Question: ENPL2-0003 Question: ENPL2-0010

Early appointment of the independent auditor will enable In developing an overall audit strategy, an auditor should consider
Answers
Answers A: Whether the allowance for sampling risk exceeds the achieved
A: A more thorough examination to be performed. upper precision limit.
B: A proper consideration of internal control to be performed. B: Findings from substantive tests performed at interim dates.
C: Sufficient competent evidential matter to be obtained. C: Whether the inquiry of the client’s attorney identifies any
D: A more efficient audit to be planned. litigation, claims, or assessments not disclosed in the financial
statements.
Question: ENPL2-0004 D: Reporting objectives of the engagement.
When establishing an understanding with an audit client, that
understanding should be documented Question: ENPL2-0011
Answers Inherent risk and control risk differ from detection risk in that
A: Through use of an engagement letter. inherent risk and control risk are
B: Through a written communication with the client. Answers
C: Either orally or in writing witht the client. A: Elements of audit risk while detection risk is not.
D: In a manner completely based on the auditor's seasoned B: Changed at the auditor’s discretion while detection risk is not.
professional judgment. C: Considered at the individual account-balance level while
detection risk is not.
Question: ENPL2-0005 D: Functions of the client and its environment while detection
An understanding with the client must include the objectives of the risk is not.
engagement, management’s responsibilities, and
The auditor’s Limitations Question: ENPL2-0012
responsibilities of the audit As the acceptable level of detection risk decreases, the assurance
A. Yes Yes directly provided from
B. Yes No Answers
C. No Yes A: Substantive procedures should increase.
D. No No B: Substantive procedures should decrease.
C: Tests of controls should increase.
Answers D: Tests of controls should decrease.
A: A.
B: B. Question: ENPL2-0013
C: C. Holding all other factors constant, decreasing the extent of
D: D. substantive audit procedures for accounts payable ordinarily has
what effect on audit risk?
Question: ENPL2-0006 Answers
The primary responsibility for the adequacy of disclosure in the A: Increases.
financial statements of a publicly held company rests with the B: Decreases.
C: No effect.
Answers D: Indeterminate.
A: Partner assigned to the audit engagement.
B: Management of the company. Question: ENPL2-0014
C: Auditor in charge of the fieldwork. Which of the following audit risk components may be assessed in
D: Securities and Exchange Commission. nonquantitative terms?

Question: ENPL2-0007 Inherent Control Detection

Which of the following statements best describes the phrase risk risk risk
"generally accepted auditing standards" as it relates to an audit of a A. Yes Yes No
nonpublic company? B. Yes No Yes
C. No Yes Yes
Answers D. Yes Yes Yes
A: They identify the policies and procedures for the conduct of the
audit. Answers
B: They define the nature and extent of the auditor’s A: A.
responsibilities. B: B.
C: They provide guidance to the auditor with respect to planning C: C.
the audit and writing the audit report. D: D.
D: They set forth a measure of the quality of the performance
of audit procedures. Question: ENPL2-0015
Use the audit risk model to calculate audit risk (to the closest
Question: ENPL2-0008 percent) in the following circumstance:
Which of the following underlies the application of generally
accepted auditing standards, particularly the standards of fieldwork Control risk 40%
and reporting? Inherent risk 40%
Detection risk 40%
Answers
A: The elements of materiality and audit risk. Answers
B: The element of internal control. A: 1%.
C: The element of corroborating evidence. B: 6%.
D: The element of reasonable assurance. C: 13%.
D: 40%.
Question: ENPL2-0016
The risk that an auditor will conclude, based on substantive Answers
procedures, that a material misstatement does not exist in an A: The susceptibility of the accounting records to intentional
account balance when, in fact, such error does exist is referred to as manipulations, alterations, and the misapplication of accounting
Answers principles.
A: Sampling risk. B: The probability that unreasonable accounting estimates result
B: Detection risk. from unintentional bias or intentional attempts to misstate the
C: Nonsampling risk. financial statements.
D: Inherent risk. C: The possibility that management fraud, defalcations, and the
misappropriation of assets may indicate the existence of illegal acts.
Question: ENPL2-0017 D: The risk that mistakes, falsifications, and omissions may
As a lower acceptable level of materiality is established, the cause the financial statements to contain material
auditor should plan more work on individual accounts to misstatements.
Answers
A: Find smaller misstatements. Question: ENPL2-0023
B: Find larger misstatements. What assurance does the auditor provide that errors, fraud, and
C: Increase the tolerable misstatement in the accounts. direct effect illegal acts that are material to the financial statements
D: Decrease the risk of assessing control risk too low. will be detected?

Question: ENPL2-0018 Direct

Which of the following statements is not correct about materiality? Errors Fraud illega
Answers A. Limited Negative Limite
A: The concept of materiality recognizes that some matters are B. Limited Limited Reason
important for fair presentation of financial statements in C. Reasonable Limited Limite
conformity with GAAP, while other matters are not important. D. Reasonable Reasonable Reason
B: An auditor considers materiality for planning purposes in Answers
terms of the largest aggregate level of misstatements that could A: A.
be material to any one of the financial statements. B: B.
C: Materiality judgments are made in light of surrounding C: C.
circumstances and necessarily involve both quantitative and D: D.
qualitative judgments.
D: An auditor’s consideration of materiality is influenced by the Question: ENPL2-0024
auditor’s perception of the needs of a reasonable person who will The independent auditor's plan for an examination in accordance
rely on the financial statements. with generally accepted auditing standards is influenced by the
possibility of material misstatements. The auditor will therefore
Question: ENPL2-0019 conduct the examination with an attitude of
In considering materiality for planning purposes, an auditor Answers
believes that misstatements aggregating $10,000 would have a A: Professional skepticism.
material effect on an entity's income statement, but that B: Subjective mistrust.
misstatements would have to aggregate $20,000 to materially C: Objective indifference.
affect the balance sheet. Ordinarily, it would be appropriate to D: Professional responsiveness.
design auditing procedures that would be expected to detect
misstatements that aggregate Question: ENPL2-0025
Answers Which of the following statements best describes the auditor's
A: $10,000 responsibility regarding the detection of material errors and fraud?
B: $15,000
C: $20,000 Answers
D: $30,000 A: The auditor is responsible for the failure to detect material
errors and fraud only when such failure results from the
Question: ENPL2-0020 nonapplication of generally accepted accounting principles.
Following the Professional Standards which of the following is not B: Auditing procedures may or may not need to be extended if
one of the assertions made by management for account balances? the auditor’s analysis indicates the existence of fraud risk
Answers factors.
A: Completeness. C: The auditor is responsible for the failure to detect material
B: Existence. errors and fraud only when the auditor fails to confirm receivables
C: Valuation and allocation. or observe inventories.
D: Relevance and reliability. D: Extended auditing procedures are required to detect unrecorded
Answer Explanations transactions even if there is no evidence that material errors and
fraud may exist.
Question: ENPL2-0021
Which of the following, if material, would be fraud as defined in Question: ENPL2-0026
Statements on Auditing Standards? Which of the following is an example of fraudulent financial
reporting?
Answers Answers
A: Errors in the application of accounting principles. A: Company management improperly records as revenue the
B: Errors in the accounting data underlying the financial statements. proceeds of a loan.
C: Misinterpretation of facts that existed when the financial B: The treasurer diverts customer payments to his personal use,
statements were prepared. concealing his actions by debiting an expense account, thus
D: Misappropriation of assets. overstating expenses.
C: An employee steals inventory and the "shrinkage" is recorded in
Question: ENPL2-0022 cost of goods sold.
Which of the following factors is most important concerning an D: An employee bills his company for products not received, using
auditor's responsibility to detect errors and fraud? the name of a fictitious supplier.
Question: ENPL2-0027 Answers
Which of the following is correct concerning a "fraud risk factor?" A: A.
Answers B: B.
A: Its presence indicates that the risk of fraud is high. C: C.
B: It has been observed in circumstances where frauds have D: D.
occurred.
C: It requires modification of planned audit procedures. Question: ENPL2-0033
D: It is also a material weakness in internal control. An auditor gathers information necessary to identify risks of
material misstatement due to fraud by
Question: ENPL2-0028
Which of the following is correct concerning requirements about Inquiry of Considering
auditor communications about fraud? management fraud risk factors
A. Yes Yes
Answers B. Yes No
A: All fraud that causes a material misstatement of the C. No Yes
financial statements should be reported directly to the audit D. No No
committee.
B: Fraud that causes an immaterial misstatement of the financial Answers
statements need not be reported to the audit committee. A: A.
C: Fraud with a material effect on the financial statements should B: B.
be reported directly by the auditor to the Securities and Exchange C: C.
Commission. D: D.
D: The auditor has no responsibility to disclose fraud outside the
entity under any circumstances. Question: ENPL2-0034
Professional skepticism, when exercised during the consideration
Question: ENPL2-0029 of the risk of misstatement due to fraud
Which of the following is not required when considering fraud in a Answers
financial statement audit? A: Should only be exercised during the planning stage of the audit.
Answers B: Is based on the notion that the client is dishonest.
A: Conduct a continuing assessment of the risks of material C: Is an attitude that includes a questioning mind.
misstatment due to fraud throughout the audit. D: Ordinarily includes the use of an outside expert in most audits.
B: Conduct an audit team discussion of the risk of material
misstatment due to fraud. Question: ENPL2-0035
C: Conduct the audit with professional skepticism, which Which of the following is not a likely response when an auditor has
includes an attitude that assumes balances are incorrect until determined that a misstatement is, or may be, the result of fraud,
documented by the auditor. and has determined that the effect on the financial statements may
D: Inquire of the audit committee as to their views about the risks be material?
of fraud and their knowledge of any fraud or suspected fraud. Answers
A: Consider the implications for other aspects of the audit.
Question: ENPL2-0030 B: Discuss the matter and approach to further investigation with an
Which of the following need not be documented in relation to the appropriate level of management.
auditor's consideration of fraud? C: Attempt to obtain additional evidential matter to determine
Answers whether material fraud has occurred or is likely to have occurred.
A: Nature of communications about fraud made to management. D: Suggest that the client contact a local law enforcement
B: Procedures performed to obtain information to identify and authority to report the possible fraud.
assess risks of material misstatement due to fraud.
C: Specific risks of material misstatment due to fraud that were Question: ENPL2-0036
identified. In which of the following circumstances is it least likely that the
D: The assessed level of the risk of management override of auditor will have a responsibility to disclose a fraudulent act to
controls. parties other than the client's senior management and its audit
committee?
Question: ENPL2-0031 Answers
Which of the following is most likely to be an overall response to A: In response to a successor auditor.
fraud risks identified in an audit? B: To comply with legal and regulatory requirements.
Answers C: In response to question raised by an analyst who follows the
A: Supervise members of the audit team less closely and rely more stock of the company.
upon judgment. D: To a funding agency in accordance with requirement for audit
B: Increase consideration of management's selection and of entities that receive governmental financial assistance.
application of accounting principles.
C: Use only accountants with multiple years of experience on the Question: ENPL2-0037
engagement. Which of the following is a risk factor relating to the
D: Increase emphasis on the audit of transactions in all areas of the misappropriation of assets?
audit. Answers
A: Large amounts of cash on hand.
Question: ENPL2-0032 B: High turnover of legal counsel.
Individuals who commit fraud are ordinarily able to rationalize the C: Inability to generate positive cash flows from operations.
act and have D: Overly complex organizational structure involving numerous
legal entities.
Incentive Professional skepticism
A. Yes Yes Question: ENPL2-0038
B. Yes No Which of the following is not typically a characteristic of fraud?
C. No Yes Answers
D. No No A: Collusion.
B: Concealment.
C: Falsified documentation.
D: Unintentional.
Question: ENPL2-0039
Which of the following statements is correct concerning fraud risk
factors that an auditor considers when performing a financial
statement audit?
Answers
A: They can easily be ranked in order of importance.
B: They must be considered individually, and not in combination,
when conducting an audit.
C: They must be combined into models before they are effective in
identifying the existence of fraud.
D: Their existence in an audit does not necessarily indicate the
existence of fraud.
Question: ENPL2-0040
Which of the following factors most likely would heighten an
auditor's concern about the risk of fraudulent financial reporting?
Answers
A: Inability to generate cash flows from operations while
reporting substantial earnings growth.
B: Management's lack of interest in increasing the entity's stock
trend.
C: Large amounts of liquid assets that are easily convertible into
cash.
D: Inability to borrow necessary capital without granting debt
covenants.
Question: ENPL2-0041
When an auditor becomes aware of a possible client illegal act, the
auditor should obtain an understanding of the nature of the act to
Answers
A: Increase the assessed level of control risk.
B: Recommend remedial actions to the audit committee.
C: Evaluate the effect on the financial statements.
D: Determine the reliability of management’s representations.
Question: ENPL2-0042
Which of the following is not a procedure performed primarily for
the purpose of expressing an opinion on the financial statements,
but may bring possible illegal acts to the auditor's attention?
Answers
A: Obtain an understanding of internal control.
B: Review of policies concerning effectiveness of management
decision making policies.
C: Tests of transactions.
D: Tests of balances.
Question: ENPL2-0043
An auditor of a manufacturer would most likely question whether
that client has committed illegal acts if the client has
Answers
A: Been forced to discontinue operations in a foreign country.
B: Been an annual donor to a local political candidate.
C: Failed to correct material weaknesses in internal control that
were reported after the prior year’s audit.
D: Disclosed several subsequent events involving foreign
operations in the notes to the financial statements.
Question: ENPL2-0044
An auditor who finds that the client has committed an illegal act
would be most likely to withdraw from the engagement when the
Answers
A: Illegal act affects the auditor’s ability to rely on management
representations.
B: Illegal act has material financial statement implication.
C: Illegal act has received widespread publicity.
D: Auditor can not reasonably estimate the effect of the illegal act
on the financial statements.
Answer Explanations
A. Answer A is correct. The requirement is to determine the
circumstances under which an auditor's discovery of an illegal act
would be most likely to result in withdrawal from the engagement.
The auditor must consider the effects of illegal acts on his/her
ability to rely on management's representations and the possible
effects of continuing his/her association with the client.
B. Answer B is incorrect because a material illegal act need
not always result in resignation.
C. Answer C is incorrect because according to the
professional standards (AU 328), publicity is not directly related to
a decision to withdraw.
D. Answer D is incorrect because while an inability to
estimate the effect of an illegal act may lead to report modification,
it need not lead to withdrawal.
Hint
The FS are the representations of management. The auditor does
not want to be associated with a client that lacks integrity.
Question: ENPL2-0045
Hawkins requested permission to communicate with the
predecessor auditor and review certain portions of the predecessor
auditor's working papers. The prospective client's refusal to permit
this will bear directly on Hawkins' decision concerning the
Answers
A: Adequacy of the preplanned audit program.
B: Ability to establish consistency in application of accounting
principles between years.
C: Apparent scope limitation.
D: Integrity of management.
Question: ENPL2-0046
When a CPA is approached to perform an audit for the first time,
the CPA should make inquiries of the predecessor auditor. This is a
necessary procedure because the predecessor may be able to
provide the successor with information that will assist the
successor in determining
Answers
A: Whether the predecessor’s work should be utilized.
B: Whether the company follows the policy of rotating its auditors.
C: Whether in the predecessor’s opinion internal control of the
company has been satisfactory.
D: Whether the engagement should be accepted.
Question: ENPL2-0047
What is the responsibility of a successor auditor with respect to
communicating with the predecessor auditor in connection with a
prospective new audit client?
Answers
A: The successor auditor has no responsibility to contact the
predecessor auditor.
B: The successor auditor should obtain permission from the
prospective client to contact the predecessor auditor.
C: The successor auditor should contact the predecessor regardless
of whether the prospective client authorizes contact.
D: The successor auditor need not contact the predecessor if the
successor is aware of all available relevant facts.
Question: ENPL2-0048
Which of the following factors most likely would lead a CPA to
conclude that a potential audit engagement should be rejected?
Answers
A: The details of most recorded transactions are not available
after a specified period of time.
B: Internal control activities requiring the segregation of duties are
subject to management override.
C: It is unlikely that sufficient competent evidence is available to
support an opinion on the financial statements.
D: Management has a reputation for consulting with several
accounting firms about significant accounting issues.
Question: ENPL2-0049
An auditor who accepts an audit engagement and does not possess
the industry expertise of the business entity should
Answers
A: Engage financial experts familiar with the nature of the business
entity.
B: Obtain a knowledge of matters that relate to the nature of
the entity’s business.
C: Refer a substantial portion of the audit to another CPA who will
act as the principal auditor.
D: First inform management that an unqualified opinion cannot be
issued.
Question: ENPL2-0050
Which of the following procedures would an auditor most likely
include in the initial planning of a financial statement audit?
Answers
A: Obtaining a written representation letter from the client’s
management.
B: Examining documents to detect illegal acts having a material
effect on the financial statements.
C: Considering whether the client’s accounting estimates are
reasonable in the circumstances.
D: Determining the extent of involvement of the client’s
internal auditors.
Question: ENPL2-0051
The element of the audit planning process most likely to be agreed
upon with the client before implementation of the audit strategy is
the determination of the
Answers
A: Timing of inventory observation procedures to be
performed.
B: Evidence to be gathered to provide a sufficient basis for the
auditor’s opinion.
C: Procedures to be undertaken to discover litigation, claims, and
assessments.
D: Pending legal matters to be included in the inquiry of the
client’s attorney.
Question: ENPL2-0052
Which of the following procedures is least likely to be performed
as a part of obtaining an understanding during an audit engagement
of a new audit client previously audited by another CPA?
Answers
A: Communication with the predecessor auditor.
B: Performing analytical procedures.
C: Obtaining confirmation of cash balances.
D: Considering internal control.
D: Is not required to attempt communication with a successor
since this is the successor’s responsibility.
Question: ENPL2-0055
The audit work performed by each assistant should be reviewed to
determine whether it was adequately performed and to evaluate
whether the
Answers
A: Audit has been performed by persons having adequate technical
training and proficiency as auditors.
B: Auditor’s system of quality control has been maintained at a
high level.
C: Results are consistent with the conclusions to be presented
in the auditor’s report.
D: Audit procedures performed are approved in the professional
standards.
Question: ENPL2-0056
With respect to planning of a year-end audit, which of the
following statements is always true?
Answers
A: An engagement should not be accepted after the fiscal year-end.
B: An inventory count must be observed at the balance sheet date.
C: The client’s audit committee should not be told of the specific
audit procedures which will be performed.
D: It is an acceptable practice to carry out substantial parts of
the examination at interim dates.
Question: ENPL2-0057
Which of the following is least likely to be included in the
auditor’s risk assessment process to identify and assess the risks of
material misstatement?
Answers
A: Identify risks.
B: Relate risks to what can go wrong at the relevant assertion level.
C: Consider whether risks are of a magnitude that could result in a
misstatement that could be material.
D: Consider the likelihood that risks could result in
misstatements of an amount which is less than material.
Question: ENPL2-0058
Which of the following is most likely to be considered a “further
audit procedure?”
Answers
A: Communication with the predecessor auditor.
B: Preparation of an engagement letter.
C: Preparation of a flowchart of the sales function.
D: Performance of tests of controls.

Question: ENPL2-0053 Question: ENPL2-0059

If, during an audit, the successor auditor becomes aware of In which circumstance is the confirmation of receivables on
information that may indicate that financial statements reported on October 31 most likely for a client with a December 31 year-end?
by the predecessor auditor may require revision, the successor
auditor should Answers
Answers A: Tests of controls have revealed that the disbursements cycle is
A: Ask the client to arrange a meeting among the three parties operating effectively.
to discuss the information and attempt to resolve the matter. B: The receivables balance is material.
B: Notify the client and the predecessor auditor of the matter and C: Accounts were confirmed as of December 31 for the preceding
ask them to attempt to resolve it. year’s audit.
C: Notify the predecessor auditor who may be required to revise D: Appropriate audit tests indicate that control risk for
the previously issued financial statements and auditor’s report. receivables is low.
D: Ask the predecessor auditor to arrange a meeting with the client
to discuss and resolve the matter. Question: ENPL2-0060
A CPA is required to comply with the provisions of Statements on
Question: ENPL2-0054 Standards for Accounting and Review Services when
A predecessor auditor
Answers Processing financial Consulting o
A: Must attempt communication with a successor auditor prior to data for clients of accounting
accepting the engagement. other CPA firms matters
B: Must attempt communication with a successor auditor after the A. Yes Yes
engagement has been accepted. B. Yes No
C: Must attempt communication with a successor auditor prior to C. No Yes
acceptance of the engagement and may choose to attempt D. No No
communication after the engagement has been accepted.
 This answer is incorrect. Refer to the correct answer explanation.
Answers C. Answer C is correct. The requirement is to determine
A: A. what inspection, an element of quality control, should include.
B: B. Answer C is the most accurate because it provides for maintenance
C: C. of documentation of the various quality control policies and
D: D. procedures. Thus, it is all encompassing. Answers A, B, and D,
while desirable, relate to more specific areas and are thus less
Question: ENPL2-0061 complete than C.
Statements on Standards for Accounting and Review Services This answer is incorrect. Refer to the correct answer explanation.
establish standards and procedures for which of the following Hint
engagements? One answer is more complete than the others.
Answers
A: Assisting in adjusting the books of account for a partnership. Question: ENPL2-0067
B: Reviewing interim financial data required to be filed with the Which of the following is not an element of quality control for a
SEC. CPA firm?
C: Processing financial data for clients of other accounting firms.
D: Compiling an individual’s personal financial statement to be Answers
used to obtain a mortgage. A: Independence, integrity and objectivity.
B: Acceptance and continuance of clients and engagements.
Question: ENPL2-0062 C: Engagement supervision.
Blue Co., a privately held entity, asked its tax accountant, Cook, a D: Monitoring.
CPA in public practice, to reproduce Blue's internally prepared Answer Explanations
interim financial statements on Cook's microcomputer when Cook A. Answer A is incorrect. Independence, integrity, and
prepared Blue's quarterly tax return. Cook should not submit these objectivity are elements of quality control.
financial statements to Blue unless, as a minimum, Cook complies B. Answer B is incorrect. Acceptance and continuance of
with the provisions of clients and engagements is an element of quality control.
Answers C. Answer C is correct. Engagement supervision is not an
A: Statements on Responsibilities in Tax Practice. element of quality control. The five elements of quality control are
B: Statements on Standards for Accounting and Review (1) independence, integrity, and objectivity, (2) personnel
Services. management, (3) acceptance and continuance of clients and
C: Statements on Responsibilities in Unaudited Financial Services. engagements, (4) engagement performance, and (5) monitoring.
D: Statements on Standards for Attestation Engagements. D. Answer D is incorrect because Statements on Quality
Control Standards provide guidance for CPA firms in meeting their
Question: ENPL2-0063 responsibility to provide professional services that conform with
A CPA should not submit unaudited financial statements of a professional standards.
nonpublic company to a client or others unless, as a minimum, the Hint
CPA complies with the provisions applicable to Recall the quality control standards.
Answers
A: Compilation engagements. Question: ENPL2-0068
B: Review engagements. As guidance for measuring the quality of the performance of an
C: Statements on auditing standards. auditor, the auditor should refer to
D: Attestation standards.
Answers
Question: ENPL2-0064 A: Statements of the Financial Accounting Standards Board.
An accountant who is not independent of a client is precluded from B: Generally accepted auditing standards.
issuing a C: Interpretations of the Statements on Auditing Standards.
Answers D: Statements on Quality Control Standards.
A: Compilation report on historical financial statements. Answer Explanations
B: Compilation report on prospective financial statements. A. Answer A is incorrect because Statements of the
C: Special report on compliance with contractual agreements. Financial Accounting Standards Board deal with GAAP which are
D: Report on consulting services. used to prepare financial statements, but do not address the
auditor's examination of the statements.
Question: ENPL2-0065 B. Answer B is correct because auditors are responsible for
Which of the following replies does not include a portion of the compliance with generally accepted auditing standards and
"Special Committee on Assurance Services" definition of comparison of their performance against these standards is
assurance services? appropriate.
Answers C. Answer C is incorrect because while Interpretations of
A: A consulting service. the Statements on Auditing Standards provide timely guidance on
B: Improve the quality of information. the application of certain pronouncements of the Auditing
C: Improve the context of information. Standards Board, their coverage is less complete than the standards.
D: For decision makers. D. Answer D is incorrect because Statements on Quality
Control Standards provide guidance for CPA firms in meeting their
Question: ENPL2-0066 responsibility to provide professional services that conform with
In connection with the element of inspection, a CPA firm's system professional standards.
of quality control should ordinarily provide for the maintenance of Hint
Answers Which standards govern the work of an auditor?
A: A file of minutes of staff meetings.
B: Updated personnel files. Question: ENPL2-0069
C: Documentation to demonstrate compliance with its policies and A basic objective of a CPA firm is to provide professional services
procedures. to conform with professional standards. Reasonable assurance of
D: Documentation to demonstrate compliance with peer review achieving this basic objective is provided through
directives.
Answer Explanations Answers
This answer is incorrect. Refer to the correct answer explanation. A: Continuing professional education.
B: A system of quality control.
C: Compliance with generally accepted reporting standards.
D: A system of peer review.
Answer Explanations
A. Answer A is incorrect because a system of quality
control is necessary to provide the CPA firm with reasonable
assurance that it is conforming to professional standards.
Continuing professional education is only a part of a firm's system
of quality control.
B. Answer B is correct because a system of quality control
is necessary to provide a CPA firm with reasonable assurance that
it is conforming to generally accepted auditing standards.
C. Answer C is incorrect because it relates only to reporting
standards.
D. Answer D is incorrect because a system of quality
control is necessary to provide the CPA firm with reasonable
assurance that it is conforming to professional standards. A system
of peer review is only a part of a firm's system of quality control.
Hint
Which of the answer choices has the broadest focus?
Question: ENPL2-0070
Which of the following types of services is most directly designed
to improve the quality of information, or its context, for decision
makers?
Answers
A: Assurance services
B: Attestation services
C: Audit services
D: Consulting services
Answer Explanations
A. Answer A is correct because the Special Committee on
Assurance Services (the Elliott Committee), defined assurance
services as independent professional services that improve quality
of information, or its context, for decision makers.
B. Answer B is incorrect because attestation services are
defined as written conclusions about the reliability of the written
assertions of another party.
C. Answer C is incorrect because audit services are defined
as examinations of financial statements that result in an opinion of
those financial statements.
D. Answer D is incorrect because consulting services are
defined as recommendations based on the objectives of the
engagement.
Hint
Recall the Elliott Committee.
Question: ENPL2-0071
In performing an attestation engagement, a CPA typically
Answers
A: Supplies litigation support services.
B: Assesses control risk at a low level.
C: Expresses a conclusion about the assertion on the subject matter.
D: Provides management consulting advice.
Answer Explanations
A. Answer A is incorrect because most litigation support
services are not attest engagements.
B. Answer B is incorrect because control risk need not
generally be assessed at a low level on attestation engagements;
also, control may not be of major importance on some attest
engagements.
C. Answer C is correct because, when performing an attest
engagement, a CPA expresses a conclusion about the assertion on
the subject matter.
D. Answer D is incorrect because most management
consulting engagements are not attestation engagements.
Hint
Recall the definition of an attestation engagement.
Question: ENPL2-0072
Which of the following professional services would be considered
an attest engagement?
Answers
A: A management consulting engagement to provide computerized
advice to a client.
B: An engagement to report on compliance with statutory
requirements.
C: An income tax engagement to prepare federal and state tax
returns.
D: The compilation of financial statements from a client’s
accounting records.
Answer Explanations
A. Answer A is incorrect because management consulting
engagements are not considered attest engagements.
B. Answer B is correct because a report on compliance with
statutory requirements might be structured as an attest engagement
in which the required "written assertion" relates to such compliance.
C. Answer C is incorrect because tax returns preparations
are not considered attest engagements.
D. Answer D is incorrect because compilations are
considered nonattest engagements.
Hint
An attest engagement requires a written assertion.
Question: ENPL2-0073
The technical standards that apply to consulting services
engagements require the practitioner to do all of the following
except
Answers
A: Maintain independence from the client.
B: Give support for and clearly identify as estimates any
quantifiable results that are based on estimates.
C: Obtain an understanding concerning the nature, scope, and
limitations of the consulting advisory services engagement to be
performed.
D: Take no position which might impair the practitioner’s
objectivity.
Answer Explanations
A. Answer A is correct because independence is not
required.
B. Answer B is incorrect because estimates are to be
supported and clearly identified.
C. Answer C is incorrect because an understanding of the
nature of the engagement must be obtained.
D. Answer D is incorrect because an accountant is to
maintain objectivity.
Hint
This differs from audit engagements.
Question: ENPL2-0074
A CPA firm's personnel partner periodically studies the CPA firm's
personnel advancement experience to ascertain whether individuals
increased degrees of responsibility. This is evidence of the CPA
firm's adherence to prescribed standards of
Answers
A: Quality control.
B: Due professional care.
C: Supervision and review.
D: Fieldwork.
Answer Explanations
A. Answer A is correct because the seventh quality control
standard requires that a firm establish policies and procedures
pertaining to personnel advancement.
B. Answer B is incorrect because due professional care, the
third general standard, pertains to the performance of the
examination and the preparation of the report.
C. Answer C is incorrect because proper supervision and
review pertains to the first standard of fieldwork which also
focuses on the performance of audits.
D. Answer D is incorrect because the three fieldwork
standards pertain to planning and supervision (AU 310), the
auditor's study and evaluation of internal control (AU 319), and the
collection of evidential matter (AU 326).
Hint Within the context of quality control, a primary purpose of
There is a standard which requires established policies and personnel management activities is to enable a CPA firm to
procedures pertaining to personnel advancement. provide personnel within the firm with
Answers
Question: ENPL2-0075 A: Technical training that assures proficiency as an auditor.
The objective of quality control mandates that a public accounting B: Professional education that is required in order to perform with
firm should establish policies and procedures for professional due professional care.
development which provide reasonable assurance that all entry- C: Knowledge required to fulfill assigned responsibilities for
level personnel consulting engagements.
D: Knowledge required in order to perform a peer review.
Answers
A: Prepare working papers which are standardized in form and Question: ENPL2-0078
content. A CPA in public practice must be independent in fact and
B: Have the knowledge required to enable them to fulfill appearance when providing which of the following services?
responsibilities assigned.
C: Will advance within the organization. Compila
D: Develop specialties in specific areas of public accounting. Preparation Compilation of of perso
Answer Explanations of a a financial financ
A. Answer A is incorrect because preparing working papers tax return forecast stateme
which are standardized in form and content is an objective which is A. Yes No No
more specific than those that are contemplated in the elements of B. No Yes Yes
quality control. C. No No Yes
B. Answer B is correct because one of the quality control D. No No No
considerations for a firm of independent auditors is that the policies
and procedures for professional development should be established
to provide reasonable assurance that personnel have the knowledge Answers
required to enable them to fulfill responsibilities assigned. A: A.
C. Answer C is incorrect because it is an objective which is B: B.
more specific than those that are contemplated in the elements of C: C.
quality control. D: D.
D. Answer D is incorrect because it is an objective which is
more specific than those that are contemplated in the elements of Question: ENPL2-0079
quality control. The first general standard requires that the examination of financial
Hint statements is to be performed by a person or persons having
Which of the answer choices would most directly affect the quality adequate technical training and
of the auditor's work? Answers
A: Independence with respect to the financial statements and
Question: ENPL2-0076 supplementary disclosures.
A CPA establishes quality control policies and procedures for B: Exercising professional care as judged by peer reviewers.
deciding whether to accept a new client or continue to perform C: Proficiency as an auditor which likely has been acquired
services for a current client. The primary purpose for establishing from previous experience.
such policies and procedures is D: Objectivity as an auditor as verified by proper supervision.

Answers Question: ENPL2-0080

A: To enable the auditor to attest to the integrity or reliability of a
client.
B: To comply with the quality control standards established by
regulatory bodies.
C: To minimize the likelihood of association with clients whose
management lacks integrity.
D: To lessen the exposure to litigation resulting from failure to
detect irregularities in client financial statements.
Answer Explanations
A. Answer A is incorrect because auditors attest to the
fairness of financial statements, not the integrity or reliability of a
client.
B. Answer B is incorrect because while quality control
policies for acceptance of new clients are required by quality
control standards, the primary purpose is to avoid clients whose
management lacks integrity.
C. Answer C is correct because policies and procedures
should be established for deciding whether to accept or continue a
client in order to minimize the likelihood of association with
clients whose management lacks integrity.
D. Answer D is incorrect because the primary and
immediate purpose of quality control policies over accepting new
clients is to avoid clients who lack integrity, which may indirectly
lessen exposure to litigation.
Hint
Auditors must rely on the representations of client management.
Question: ENPL2-0077
Rogers & Co., CPAs, policies require that all members of the audit
staff submit weekly time reports to the audit manager, who then
prepares a weekly summary work report regarding variance from
budget for Rogers' review. This provides written evidence of
Rogers & Co.'s professional concern regarding compliance with
which of the following generally accepted auditing standards?
Answers
A: Quality control.
B: Due professional care.
C: Adequate review.
D: Adequate planning.
Question: ENPL2-0081
The third general standard states that due care is to be exercised in
the performance of the examination. This standard means that a
CPA who undertakes an engagement assumes a duty to perform
each audit
Answers
A: As a professional possessing the degree of skill commonly
possessed by others in the field.
B: In conformity with generally accepted accounting principles.
C: With reasonable diligence and without fault or error.
D: To the satisfaction of governmental agencies and investors who
rely upon the audit.
Question: ENPL2-0082
The exercise of due professional care requires that an auditor
Answers
A: Examine all available corroborating evidence.
B: Critically review the judgment exercised at every level of
supervision.
C: Reduce control risk below the maximum.
D: Attain the proper balance of professional experience and formal
education.
Question: ENPL2-0083
When an accountant is not independent, the accountant is
precluded from issuing a
Answers
A: Compilation report.
B: Review report.
C: Management advisory report.
D: Tax planning report.
Question: ENPL2-0084
If requested to perform a review engagement for a nonpublic entity
in which an accountant has an immaterial direct financial interest,
the accountant is
Answers
A: Independent because the financial interest is immaterial and,
therefore, may issue a review report.
B: Not independent and, therefore, may not be associated with the
financial statements.
C: Not independent and, therefore, may not issue a review
report.
D: Not independent and, therefore, may issue a review report, but
may not issue an auditor’s opinion.
Question: ENPL2-0085
The concept of materiality would be least important to an auditor
when considering the
Answers
A: Effects of a direct financial interest in the client upon the
CPA’s independence.
B: Decision whether to use positive or negative confirmations of
accounts receivable.
C: Adequacy of disclosure of a client’s illegal act.
D: Discovery of weaknesses in a client’s internal control structure.
Question: ENPL2-0086
Which of the following is correct concerning PCAOB guidance
that uses the term “must”?
Answers
A: The auditor must fulfill the responsibilities.
B: The auditor must comply with requirements unless s/he
demonstrates that alternative actions were sufficient to achieve the
objectives of the standards.
C: The auditor should consider the guidance; whether the auditor
follows depends on exercise of professional judgment in the
circumstances.
D: The auditor has complete discretion as to whether to perform
the procedure.
Answer Explanations
A. Answer A is correct because terms such as “must,” “shall,”
and “is required to” are used to indicate that the auditor must
fulfill the responsibilities.
B. Answer B is incorrect because the term “should” means that
the auditor must comply with the requirements unless he or
she can demonstrate that alternative actions were sufficient to
achieve the objectives of the standards.
C. Answer C is incorrect because terms such as “may,” “might”
and “could” are used when the auditor should consider
performing the audit procedure.
D. Answer D is incorrect because no particular terms are used for
the situation in which the auditor has complete discretion
whether to perform the procedure.
Hint
No trick here.
Question: ENPL2-0087
An integrated audit under the Sarbanes-Oxley Act of 2002 and
PCAOB standards includes
Answers
A: An audit of the financial statements and a review of internal
control over financial reporting.
B: An audit of the financial statements and an audit of compliance
with the Sarbanes-Oxley Act and PCAOB standards.
C: An audit of the financial statements and an audit of controls
over compliance with the Sarbanes-Oxley Act.
D: An audit of the financial statements and an audit of internal
control over financial reporting.
Answer Explanations
A. Answer A is incorrect because the law calls for an audit of the
financial statements and an audit of internal control over
financial reporting.
B. Answer B is incorrect because the law calls for an audit of the
financial statements and an audit of internal control over
financial reporting.
C. Answer C is incorrect because the law calls for an audit of the
financial statements and an audit of internal control over
financial reporting.
D. Answer D is correct because the law calls for an audit of the
financial statements and an audit of internal control over
financial reporting.
Hint
Sarbanes-Oxley deals with the reliability of financial reporting.
Question: ENPL2-0088
Which of the following statements is correct concerning an
auditor’s responsibility to report fraud?
Answers
A: The auditor is required to communicate to the client's audit
committee all minor fraudulent acts perpetrated by low-level
employees, even if the amounts involved are inconsequential.
B: The disclosure of material management fraud to principal
stockholders is required when both senior management and the
board of directors fail to acknowledge the fraudulent activities.
C: Fraudulent activities involving senior management of which the
auditor becomes aware should be reported directly to the SEC.
D: The disclosure of fraudulent activities to parties other than
the client's senior management and its audit committee is not
ordinarily part of the auditor's responsibility.
Question: ENPL2-0089
Which of the following procedures would least likely result in the
discovery of possible illegal acts?
Answers
A: Reading the minutes of the board of directors' meetings.
B: Making inquiries of the client's management.
C: Performing tests of details of transactions.
D: Reviewing an internal control questionnaire.
Question: ENPL2-0090
Which of the following circumstances most likely would cause an
auditor to suspect that there are material misstatements in an
entity’s financial statements?
Answers
A: Senior financial management participates in the selection of
accounting principles and the determination of significant
estimates.
B: Supporting accounting records and files that should be
readily available are not produced promptly when requested.
C: Related-party transactions take place in the ordinary course of
business with an entity that is audited by another CPA firm.
D: Senior management has an excessive interest in upgrading the
entity's information technology capabilities.
Question: ENPL2-0091
The primary purpose of establishing quality control policies and
procedures for deciding whether to accept new clients is to
Answers
A: Minimize the likelihood of association with clients whose
management lacks integrity.
B: Monitor significant deficiencies in the design and operation of
the client's internal control.
C: Identify noncompliance with aspects of contractual agreements
that affect the financial statements.
D: Provide reasonable assurance that personnel will be adequately
trained to fulfill their assigned responsibilities.
Question: ENPL2-0092
An auditor’s engagement letter most likely would include a
statement regarding
Answers
A: Management's responsibility to provide certain written
representations to the auditor.
B: Conditions under which the auditor may modify the preliminary
judgment abut materiality.
C: Internal control activities that would reduce the auditor's
assessment of control risk.
D: Materiality matters that could modify the auditor's preliminary
assessment of fraud risk.
Question: ENPL2-0093
A successor auditor should make specific and reasonable inquiries
of the predecessor auditor regarding the predecessor’s
Answers
A: Understanding of the reasons for the change in auditors.
B: Methodology used in applying sampling techniques.
C: Opinion on subsequent events that have occurred since the
balance sheet date.
D: Perception of the competency and reliance on the client's
internal audit function.
Question: ENPL2-0094
Which of the following activities would most likely be considered
an attestation engagement?
Answers
A: Consulting with management representatives of a firm to
provide advice.
B: Issuing a report about a firm's compliance with laws and
regulations.
C: Advocating a client's position on tax matters that are being
reviewed by the IRS.
D: Preparing a client's tax returns
Question: ENPL2-0095
An auditor reviews a client’s accounting policies and procedures
when considering which of the following planning matters?
Answers
A: Method of sampling to be used.
B: Preliminary judgments about materiality levels.
C: Nature of reports to be rendered.
D: Understanding of the client's operations and business.
Question: ENPL2-0096
An auditor confirmed accounts receivable as of an interim date,
and all confirmations were returned and appeared reasonable.
Which of the following additional procedures most likely should
be performed at year-end?
Answers
A: Send confirmations for all new customer balances incurred from
the interim date to year-end.
B: Resend confirmations for any significant customer balances
remaining at year-end.
C: Review supporting documents for new large balances
occurring after the interim date, and evaluate any significant
changes in balances at year-end.
D: Review cash collections subsequent to the interim date and the
year-end.
Question: ENPL2-0097
A successor auditor is required to attempt communication with the
predecessor auditor prior to
Answers
A: Performing test of controls.
B: Testing beginning balances for the current year.
C: Making a proposal for the audit engagement.
D: Accepting the engagement.
Question: ENPL2-0098
Which of the following factors most likely would lead a CPA to
conclude that a potential audit engagement should not be accepted?
Answers
A: There are significant related-party transactions that management
claims occurred in the ordinary course of business.
B: Internal control activities requiring the segregation of duties are
subject to management override.
C: Management continues to employ an inefficient system of
information technology to record financial transactions.
D: It is unlikely that sufficient appropriate evidence is available
to support an opinion on the financial statements.
Question: ENPL2-0099
Prior to commencing fieldwork, an auditor usually discusses the
general audit strategy with the client’s management. Which of the
following details do management and the auditor usually agree
upon at this time?
Answers
A: The specific matters to be included in the communication with
the audit committee.
B: The minimum amount of misstatements that may be considered
to be significant deficiencies.
C: The schedules and analyses that the client's staff should
prepare.
D: The effects that inadequate controls may have over the
safeguarding of assets.
Question: ENPL2-0100
An auditor is required to establish an understanding with a client
regarding the services to be performed for each engagement. This
understanding generally includes
Answers
A: The auditor's responsibility for determining the preliminary
judgments about materiality and audit risk factors.
B: Management's responsibility for identifying mitigating factors
when the auditor has doubt about the entity's ability to continue as
a going concern.
C: The auditor's responsibility for ensuring that the audit
committee is aware of any significant deficiencies that come to
the auditor's attention.
D: Management's responsibility for providing the auditor with an
assessment of the risk of material misstatement due to fraud.
Question: ENPL2-0101
Which of the following circumstances would an auditor most likely
consider a risk factor relating to misstatements arising from
fraudulent financial reporting?
Answers
A: Several members of management have recently purchased
additional shares of the entity's stock.
B: Several members of the board of directors have recently sold
shares of the entity's stock.
C: The entity distributes financial forecasts to financial analysts
that predict conservative operating results.
D: Management is interested in maintaining the entity's
earnings trend by using aggressive accounting practices.
Question: ENPL2-0102
Management’s emphasis on meeting projected profit goals most
likely would significantly influence an entity’s control
environment when
Answers
A: Internal auditors have direct access to the entity's board of
directors.
B: A significant portion of management compensation is
represented by stock options.
C: External policies established by parties outside the entity affect
accounting policies.
D: The audit committee is active in overseeing the entity's financial
reporting policies.