planning for your client Shang Ltd for the year ending 30 April 2013, you read the following comment on the 'points forward for next year' schedule included in last year's audit working papers file:
'During the course of our audit we discovered that the company had incorrectly reclaimed input value added tax totalling $42,000. We have notified the client in writing of the need to repay this amount to tax authority as soon as possible. The financial statements have been adjusted to include this sum within current liabilities as 'amounts payable to Tax Authority'.
Included within income in the company's management accounts for the ten months ended 28 February 2013 is a credit entry for $42,000 described as 'VAT difference written off'.
Which one of the following actions is LEAST likely to be taken in respect of this matter?

A. Avoid tipping off the client B. Report to board of directors C. Consider resignation D. Report to nominated officer/money laundering officer within the firm

Correct Answer: B

Question 3

Elody Gaindy was discussing about the contents of audit report produce on the audit of ABC Ltd with his friend Evie Christoffelsen. Evie informed Elody the matters on which auditors are required to report by exception such as:
Adequate accounting records of ABC Ltd have not been kept, or returns adequate for the audit have not been received from branches of ABC Ltd not visited by Elody Gaindy; or
The financial statements of ABC Ltd are not in agreement with the accounting records and returns; or
Certain disclosures of directors' remuneration of ABC Ltd specified by law are not made
Which of the following statements is not true about the audit report prepared by Elody Gaindy?

A. More than three paragraphs in the report indicates there must be some type of qualification in the audit report. B. An unqualified opinion with modified wording has three paragraphs. C. A three-paragraph report ordinarily indicates there are no exceptions in the audit. D. A one-paragraph report is generally used when the auditor is not independent.

Correct Answer: A

Question 4

Grey Ltd has recently discovered that it has been paying invoices in respect of goods which had been returned as faulty prior to acceptance. It is company policy to record goods only if they have been accepted.
Which of the following controls would be useful in preventing such incidence in future?

A. Comparison of supplier statements with payables ledger accounts B. Date stamping purchase invoices on receipt C. Matching of purchase invoices with orders D. Matching of purchase invoices with goods received notes

Correct Answer: D

Question 5

The auditor finds a situation where one person has the ability to collect receivables, make deposits, issue credit memos, and record receipt of payments. The auditor suspects the individual may be stealing from cash receipts.
Which of the following audit procedures would be most effective in discovering fraud in this scenario?

A. Send negative confirmations to all outstanding accounts receivable customers. B. Perform a detailed review of debits to customer discounts, sales returns, or other debit accounts, excluding cash posted to the cash receipts journal. C. Send positive confirmations to a random selection of customers. D. Take a sample of bank deposits and trace the detail in each of the bank deposit back to the corresponding entry in the cash receipts journal.

Correct Answer: B

Question 6

Robert Sen is performing the audit of financial statement of Loko Plc., the objective is to express an opinion as to whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.
Which of the following statements is correct about the preliminary judgment about materiality of financial statements of Loko Plc?

A. This is the maximum amount by which Robert Sen believes the statements of Loko Plc could be misstated and still not affect the decisions of reasonable users. B. This is the median average amount by which Robert Sen believes the statements of Loko Plc could be misstated and still not affect the decisions of reasonable users. C. This is the mean average amount by which Robert Sen believes the statements of Loko Plc could be misstated and still not affect the decisions of reasonable users. D. This is the minimum amount by which Robert Sen believes the statements of Loko Plc could be misstated and still not affect the decisions of reasonable users.

Correct Answer: A

Question 7

Allisons and Co is a firm of Chartered Accountants. It has a reputation for excellence in the banking and insurance industry and has been invited to accept engagements by various institutions. Recently it has been invited by Nationally plc, the leading building society in the UK.
Which of the following usages would be the BEST use of an engagement letter for Allisons and Co?

A. Auditor will obtain sufficient appropriate audit evidence for the audit of Nationally plc. B. Provides access to all books, accounts and vouchers required for audit purpose of Nationally plc. C. Endorsement of cooperation from other auditors of Nationally plc. D. Confirmation of management representation letter of Nationally plc.

Correct Answer: B

Question 8

Smith and Co is considering preliminary audit strategy for Well Ltd. Well Ltd is an established company with well-documented systems and controls. It has an internal audit function whose principal activity is to monitor the implementation and effectiveness of existing controls.
Which of the following statements would be correct about the reliability of audit evidence of Well Ltd?

A. Effective internal control system of different systems of Well Ltd can provide reliable audit evidence B. Limited internal control system of Well Ltd can provide reliable audit evidence C. To be reliable, evidence of Well Ltd should be conclusive rather than persuasive D. Evidence obtained from outside sources routed through Well Ltd will be more reliable

Correct Answer: A

CPA Audit & Insurance - AA Exam Practice Test