CPA-Test Certified Public Accountant Test: Auditing and Attestation, Business Environment and Concepts, Financial Accounting and Reporting, Regulation - Practice Questions

Question 4 (Auditing and Attestation)

Investment and property schedules are presented for purposes of additional analysis in an auditor submitted document. The schedules are not required parts of the basic financial statements, but accompany the basic financial statements. When reporting on such additional information, the measurement of materiality is the:

Select an option, then click Submit answer.

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Same as that used in forming an opinion on the basic financial statements taken as a whole.
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Lesser of the individual schedule of investments or schedule of property taken by itself.
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Greater of the individual schedule of investments or schedule of property taken by itself.
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Combined total of both the individual schedules of investments and property taken as a whole.

Question 5 (Regulation)

In 19X4, Smith, a divorced person, provided over one half the support for his widowed mother, Ruth, and his son, Clay, both of whom are U.S. citizens. During 19X4, Ruth did not live with Smith. She received $9,000 in Social Security benefits. Clay, a 25 year-old full-time graduate student, and his wife lived with Smith. Clay had no income but filed a joint return for 19X4, owing an additional $500 in taxes on his wife's income. How many exemptions was Smith entitled to claim on his 19X4 tax return?

Select an option, then click Submit answer.

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4
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3
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2
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1

Reference / correct answer:

2

Choice "c" is correct. Smith is entitled to an exemption for himself. He is also entitled to an exemption for his mother Ruth (qualifying relative). Ruth has $9,000 in Social Security payments during 19X4, but since that is her only income, the Social Security is not taxable, and nontaxable income does not count in calculating whether an exemption can be taken for a dependent. Clay cannot be taken as a dependent because he filed a joint return with his wife. Since the joint return was filed for a purpose other than simply claiming a refund, the joint return prevents Smith from claiming an exemption for Clay. An exemption cannot be taken for Clay's wife because she filed a joint return with Clay. Smith is entitled to two exemptions.

Choice "a" is incorrect. Clay cannot be taken as a dependent because he filed a joint return with his wife. Since the joint return was filed for a purpose other than simply claiming a refund, the joint return prevents Smith from claiming an exemption for Clay. An exemption cannot be taken for Clay's wife because she filed a joint return with Clay.

Choice "b" is incorrect. Clay cannot be taken as a dependent because he filed a joint return with his wife. Since the joint return was filed for a purpose other than simply claiming a refund, the joint return prevents Smith from claiming an exemption for Clay. An exemption cannot be taken for Clay's wife because she filed a joint return with Clay.

Choice "d" is incorrect. Smith is entitled to an exemption for his mother, Ruth. Ruth has $9,000 in Social Security payments during 19X4, but because that is her only income, the Social Security income is not taxable, and nontaxable income does not count in calculating whether an exemption can be taken for a dependent.

Question 6 (Auditing and Attestation)

Which of the following best describes a CPA's engagement to report on a nonissuer's internal control over financial reporting?

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An attestation engagement to examine and report on management's written assertions about the effectiveness of its internal control.
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An audit engagement to render an opinion on the entity's internal control.
A prospective engagement to project, for a period of time not to exceed one year, and report on the expected benefits of the entity's internal control.
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A consulting engagement to provide constructive advice to the entity on its internal control.

Reference / correct answer:

An attestation engagement to examine and report on management's written assertions about the effectiveness of its internal control.

Choice "a" is correct. An engagement to report on an entity's internal control is best described as an attestation engagement to examine and report on management's written assertions about the effectiveness of its internal control.

Choice "b" is incorrect. An audit involves expressing (or disclaiming) an opinion on historical financial statements. An engagement to report on internal control is an attestation engagement and not an audit.

Thus, the engagement is covered under the attestation standards rather than GAAS.

Choice "c" is incorrect. A prospective engagement is not appropriate for a report on internal control. In fact, the CPA's report includes an "inherent limitations" paragraph stating that projections of the internal control evaluation to the future are risky, since conditions or the degree of compliance may change.

Choice "d" is incorrect. In a consulting engagement, the practitioner develops findings, conclusions, and recommendations, but does not report on an assertion that is the responsibility of another party. When a CPA reports on an entity's internal control, he or she is in effect reporting on management's assertion.

CPA-Test – Certified Public Accountant Test: Auditing and Attestation, Business Environment and Concepts, Financial Accounting and Reporting, Regulation