AICPA Newly Released MCQs

AUDITING
2020 AICPA Newly

Released MCQs
and Sims
Please note that the AICPA only provides MCQs and simulations
without answer explanations. At the time of this release, the
Becker-provided MCQ and Simulation answer explanations are
still in development. The full answer explanations will be
available in an upcoming course software update.
Registered to Daljeet Singh (#1410156)

Understanding the AICPA-released Questions
The AICPA-released questions in this document contain identifying information provided by the AICPA.
Below is an explanation of how to interpret that information provided with each multiple choice question.
For a copy of the AICPA’s most recent Blueprint, please visit

https://www.aicpa.org/becomeacpa/cpaexam/examinationcontent.html
The Item ID is used by the AICPA

Item ID: 17775 to track its questions.
The Key indicates the correct

Key: B
answer for each question.
This line indicates the Blueprint version (20190101, or

January 2019 AUD Blueprint) as well as Content Group,
Topic and Subtopic in the Blueprint that is the basis for
AUD.CSO.20190101: AUD.001.001.003 each question. For example, AUD.001.001.003 means
that the question comes from AUD Blueprint Area I (001),
Topic A. Nature and Scope (.001), Subtopic 3. Nature and
scope: non-audit engagements (.003).
This line indicates the Skill Level of

AUD.SSO.20190101: Remembering and Understanding:1 the question based on the January
2019 (20190101) AUD Blueprint.

In which of the following situations would an auditor who is rendering an audit opinion on the
financial statements of an employee benefit plan that will be filed with the Department of
Labor be considered independent?
A. The auditor's spouse has obtained an immaterial direct financial interest in the
employee benefit plan.
B. The auditor obtained a material indirect financial interest in the employee benefit plan.
C. A member of the auditor's firm was an investment advisor to the employee benefit plan
during the period of professional engagement but was not providing services as of the
date of the opinion.
D. A member of the auditor's firm was a voting trustee of the plan in a prior year but has
since disassociated from the plan and did not participate in auditing the financial
statements of the plan.
Item ID: 24853

Key: D
AUD.CSO.20190701: AUD.001.002.003
AUD.SSO.20190701: Application:2

The primary objective of an auditor when considering the acceptance of an initial audit
engagement of a nonissuer is to
A. Establish whether the preconditions for an audit are present.

B. Agree with management on the timing of tests at interim and year end.
C. Limit the auditor's responsibility if management fails to provide written representations.
D. Specify the degree to which management intends to rely on the auditor's testing of
internal controls.
Item ID: 74327

Key: A
AUD.CSO.20190701: AUD.001.003.001
AUD.SSO.20190701: Remembering and Understanding:1

An auditor encounters significant difficulties during an audit that are likely to lead to a modified
opinion. When would it be most appropriate for the auditor to communicate those difficulties
to the audit committee?
A. On the report issuance date.

B. Early in the audit engagement acceptance process.
C. As soon as is practicable during the course of the engagement.
D. On the last day of fieldwork.
Item ID: 20443

Key: C
AUD.CSO.20190701: AUD.001.005.003

Which of the following individuals would be considered a predecessor auditor?
A. A client's accounting employee who audits the company's branches, subsidiaries, or

other outlying locations from the company's home office.
B. A client's accounting employee responsible for the preparation of the company's
financial statements.
C. An independent CPA who was engaged to perform, but did not complete an audit of
D. An independent CPA who is considering accepting an engagement to audit financial
statements.
Item ID: 11269

Key: C
AUD.CSO.20190701: AUD.001.006.000

Which of the following internal control activities would not be effective for detecting
misstatements of inventory item pricing schedules?
A. Segregation of duties between customer invoicing and inventory valuation.

B. Comparison of sales invoices to price lists on a test basis.
C. Review of vendor lists for fictitious vendors in the system.
D. Comparison of groups of items to sales reports and subsequent investigation of unusual

variances.
Item ID: 11047

Key: C
AUD.CSO.20190701: AUD.002.003.002

Which of the following groups within an entity is typically in the best position to perpetrate a
material fraud?
A. Customers.
B. Directors.
C. Management.
D. Entry-level personnel.
Item ID: 14453

Key: C
AUD.CSO.20190701: AUD.002.003.005

Which of the following factors affecting the risk associated with a control is not a consideration
when designing the current-year audit procedures in an audit of internal control over financial
reporting for an issuer?
A. Whether there have been changes in the operation of a key control since the previous
audit.
B. The results of the previous years' testing of the control.
C. The nature, timing, and extent of procedures performed in previous audits.
D. Whether the control has been documented in flowchart or narrative form.
Item ID: 15783

Key: D
AUD.CSO.20190701: AUD.002.005.003

In order to reduce the risk that the aggregate of undetected misstatements in the group
financial statements of a nonissuer exceeds the materiality for the group financial statements
as a whole, an auditor should establish a
A. Materiality for the group financial statements that is lower than the component
materiality.
B. Materiality for the group financial statement that exceeds prior-year materiality for the
group financial statements.
C. Component materiality that is lower than the materiality for the group financial
statements.
D. Component materiality that is equal to the materiality for the group financial
statements.
Item ID: 19171

Key: C
AUD.CSO.20190701: AUD.002.006.001
10

When assessing an internal auditor's objectivity, the independent auditor should
A. Examine workpapers of the internal auditor to verify evidence of supervision and

review.
B. Review the internal auditor's current audit plan, including the nature, timing, and extent
of audit work.
C. Determine the educational level and the professional experience of the internal auditor.
D. Ascertain the organization level to which the internal audit function reports.
Item ID: 10849

Key: D
AUD.CSO.20190701: AUD.002.007.000
11

Which of the following is a characteristic of nonstatistical sampling?
A. It uses the laws of probability to select a sample.

B. It requires each item to have an equal probability of being selected.
C. It requires judgment to select a sample.
D. It is preferable for an audit-level engagement.
Item ID: 13857

Key: C
AUD.CSO.20190701: AUD.003.002.000
12

An auditor is testing a client's pension benefit obligation. Which of the following types of
evidence would be most appropriate for determining that the financial statement balance is
fairly stated?
A. A client-prepared schedule showing accounting entries made to the general ledger

balance.
B. An actuarial valuation obtained by an outside firm.
C. Confirmation of payments received by retirees.
D. Analytical procedures that compare last year's balance to this year's balance.
Item ID: 13537

Key: B
AUD.CSO.20190701: AUD.003.003.006
13

Which of the following would provide an auditor of a nonissuer with the best evidence of fair
value pertaining to a client's investments in derivative instruments that are listed on a national
exchange and disclosed at fair value?
A. The client's personnel who trade the derivative instruments.

B. Quoted market prices.
C. Documents related to the original purchase of the derivative instruments.
D. Estimates of fair value provided by broker-dealers.
Item ID: 18813

Key: B
AUD.CSO.20190701: AUD.003.004.002
14

With respect to litigation involving a nonissuer that could give rise to a risk of material
misstatement, an auditor should obtain audit evidence relevant to each of the following
matters, except
A. The period in which the underlying cause for legal action occurred.
B. The amount or range of potential loss resulting from the litigation.
C. The degree of probability of an unfavorable outcome.
D. The objectivity and experience of the entity's legal counsel.
Item ID: 18333

Key: D
AUD.CSO.20190701: AUD.003.004.004
15

Which of the following qualitative factors would an auditor consider most relevant to the
consideration of whether a discovered misstatement is material?
A. The audit team found a misstatement that, if recorded, affects the client's compliance
with loan covenants.
B. The audit team found only one misstatement due to an error made by a new client
employee.
C. The audit team found a miscalculation in the client's tax filing that does not affect the
client's current financial statements, but has the effect of increasing its tax liability in
future periods.
D. The company recently emerged from bankruptcy after receiving additional bank
financing.
Item ID: 12909

Key: A
AUD.CSO.20190701: AUD.003.005.000
16

An accountant is reporting on comparative financial statements that include year 1 and year 2
as part of a review engagement for a nonissuer. Current management was not in place until
halfway through year 2. At the completion of the year 2 review, the accountant should obtain
representations from management that cover
A. The second half of year 2, but no other periods, from current management.
B. Year 1, but not year 2, from current management.
C. Both year 1 and year 2 from current management.
D. Year 1 and the first half of year 2 from prior management and the second half of year 2
from current management.
Item ID: 16017

Key: C
AUD.CSO.20190701: AUD.003.006.000
17

Subsequent to the issuance of the audit report for the final year of a three-year contract, a fact
is discovered that may have affected the final year's report. Which of the following actions is
the auditor required to take?
A. The auditor is not required to do anything because the auditor was discharged for
reasons other than professional misconduct after the audited financial statements were
issued.
B. The auditor is not required to do anything because once the auditor has reported on
audited financial statements, the auditor has no responsibility to carry out any
retrospective review of the workpapers or show the effect of any newly discovered facts
on them.
C. The auditor is required to determine whether the information is reliable and whether
the facts existed at the date of the report.
D. The auditor is required to reissue the auditor's report and to reference discovery of the
fact.
Item ID: 12495

Key: C
AUD.CSO.20190701: AUD.003.007.000
18

For a performance audit in accordance with GAGAS, if certain pertinent information is excluded
from the audit report due to the confidential or sensitive nature of the information, then the
auditor should do which of the following?
A. Issue a disclaimer.
B. Issue a qualified report.
C. Remove all reference to the information from the retained audit documentation.
D. Disclose in the report that certain information has been omitted and the reasons that
make the omission necessary.
Item ID: 77972

Key: D
AUD.CSO.20190701: AUD.004.004.000
19

If an auditor has issued an adverse opinion on a complete set of financial statements, the
auditor is precluded from expressing which of the following in an audit report on a single
financial statement of the nonissuer entity?
A. An adverse opinion.
B. A disclaimer of opinion.
C. A qualified opinion.
D. An unmodified opinion.
Item ID: 18869

Key: D
AUD.CSO.20190701: AUD.004.005.005
20

If an auditor of a nonissuer accepts an engagement to issue a comfort letter in connection with
financial statements included in a securities offering, then the auditor should provide the letter
only to
A. The entity's legal counsel.

B. Prospective shareholders who commit to purchase at least 5% of the securities.
C. Management and those charged with governance.
D. Underwriters and other parties meeting the definition of a requesting party.
Item ID: 19353

Key: D
AUD.CSO.20190701: AUD.004.005.007
21

An auditor should restrict the use of the auditor's communication related to the audit of a
nonissuer's financial statements by including an alert when the written communication
A. Discloses material weaknesses in internal control that elevate the risk of misstatements
in the financial statements.
B. Documents a financial risk that the auditor discussed with those charged with
governance on previous audit engagements.
C. Describes a potential change in accounting methods and its potential effect on the
results of operations and financial position.
D. Is based on measurement or disclosure criteria that the auditor determined to be
suitable only for a limited number of users who can be presumed to have an adequate
understanding of the criteria.
Item ID: 91857

Key: D
AUD.CSO.20190701: AUD.004.005.008
22

Which of the following is a requirement for an audit of both an issuer's and a nonissuer's
financial statements?
A. The auditor is required to assess the risk of fraud.

B. The auditor is required to refer to a recognized control framework in performing the
audit of internal control over financial reporting.
C. The auditor is required to express an opinion on the effectiveness of the company's
internal control over financial reporting.
D. The auditor is required to assess the effectiveness of management's assessment of the
company's internal control over financial reporting.
Item ID: 20357

Key: A
AUD.CSO.20190701: AUD.001.001.001
23

The spouse of a covered member of an accounting firm is in a permitted employment situation
at an attest client and participates in the client's employee stock ownership plan. According to
the AICPA Code of Professional Conduct, which of the following actions is required of the
spouse when beneficial financial interests are distributed?
A. The spouse must dispose of the shares as soon as practicable, but at most 30 days after
the right to dispose is obtained.
B. The spouse must hold the shares for a minimum of 30 days after the right to dispose is
obtained.
C. The spouse must serve as a trustee for the share-based compensation arrangement to
receive put options as part of the compensation arrangement.
D. The spouse must not exercise any put option to require the employer to repurchase the
beneficial financial interests until after 30 days from receipt.
Item ID: 24127

Key: A
AUD.CSO.20190701: AUD.001.002.001
24

A CPA is considering whether to accept an engagement to prepare financial statements for a
new client. Which of the following statements is correct regarding the independence of the
CPA?
A. The CPA should be independent of the client.
B. The CPA is not required to make a determination of whether the CPA is independent of
the client.
C. The CPA is required to disclose in the engagement report any relationships with the
client's personnel.
D. The CPA should obtain management's understanding regarding the benefits of an
accountant being independent of a client.
Item ID: 85002

Key: B
AUD.CSO.20190701: AUD.001.003.001
25

If, while performing a review engagement, an accountant has reason to believe that a material
misappropriation of assets might have occurred, what should the accountant do?
A. Assess whether controls are in place to deter similar misappropriations.

B. Require an investigation to determine whether the misappropriation actually occurred.
C. Disclose the potential misappropriation as supplementary information in the
accountant's report.
D. Document communications with senior management about the matter.
Item ID: 14735

Key: D
AUD.CSO.20190701: AUD.001.005.003
26

In the integrated audit of an issuer, an auditor has identified entity-level controls that are
important to the conclusion as to whether the company has effective internal control over
financial reporting. Each of the following is an example of an entity-level control, except
A. Controls over the period-end financial reporting process.

B. The company's risk assessment process.
C. Controls over the completeness of deposited cash.
D. Controls over management override.
Item ID: 23073

Key: C
AUD.CSO.20190701: AUD.002.003.001
27

Which of the following is a complete and accurate list of the walkthrough procedures usually
performed in an issuer's integrated audit?
A. Inquiry, observation, analytical procedures, testing of controls.

B. Inquiry, sampling, analytical procedures, testing of controls.
C. Inquiry, observation, inspection of relevant documentation, reperformance of controls.
D. Inquiry, inspection of relevant documentation, sampling, reperformance of controls.
Item ID: 19745

Key: C
AUD.CSO.20190701: AUD.002.003.002
28

A user auditor of a nonissuer should perform which of the following procedures to obtain audit
evidence related to the operating effectiveness of a service organization's controls when the
risk assessment includes an expectation that the controls are operating effectively?
A. Obtaining the user organization's representation regarding the effectiveness of the

service organization's controls.
B. Obtaining and reading a Type 1 report, if available.
C. Obtaining and reading a Type 2 report, if available.
D. Performing substantive tests at the service organization.
Item ID: 17379

Key: C
AUD.CSO.20190701: AUD.002.003.003
29

An overall response to address a high assessed risk of material misstatement at the financial
statement level of a nonissuer may include
A. Increasing reliance on results of internal control testing.

B. Emphasizing the need for more accounting staff.
C. Incorporating additional predictability into the selection of procedures.
D. Providing more supervision of the audit team.
Item ID: 16957

Key: D
AUD.CSO.20190701: AUD.002.005.001
30

If a component auditor does not meet the independence requirements that are relevant to a
group audit of a nonissuer's financial statements, then the group engagement team should first
A. Communicate the lack of independence to the appropriate regulatory authority.

B. Disclose the lack of independence to the nonissuer's management and consider revising
the audit report.
C. Withdraw from the engagement when permissible under law or regulation.
D. Attempt to obtain sufficient appropriate audit evidence relating to the financial
information of the component without making reference to or using the work of the
component auditor.
Item ID: 20385

Key: D
AUD.CSO.20190701: AUD.002.007.000
31

Which of the following factors would the auditor not explicitly consider when determining
sample size in an attribute sample for a test of controls?
A. An acceptable level of the risk of overreliance.

B. The tolerable deviation rate.
C. The expected population deviation rate.
D. The tolerable misstatement.
Item ID: 10851

Key: D
AUD.CSO.20190701: AUD.003.002.000
32

Which of the following procedures regarding inventory would be performed by an accountant
during a nonissuer's review engagement?
A. Obtaining an understanding of the entity's internal control over inventory.

B. Observing the client's year-end physical inventory count.
C. Inquiring of company personnel about excess or obsolete inventory.
D. Assessing fraud risk regarding inventory.
Item ID: 20655

Key: C
AUD.CSO.20190701: AUD.003.003.003
33

During the compilation of a client's financial statements, an accountant comes to believe that
the financial statements are materially misstated. The accountant should
A. Allow the client to decide whether modifications are needed to properly present the
B. Obtain the additional or revised information needed to correct the financial statements.
C. Limit any investigation of the potential misstatements to inquiries of the client.
D. Perform no additional procedures.
Item ID: 24173

Key: B
AUD.CSO.20190701: AUD.003.003.006
34

When conducting an audit of a nonissuer, the auditor's determination of whether the prior-
period's closing balances have been correctly brought forward to the current period or, when
appropriate, have been restated, would most appropriately support the auditor's conclusion of
whether
A. The opening balances contain misstatements that materially affect the current-period's
B. The opening balances reflect the application of appropriate accounting policies.
C. Audit procedures performed in the current period provide evidence relevant to the
opening balances.
D. The prior-period financial statements should be reaudited.
Item ID: 16761

Key: A
AUD.CSO.20190701: AUD.003.004.001
35

Which of the following procedures would the auditor most likely perform to determine that an
interest rate swap contract is properly stated at fair value on the client's balance sheet?
A. Testing the data used to arrive at the fair value of the interest rate swap contract.
B. Sending a positive confirmation to the interest rate swap contract custodian.
C. Comparing the contract amount with the fair value of the contract and calculating the
unrealized gain or loss.
D. Inspecting the minutes of the board of directors' meetings for approval of the interest
rate swap contract.
Item ID: 20227

Key: A
AUD.CSO.20190701: AUD.003.004.002
36

During an audit of a nonissuer, if the terms of a related party transaction are found to be
materially inconsistent with the explanations provided by management, an auditor should
A. Communicate to those charged with governance that the auditor will be unable to
express an opinion on the financial statements.
B. Include an emphasis-of-matter paragraph in the auditor's report that describes the

auditor's inability to obtain assurance over related party transactions and balances.
C. Include an other-matter paragraph in the auditor's report describing the inconsistent

explanations provided by management.
D. Consider the reliability of management's explanations and representations on other
significant matters.
Item ID: 18937

Key: D
AUD.CSO.20190701: AUD.003.006.000
37

An auditor withdrew from further association with a nonissuer entity after issuing an audit
report on it. Subsequently, the auditor discovered facts that, if known to the auditor at the date
of the auditor's report, could have caused the auditor to revise the report. Which of the
following statements about this circumstance is correct?
A. The auditor should talk with the successor auditor about the circumstances of the
subsequently discovered information and advise whether the financial statements
should be revised.
B. The auditor should extend audit procedures with regard to management's revised
financial statements with the objective of expressing a dual-dated qualified opinion.
C. The auditor should discuss the matter with management and, if it is determined that the
financial statements need revision, ask how management intends to address the matter
in the financial statements.
D. Because the auditor is no longer associated with the entity, the auditor has no further
responsibilities with regard to the financial statements.
Item ID: 17971

Key: C
AUD.CSO.20190701: AUD.003.007.000
38

Which of the following occasions is the earliest an audit report may be dated?
A. When the auditor completes field work and all audit documentation has been reviewed.
B. When the financial statements are filed with the Securities and Exchange Commission
(SEC).
C. When the auditor has obtained sufficient appropriate audit evidence to support an
opinion.
D. When all working papers are compiled and assembled, and all superseded
documentation has been deleted.
Item ID: 13379

Key: C
AUD.CSO.20190701: AUD.004.001.002
39

Which of the following should a practitioner include in an agreed-upon procedures report?
A. Negative assurance about whether the subject matter is fairly stated based on the
criteria.
B. All findings from application of the agreed-upon procedures.
C. The statement that "Nothing came to my attention that caused me to believe that the
subject matter is not presented based on the criteria."
D. Positive assurance about whether the subject matter is fairly stated based on the
criteria.
Item ID: 16237

Key: B
AUD.CSO.20190701: AUD.004.002.002
40

If an auditor undertakes an engagement to audit a nonissuer's complete financial statements
and also to audit a specific element of the financial statements, then the auditor should
A. Provide an agreed-upon procedures report on the specific element to be presented

separately from the audit report containing the opinion on the financial statements
taken as a whole.
B. Issue separate audit reports for the complete financial statements and the specific
element of the financial statements.
C. Issue one opinion that covers both the complete financial statements and the specific
element of the financial statements within the report on the complete financial
statements.
D. Include the opinion on the specific element within the report on the complete financial
statements.
Item ID: 18493

Key: B
AUD.CSO.20190701: AUD.004.005.005
41

After the issuance of restricted-use review reports, what is an accountant's responsibility with
regard to controlling the client's distribution of those reports?
A. An accountant and the client share responsibility for controlling the client's distribution
of restricted-use reports.
B. An accountant is solely responsible for controlling a client's distribution of restricted-use

reports.
C. An accountant has no responsibility for controlling a client's distribution of restricted-

use reports.
D. An accountant is responsible for controlling a client's distribution of restricted-use
reports only if this responsibility is expressly stated in the engagement letter.
Item ID: 23963

Key: C
AUD.CSO.20190701: AUD.004.005.008
42

Item: 500300
Scroll down to complete all parts of this task.
The audit team for Pine Co. is compiling a listing of journal entries for audit testwork in conjunction with the December
31, year 1, audit. The senior auditor obtained an electronic copy of Pine's journal entries, which appears in the exhibit
above.
For each of the criteria below, select the journal entry number that corresponds to the appropriate criterion. An option
may be used once, more than once, or not at all.
The audit team determined that materiality for journal entry testing is $200,000.
Criterion Journal entry number

Select journal entry for testing based on personnel preparing and approving 1881610
Select journal entry for testing based on date/time of adjustment 1881635
Select journal entry for testing based on materiality 1881302
Select journal entry for testing based on complexity 1880989
Select journal entry for testing because entry is missing information 1880960
-- Option List Details --

• 1880666
• 1880720
• 1880910
• 1880960
• 1880989
• 1881256
JE
• 1881302
• 1881610
• 1881629
• 1881630
• 1881635
END OF CONTENT - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
43

Exhibits Information
Exhibits included in this item 1. Journal Entries
44

Exhibit for Item: 500300
Exhibit 1: Journal Entries
45

46

47

Blueprint Information
CSO: 002.005.003
Skill: Application
Representative task: Developed planned audit procedures that are responsive to identified risks of material misstatement due to
fraud or error at the relevant assertion level for significant classes of transactions and account balances.
48

Item: 500336
An accounting firm is performing the year 2 audit of DDR Corp., a nonissuer. Consider the following:
• The auditor will rely on tests of controls for sales and cash receipts, and purchasing and cash disbursements.
• The amount in column C in the table below represents the potential misstatement as a result of the identified control deficiency.
• The auditor will assess control risk as high for all other controls.
• Materiality for each of the situations is $750,000.
For each situation in column A:
• In column B, select the deficiency type, if any.

• In column D, select the evaluation of deficiency, if any.
• In column E, select the communication requirement, if any, to those charged with governance.
• An option may be used once, more than once, or not at all.
A B C D E
Evaluation of Communication
1 Situation Deficiency type Potential misstatement
deficiency requirement
The controller reviews and
approves consolidating journal
entries during the month-end close.
However, the auditor determined
2 that the year-end December Operation $1,250,000 Material weakness In writing, no later
consolidating journal entries were than 60 days following
not properly reviewed. There areno the audit report
compensating controls to mitigate release date
the effects of this control deficiency.
The company does not have a
process for matching invoices with
purchase orders or receiving
3 documents prior to payment. There Design $725,000 Significant deficiency In writing, no later
are no other qualitative factors that than 60 days following
would affect the deficiency the audit report
evaluation. release date
49

There is no physical security for a
small portion of the company's
inventory, and a warehouse
employee stole $10,000 of the
unsecured inventory in year 1. The Design $50,000 Deficiency No formal
4
value of this inventory is communication
inconsequential to the company's necessary
inventory balance. There are no
other qualitative factors thatwould
affect the deficiency evaluation.
The payroll clerk created fictitious
employees in order to collect
unauthorized payroll checks. The
5 misappropriated funds were more Design $400,000 Significant deficiency In writing, no later
than inconsequential. There are no than 60 days following
other qualitative factors that would the audit report
affect the deficiency evaluation. release date
ColumnBPopup • Design
• Operation
• None
• Deficiency
ColumnDPopup • Material weakness
• Significant deficiency
• Not a deficiency
50

• In writing, by the audit report release date
• Oral or written, by the audit report release date
• In writing, no later than 60 days following the audit report release date
• Oral or written, no later than 60 days following the audit report release date
ColumnEPopup • In writing, no later than 60 days following the financial statement date
• Oral or written, no later than 60 days following the financial statement date
• In writing, no later than 90 days following the audit report release date
• Oral or written, no later than 90 days following the audit report release date
• No formal communication necessary
END OF CONTENT - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
51

There are no exhibits for this item.
52

CSO: 003.005.000
Skill: Evaluation
Representative task: Evaluate the significance of internal control deficiencies on the risk of
material misstatement of financial statements in an audit of an issuer or nonissuer.
53

Item: 500981
A CPA firm is engaged to audit the year 2 financial statements of Big Co. For each financial ratio below, select a reason why the
company's calculation of its financial ratio would differ from the industry standard. Consider each row independently.
A B C D
1
Financial ratio Industry standard Company's calculation Reason
2 Allowance for doubtful accounts is possibly

Accounts receivable turnover 12.34 10.53
understated for year 2.
3
Inventory turnover 5.50 7.49 Sales are potentially overstated for year 2.
4
Asset turnover 1.12 1.52 Sales are potentially overstated for year 2.
5
Return on assets 0.12 0.08 Expenses are overstated for year 2.
6 The warranty reserve is understated for

Profit margin 0.05 0.09
year 2.
7 The company has a poorer credit rating

Times interest earned 5.50 3.20
than its competitors.

• A global recession decreased the demand for the industry's products during year 2.
• Allowance for doubtful accounts is possibly overstated for year 2.
• Allowance for doubtful accounts is possibly understated for year 2.
ListD2
• Sales increased at a greater rate than the industry as a whole during year 2.
• The company's credit policies are more stringent than the industry's.
• Inventory obsolescence decreased during year 2.
• Sales are potentially overstated for year 2.
ListD3
• Sales are potentially understated for year 2.
• Sales decreased at a greater rate than the industry as a whole during year 2.
• Collection of accounts receivables slowed during year 2.
ListD4
• Sales are potentially understated for year 2.
• Sales decreased at a greater rate than the industry as a whole during year 2.
54

• Cost of goods sold is understated for year 2.
• Expenses are overstated for year 2.
• Fixed assets are understated for year 2.
ListD5
• There are unrecorded liabilities for year 2.
ListD6 • A global recession decreased the demand for the industry's products during year 2.
• Collections of accounts receivable slowed during year 2.
• The warranty reserve is overstated for year 2.

• The warranty reserve is understated for year 2.
• Bad debt expenses are understated for year 2.

• The company has a poorer credit rating than its competitors.
• The company has off balance sheet liabilities.
ListD7
• The company has significant below-market-rate loans.
• There are unrecorded liabilities for year 2.
END OF CONTENT - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
55

Exhibits included in this item 1. Analytics Definitions
56

Exhibit for Item: 500981
Exhibit 1: Analytics Definition
57

58

59

CSO: 003.003.001
Skill: Analysis
Representative task: Perform analytical procedures during engagement planning for an audit
or non-audit engagement.
60

Item: 502023
An auditor of a nonissuer is reporting on a single financial statement that is an incomplete presentation, but is
otherwise in accordance with U.S. GAAP. Which paragraph in the professional standards establishes what
information should be included in the required emphasis-of-matter paragraph in the auditor's report?
Enter your response in the answer fields below. Guidance on correctly structuring your response appears
above and below the answer fields.
END OF CONTENT - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
61

There are no exhibits for this item.
62

CSO: 004.005.005
Skill: Application
Note: There is no specific representative task associated with research prompts.
63

AICPA Newly Released MCQs

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AUDITING

2020 AICPA Newly

Registered to Daljeet Singh (#1410156)

For a copy of the AICPA’s most recent Blueprint, please visit

The Item ID is used by the AICPA

The Key indicates the correct

This line indicates the Blueprint version (20190101, or

This line indicates the Skill Level of

Registered to Daljeet Singh (#1410156)

Item ID: 24853

Registered to Daljeet Singh (#1410156)

A. Establish whether the preconditions for an audit are present.

Item ID: 74327

Registered to Daljeet Singh (#1410156)

A. On the report issuance date.

Item ID: 20443

Registered to Daljeet Singh (#1410156)

A. A client's accounting employee who audits the company's branches, subsidiaries, or

Item ID: 11269

Registered to Daljeet Singh (#1410156)

A. Segregation of duties between customer invoicing and inventory valuation.

D. Comparison of groups of items to sales reports and subsequent investigation of unusual

Item ID: 11047

Registered to Daljeet Singh (#1410156)

Item ID: 14453

Registered to Daljeet Singh (#1410156)

Item ID: 15783

Registered to Daljeet Singh (#1410156)

Item ID: 19171

Registered to Daljeet Singh (#1410156)

A. Examine workpapers of the internal auditor to verify evidence of supervision and

Item ID: 10849

Registered to Daljeet Singh (#1410156)

A. It uses the laws of probability to select a sample.

Item ID: 13857

Registered to Daljeet Singh (#1410156)

A. A client-prepared schedule showing accounting entries made to the general ledger

Item ID: 13537

Registered to Daljeet Singh (#1410156)

A. The client's personnel who trade the derivative instruments.

Item ID: 18813

Registered to Daljeet Singh (#1410156)

Item ID: 18333

Registered to Daljeet Singh (#1410156)

Item ID: 12909

Registered to Daljeet Singh (#1410156)

Item ID: 16017

Registered to Daljeet Singh (#1410156)

Item ID: 12495

Registered to Daljeet Singh (#1410156)

Item ID: 77972

Registered to Daljeet Singh (#1410156)

Item ID: 18869

Registered to Daljeet Singh (#1410156)

A. The entity's legal counsel.

Item ID: 19353

Registered to Daljeet Singh (#1410156)

Item ID: 91857

Registered to Daljeet Singh (#1410156)

A. The auditor is required to assess the risk of fraud.

Item ID: 20357

Registered to Daljeet Singh (#1410156)

Item ID: 24127