AICPA Exam CPA-Auditing Topic 1 Question 75 Discussion

Actual exam question for AICPA's CPA-Auditing exam

Question #: 75
Topic #: 1

Which of the following procedures would an auditor most likely perform during an audit engagement's overall review stage in formulating an opinion on an entity's financial statements?

AObtain assurance from the entity's attorney that all material litigation has been disclosed in the financial statements.

BVerify the clerical accuracy of the entity's proof of cash and its bank cutoff statement.

CDetermine whether inadequate provisions for the safeguarding of assets have been corrected.

DConsider whether the results of audit procedures affect the assessment of the risk of material misstatement due to fraud.
Explanation
Choice 'd' is correct. During every stage of the audit, the auditor should consider the assessment of the risk of material misstatement. During the overall review stage, the auditor should consider whether the results of any of the audit procedures affect the assessment of the risk of material misstatement due to fraud.
Choice 'a' is incorrect. The entity's attorney does not provide assurance regarding financial statement disclosure.
Choice 'b' is incorrect. Verifying clerical accuracy of client schedules would be performed during the audit, not during the overall review stage.
Choice 'c' is incorrect. Evaluating whether control weaknesses have been corrected is not typically performed during the overall review stage.

Show Suggested Answer

Suggested Answer: A

Choice 'a' is correct. The auditor's report on compliance and on internal control over financial recording (based on an audit) must include the scope of testing of compliance and internal control.

Choice 'b' is incorrect. Material indications of illegal acts are not only reported to the members of the governing body of the audited entity and their senior staff officials but, in some circumstances, auditors should report illegal acts directly to external parties (such as the grantor agency).

Choice 'c' is incorrect. Although GAO standards require that the auditor communicate information regarding the nature, timing and extent of planned testing to officials of the audited entity and to individuals contracting for the audit, reporting of all changes is not required. (For example, immaterial changes to the audit program need not be reported.)

Choice 'd' is incorrect. Certain privileged or confidential information may be prohibited from general disclosure and should not be included in the audit report. The report should, however, disclose the nature of the information omitted and the requirement that makes an opinion necessary.

by Salome at Oct 08, 2023, 03:07 PM

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