CPA - Certified Public Accountant
Go back to Professional Certifications
During a period of high inflation, which of the following groups in society would be most likely to gain?
Those with a fixed amount of debt.
All of the following are the rates used in net present value analysis, except for the:
Accounting rate of return.
Which of the following is true about an auditor's responsibility with respect to accounting estimates?
The auditor is responsible for evaluating the reasonableness of accounting estimates.
The net present value method of capital budgeting assumes that cash flows are reinvested at:
The discount rate used in the analysis.
If demand is unit elastic:
An increase in price will have no effect on total revenue.
Which of the following factors most likely would influence an auditor's determination of the auditability of an entity's financial statements?
The adequacy of the accounting records.
In which of the following situations would a principal auditor least likely make reference to another auditor who audited a subsidiary of the entity?
The other auditor was retained by the principal auditor and the work was performed under the principal auditor's guidance and control.
The annual financial statements of a publicly held company have been audited, and its interim financial statements have been reviewed. Which of the following is true about the application of professional standards to this review?
PCAOB standards apply.
To decrease the money supply, the Fed might:
Sell government securities on the open market.
Absent a specific provision in its articles of incorporation, a corporation's board of directors has the unilateral power to do all of the following, except:
Amend the articles of incorporation.
Which of the following reporting options is least likely with regard to supplementary information that is required by GAAP?
The auditor's report on the financial statements includes both an opinion on the supplementary information and a statement restricting the use of the report.
During the first quarter of the calendar year, Worth Co. had income before taxes of $100,000, and its effective income tax rate was 15%. Worth's effective annual income tax rate for the previous year was 30%. Worth expects that its effective annual income tax rate for the current year will be 25%. The statutory tax rate for the current year is 35%. In its first quarter interim income statement, what amount of income tax expense should Worth report?
The imputed interest rate used in the residual income approach for performance measurement and evaluation can best be characterized as the:
Historical weighted average cost of capital for the company.
Proper segregation of duties reduces the opportunities to allow any employee to be in a position to both:
Record and conceal fraudulent transactions in the normal course of assigned tasks.
An auditor generally tests the segregation of duties related to inventory by:
Personal inquiry and observation.
In a member managed LLC, the apparent authority of a member to bind the LLC in dealing with third parties:
Will be effectively limited by a formal resolution of the members of which third parties are aware.
Product demands become more elastic the:
Greater the number of substitute products available.
An audit performed in accordance with OMB Circular A-133 will expand the auditor's responsibilities beyond generally accepted auditing standards. The auditor's expanded responsibilities include:
Performance of additional procedures to test and report on compliance with laws, rules, regulations and provisions of contracts or grant agreements that have a direct and material effect on major federal award programs.
Which of the following are true regarding communication requirements an auditor must follow when providing tax services to an audit client who is an issuer under the Sarbanes-Oxley Act of 2002?
I, II, and III.
An auditor wishes to perform tests of controls on a client's cash disbursements procedures. If the controls leave no audit trail of documentary evidence, the auditor most likely will test the procedures by:
Observation and inquiry.
An auditor was unable to obtain audited financial statements or other evidence supporting an entity's investment in a foreign subsidiary. Between which of the following opinions should the entity's auditor choose?
Qualified and disclaimer.
The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion about the results of an auditing procedure. If the assistant believes it is necessary to be disassociated from the matter's resolution, the CPA firm's procedures should enable the assistant to:
Document the details of the disagreement with the conclusion reached.
Which of the following controls would be most effective in assuring that the proper custody of assets in the investing cycle is maintained?
The recorded balances in the investment subsidiary ledger are periodically compared with the contents of the safety deposit box by independent personnel.
The in-charge auditor most likely would have a supervisory responsibility to explain to the staff assistants:
How the results of various auditing procedures performed by the assistants should be evaluated.
An auditor most likely would inspect loan agreements under which an entity's inventories are pledged to support management's financial statement assertion of completeness with respect to:
Presentation and disclosure.
An auditor should design the written audit plan so that:
The audit procedures selected will achieve specific audit objectives.
The adverse effects of events causing an auditor to believe there is substantial doubt about an entity's ability to continue as a going concern would most likely be mitigated by evidence relating to the:
Marketability of assets that management plans to sell.
Which of the following professional services would be considered an attest engagement?
An engagement to report on management's discussion and analysis (MD&A).
In assessing the objectivity of internal auditors, an independent auditor should:
Determine the organizational level to which the internal auditors report.
Payroll Data Co. (PDC) processes payroll transactions for a retailer. Cook, CPA, is engaged to express an opinion on a description of PDC's internal controls placed in operation as of a specific date. These controls are relevant to the retailer's internal control, so Cook's report may be useful in providing the retailer's independent auditor with information necessary to plan a financial statement audit. Cook's report should:
Contain a disclaimer of opinion on the operating effectiveness of PDC's controls.
Determining the appropriate level of working capital for a firm requires:
Offsetting the benefit of current assets and current liabilities against the probability of technical insolvency.
An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this separate paragraph:
Is appropriate and would not negate the unqualified opinion.
An accountant has been asked to issue a review report on the balance sheet of a nonissuer without reporting on the related statements of income, retained earnings, and cash flows. The accountant may issue the requested review report only if:
The scope of the accountant's inquiry and analytical procedures has not been restricted.
Which of the following is not true with respect to the control activities of an entity?
Control activities are the policies and procedures that help ensure that the financial statements are fairly presented in conformity with generally accepted accounting principles.
The standard report issued by an accountant after reviewing the financial statements of a nonissuer should state that:
A review consists of inquiries of company personnel and analytical procedures applied to financial data.
On December 31, 20X2, the Board of Directors of Maxy Manufacturing, Inc. committed to a plan to discontinue the operations of its Alpha division. Maxy estimated that Alpha's 20X3 operating loss would be $500,000 and that the fair value of Alpha's facilities was $300,000 less than their carrying amounts. The estimate for 20X3 turned out to be correct. Alpha's 20X2 operating loss was $1,400,000, and the division was actually sold for $400,000 less than its carrying amount. Maxy's effective tax rate is 30%. In its 20X3 income statement, what amount should Maxy report as loss from discontinued operations?
What is the primary disadvantage of using return on investment (ROI) rather than residual income (RI) to evaluate the performance of investment center managers?
ROI may lead to rejecting projects that yield positive cash flows.
A CPA wishes to determine how various publicly-held companies have complied with the disclosure requirements of a new financial accounting standarD. Which of the following information sources would the CPA most likely consult for this information?
AICPA Accounting Trends and Techniques.
In using the work of a specialist, an auditor referred to the specialist's findings in the auditor's report. This would be an appropriate reporting practice if the:
Auditor, as a result of the specialist's findings, adds an explanatory paragraph emphasizing a matter regarding the financial statements.
For which of the following audit tests would a CPA most likely use attribute sampling?
Identifying entries posted to incorrect accounts.
Using microcomputers in auditing may affect the methods used to review the work of staff assistants because:
Audit documentation may not contain readily observable details of calculations.
In a competitive market an increase in the minimum wage will likely have the following effects:
The general (or aggregate) demand for labor will remain unchanged; however, the quantity demanded will decrease.
An auditor who is testing IT controls in a payroll system would most likely use test data that contain conditions such as:
Time tickets with invalid job numbers.
An entity engaged a CPA to determine whether the client's web sites meet defined criteria for standard business practices and controls over transaction integrity and information protection. In performing this engagement, the CPA should comply with the provisions of:
Statements on Standards for Attestation Engagements.
According to Michael Porter, which of the following are the two major categories of business activities?
Primary activities and support activities.
Which of the following statements is correct regarding the declaration of a stock dividend by a corporation having only one class of par value stock?
A stock dividend is a corporation's ratable distribution of additional shares of stock to its stockholders.
The concept of materiality would be least important to an auditor when considering the:
Effects of a direct financial interest in the client on the CPA's independence.
In performing a count of negotiable securities, an auditor records the details of the count on a security count worksheet. What other information is usually included on this worksheet?
An acknowledgment by a client representative that the securities were returned intact.
An independent accountant's report is based on a review of interim financial information. If this report is presented in a registration statement, a prospectus should include a statement clarifying that the:
Accountant's review report is not a part of the registration statement within the meaning of the Securities Act of 1933.
Limitations of the information provided by total asset turnover include:
When making the calculation, total assets may need to be refined by the elimination of assets that do not relate to sales as the inclusion of these items could distort the measure.