AICPA CPA Auditing and Attestation Exam Questions

Choice 'a' is correct. An auditor is required to communicate certain matters to those charged with governance, including disagreements with management about significant audit adjustments, whether or not satisfactorily resolved.

Choice 'b' is incorrect. Written communications should include a limitation on the use of the communication.

Choice 'c' is incorrect. The auditor is not required to distribute the report to management, especially since certain matters might be inappropriate for discussion with management.

Choice 'd' is incorrect. The auditor is not required to make the communication before the auditor's report on the financial statements is finalized, as long as the communication occurs on a timely basis. (Note, however, that for audits of issuers, the communication must be made before the auditor's report is filled with the SEC.)

Choice 'a' is correct. When determining the sample size for a test of controls, the auditor should consider the expected deviation rate (which is the auditor's best estimate of the deviation rate in the population before the sampling plan is executed), the tolerable deviation rate, and the allowable risk of assessing control risk too low.

Choice 'b' is incorrect. The upper deviation rate is used to evaluate a balance after a sampling plan has been performed, not to determine the sample size for a test of controls.

Choices 'c' and 'd' are incorrect. The risk of incorrect acceptance and risk of incorrect rejection are considered in direct tests of balances (i.e., substantive tests), not in tests of controls.

Choice 'c' is correct. In PPS sampling, the auditor controls the risk of incorrect acceptance by specifying that risk level for the sampling plan. The inputs for PPS are tolerable error, risk of incorrect acceptance, number of errors allowed, and the recorded amount of the population being sampled.

Choice 'a' is incorrect. The sampling distribution does not have to approximate the normal distribution in order for PPS sampling to be used.

Choice 'b' is incorrect. Overstated units have a higher (not lower) probability of sample selection than units that are understated, because with PPS sampling, each item is given a probability of selection in proportion to its recorded amount (probability-proportional-to-size).

Choice 'd' is incorrect. In PPS sampling, the sampling interval is calculated by dividing the recorded amount of the population (not the number of physical units) by the sample size.

Choice 'd' is correct. Significant deficiencies in the design or operation of internal control should be communicated to management and those charged with governance because there is more than a remote likelihood that they will result in a financial statement misstatement that is more than inconsequential.

Choice 'a' is incorrect. Manipulation or falsification of accounting records may not represent an internal control deficiency (e.g., if such fraud occurs through collusion).

Choice 'b' is incorrect. Information indicative of a going concern problem is not an internal control deficiency.

Choice 'c' is incorrect. Irregularities or illegal acts may not represent deficiencies in internal control (e.g., if such acts occur through collusion).

Choice 'a' is correct. Computer processing virtually eliminates the occurrence of (random) computational errors normally associated with manual processing. This is a major benefit of computer processing over manual processing.

Choice 'b' is incorrect. Depending on human involvement and review, errors or irregularities in computer processing may not be detected quickly.

Choice 'c' is incorrect. The potential for systematic errors (e.g., incorrect programming, incorrect data entry) is greater in a computerized system due to reduced human involvement in processing.

Choice 'd' is incorrect. Only poorly designed computerized systems provide no audit trail capabilities.