AA by CPA Valid Free Exam Practice Test

Question 1

Hiltson Hotels is a global group of hotels. The parent company, Hiltson Holdings plc employs an internal audit function which carries out audits and investigations on the individual hotels in the group.
Which of the following could the internal audit function carry out and still operate effectively?

A. Secondment to the finance department of the Edinburgh Hiltson B. Identification of risks at the proposed Nairobi Hiltson, which is due to open in nine months' time C. Secondment to the accounts department of the Singapore Hiltson to cover the maternity leave of the financial controller D. Special investigation into the profits of the New York Hiltson where the group directors suspect a fraud may have been carried out

Correct Answer: D

Question 2

The auditor shall maintain an attitude of professional scepticism throughout the audit, recognising the possibility that a material misstatement due to fraud could exist, notwithstanding the auditor's past experience of the honesty and integrity of management and those charged with governance.
Which of the following best describes professional scepticism?

A. The auditor should apply a questioning mind to the information and evidence he obtains. B. The auditor should always assume the worst outcome in cases of uncertainty. C. The auditor should not believe anything that management tells him, without obtaining supporting evidence. D. The auditor should not believe anything that management tells him.

Correct Answer: A

Question 3

One category of fraud is fraudulent statements. This is usually in the form of falsication of nancial statements in order to obtain some form of improper benet. It also includes
falsifying documents such as employee credentials.
Which one of the following is correct about risk assessment procedures related to fraud by the external auditor?

A. The auditor shall make inquiries of top management only as appropriate, to determine whether they have knowledge of any actual, suspected or alleged fraud affecting the entity. B. The auditor shall not evaluate any unusual or unexpected relationships that have been identified in performing analytical procedures which may indicate risks of material misstatement due to fraud. C. The auditor has no duty to identify fraud in the organisation, hence no inquiries are required. D. The auditor shall make inquiries of management, and others within the entity as appropriate, to determine whether they have knowledge of any actual, suspected or alleged fraud affecting the entity.

Correct Answer: D

Question 4

Jones & Co is the external auditor of Blue plc, a listed company. The directors of Blue plc have requested that Jones & Co carry out a review engagement assessing the effectiveness of its corporate governance policies against the UK Corporate Governance Code.
For the above review engagement, select which part of the engagement description constitutes the subject matter?

A. Blue plc's corporate governance policies B. The UK Corporate Governance Code C. The directors of Blue plc D. Jones & Co

Correct Answer: A

Question 5

Panama and Co has been asked to take on the role of internal auditor at one of its clients and would be responsible for implementing its own recommendations.
Which of the following will NOT be considered by external auditors in their assessment of whether to use the work of internal audit?

A. The fact that the fee will fall if much use can be made of internal audit work B. The technical training of the staff of the audit department of Panama and Co C. To whom the internal audit department of Panama and Co reports D. Whether internal audit work is properly documented

Correct Answer: A

Question 6

Norman & Co is the external auditor of Diamond plc, a listed company. The directors of Diamond plc have requested that Norman & Co carry out a review engagement assessing the effectiveness of its corporate governance policies against the UK Corporate Governance Code.
Which of the following understanding is LEAST necessary for Norman & Co to understand Diamond plc and its environment?

A. Diamond plc's selection and application of accounting policies B. Diamond plc's marketing plan for next one year C. Relevant industry, regulatory, and other external factors related with Diamond plc D. The nature of Diamond plc, including its operations, ownership, governance structures and the types of investments

Correct Answer: B

Question 7

ISA 570 states that when preparing accounts, management should make an explicit assessment of the entity's ability to continue as a going concern. Most accounting frameworks require management to do so.
When management are making the assessment, the following factors should be considered except

A. Lack of staff to ensure segregation of duties. B. Judgements are made on the basis of the information available at the time. C. The degree of uncertainty about the events or conditions being assessed increases significantly the further into the future the assessment is made. D. The auditor shall inquire of management as to its knowledge of events or conditions and related business risks beyond the period of assessment used by management that may cast significant doubt on the entity's ability to continue as a going concern.

Correct Answer: D

Question 8

Acer Ltd is a client of your firm and is seeking funding in order to expand the business. The directors have prepared profit and cash flow forecasts for the next three years ending 30 June 2016 in support of the request for funding. The company's bankers require this information to be reviewed by independent accountants and the board of directors has requested that your firm undertakes this review.
The following is an extract from an independent accountant's unmodified report on the profit and cash flow forecasts:
'Based on our examination of the evidence supporting the assumptions, nothing has come to our attention which causes us to believe that these assumptions do not provide a reasonable basis for the forecast.'
Which of the following BEST describes the type of assurance provided by this statement?

A. High level of assurance expressed negatively B. Positive assurance expressed negatively C. Negative assurance expressed positively D. Limited level of assurance expressed negatively

Correct Answer: D

CPA Audit & Insurance - AA Exam Practice Test