auditing and attestation

750 Pages·2014·6.13 MB·English

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Wiley
CPAexcel
®

EXAM REVIEW
STUDY GUIDE
JANUARY 2015

2015

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O. Ray Whittington, CPA, PhD

AUDITING AND ATTESTATION

2015

Wiley
CPAexcel

®

EXAM REVIEW
STUDY GUIDE
JANUARY 2015

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Cover Design: John Wiley & Sons, Inc.
Cover image: © iStockphoto/turtleteeth

The following items, copyright © by the American Institute of Certified Public Accountants, Inc., are reprinted with permission:

1.
Material from Uniform CPA Examination Questions and Answers, 1978 through 2014.

2.
Information for Uniform CPA Examination Candidates, Board of Examiners, 2013.

Material from the Certified Internal Auditor Examination, Copyright © 1994 through 1997 by the Institute of Internal Auditors, Inc., are
reprinted and/or adapted with permission.

Material from the Certified Management Accountant Examinations, Copyright © 1993 through 1997 by the Institute of Certified
Management Accountants, are reprinted and/or adapted with permission.

Material adapted, with permission, from Writing for Accountants, Aletha Hendrickson, South-Western Publishing Co., 1993.

Copyright © 2015 by John Wiley & Sons, Inc. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.

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CONTENTS

Preface
vii

About the Author
ix

About the Contributor
ix

INTRODUCTION
1

Chapter 1: Beginning Your CPA Review Program
3

Chapter 2: Examination Grading
17

Chapter 3: Solutions Approach
19

Chapter 4: Taking the Examination
27

Chapter 5: Exam Content Overview
31

AUDITING AND ATTESTATION
39

Module 1:
Professional Responsibilities
41

Module 2:
Engagement Planning, Obtaining an Understanding of the
Client and Assessing Risks
99

Module 3:
Understanding Internal Control and Assessing Control Risk
161

Module 4:
Responding to Risk Assessment: Evidence Accumulation
and Evaluation
229

Module 5:
Reporting
315

Module 6:
Accounting and Review Services
413

Module 7:
Audit Sampling
453

Module 8:
Auditing with Technology
493

Module 41: Information Technology (Supplement)
511

APPENDICES
543

Appendix A: Outlines of Professional Standards
545

Appendix B: Auditing and Attestation Sample Examination
675

Appendix C: Sample Auditing and Attestation Testlet Released
by AICPA
703

Appendix D: 2014 Released AICPA Questions for Auditing
and Attestation
709

INDEX
725

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vii

PREFACE

DON’T FORGET TO

VISIT OUR WEBSITE

AT

WWW.WILEY.COM/CPA

FOR SUPPLEMENTS

AND UPDATES.

Passing the CPA exam upon your first attempt is possible! The
Wiley CPAexcel Exam Review 2015 Study Guide January: Auditing
and Attestation preparation materials provide you with the necessary
materials (visit our website at www.wiley.com/cpa for more informa-
tion). It’s up to you to add the hard work and commitment. Together
we can beat the pass rate on each section of about 50%. All Wiley
CPAexcel products are continuously updated to provide you with the
most comprehensive and complete knowledge base. Choose your
products from the Wiley preparation materials and you can proceed
confidently. You can select support materials that are exam-based
and user-friendly. You can select products that will help you pass!

Remaining current is one of the keys to examination
success. Here is a list of what’s new in this edition of the
Wiley CPAexcel Exam Review 2015 Study Guide January:
Auditing and Attestation text.

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The objective of this work is to provide you with the knowledge
to pass the Auditing and Attestation portion of the Uniform Certified
Public Accounting (CPA) Exam. The text is divided up into eight
areas of study called modules. Each module contains written text
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are presented to test your knowledge. We are indebted to the AICPA
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text does not present it.
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—Ray Whittington
November 2014

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ix

ABOUT THE AUTHOR

Ray Whittington, PhD, CPA, CMA, CIA, is the dean of the
Driehaus College of Business at DePaul University. Prior to joining
the faculty at DePaul, Professor Whittington was the Director of
Accountancy at San Diego State University. From 1989 through
1991, he was the Director of Auditing Research for the American
Institute of Certified Public Accountants (AICPA), and he previously
was on the audit staff of KPMG. He previously served as a member
of the Auditing Standards Board of the AICPA and as a member of
the Accounting and Review Services Committee and the Board of
Regents of the Institute of Internal Auditors. Professor Whittington
has published numerous textbooks, articles, monographs, and con-
tinuing education courses.

ABOUT THE CONTRIBUTOR

Kurt Pany, PhD, CPA, is a Professor of Accounting at Arizona
State University. His basic and advanced auditing courses provided
the basis on which he received the Arizona Society of CPAs’ Excel-
lence in Teaching Award and an Arizona CPA Foundation Award
for Innovation in the Classroom for the integration of computer
and professional ethics applications. His professional experience
includes serving for four years on the AICPA’s Auditing Standards
Board, serving as an academic fellow in the Auditing Division of the
AICPA, and, prior to entering academe, working as a staff auditor
for Deloitte and Touche.

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1

To maximize the efficiency of your review
program, begin by studying (not merely reading)
this chapter and the next three chapters of this
volume. They have been carefully organized
and written to provide you with important
information to assist you in successfully
completing the Auditing and Attestation
section of the CPA exam. Beyond providing a
comprehensive outline to help you organize the
material tested on the Auditing and Attestation
exam, Chapter 1 will assist you in organizing
a study program to prepare for the exam. Self-
discipline is essential.

Chapter 1: Beginning Your CPA Review
Program

Chapter 2: Examination Grading

Chapter 3: Solutions Approach

Chapter 4: Taking the Examination

Chapter 5: Exam Content Overview

3

17

19

27

31

INTRODUCTION

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Chapter 1: Beginning Your CPA Review Program

GENERAL COMMENTS ON THE EXAMINATION

The Uniform CPA Examination is delivered using computer-based testing (CBT). CBT has several advantages. You may
take the exam one section at a time. As a result, your studies can be focused on that one section, improving your chances
for success. In addition, the exam is no longer offered twice a year. In addition, you may take the exam on your schedule,
eight months of the year, six days a week, and in the morning or in the afternoon.
Successful completion of the Auditing and Attestation section is an attainable goal. Keep this point foremost in your
mind as you study the first four chapters in this volume and develop your study plan.

Purpose of the Examination1

The Uniform CPA Examination is designed to test the entry-level knowledge and skills necessary to protect the public
interest. An entry-level CPA is defined as one who has fulfilled the applicable jurisdiction’s educational requirements and
has the knowledge and skills typically possessed by a person with up to two years of experience. These knowledge and
skills were identified through a Practice Analysis performed in 2008, which served as a basis for the development of the
content specifications for the exam beginning in 2014.
The CPA examination is one of many screening devices to assure the competence of those licensed to perform the
attest function and to render professional accounting services. Other screening devices include educational requirements,
ethics examinations, and work experience.
The CPA examination appears to test the material covered in accounting programs of the better business schools. It also
appears to be based upon the body of knowledge essential for the practice of public accounting and the audit of a medium-
sized client. Since the examination is primarily a textbook or academic examination, you should plan on taking it as soon
as possible after completing your required education.

Examination Content

Guidance concerning topical content of the computer-based exam in Auditing and Attestation can be found in a document
prepared by the Board of Examiners of the AICPA entitled Content and Skill Specifications for the Uniform CPA Exam.
We have included the content outline for Auditing and Attestation at the beginning of Chapter 5. The outline should be
used as an indication of the topics’ relative emphasis on the exam.
The Board’s objective in preparing this detailed listing of topics tested on the exam is to help “in assuring the
continuing validity and reliability of the Uniform CPA Examination.” These outlines are an excellent source of guidance
concerning the areas and emphasis to be given each area on future exams.
The new Content and Skill Specification Outlines for the CPA examination, including the testing of International
Auditing Standards, went into effect January 1, 2014. In addition, the AICPA adopted CBT-e, which is a new computer
platform. The major change from your standpoint is that simulations are smaller in size and a larger number of these “task-
based simulations” are included on the Auditing and Attestation, Financial Accounting and Reporting, and Regulation
exams. In addition, all simulations that test writing skills have been moved to the Business Environment and Concepts
exam.
New accounting and auditing pronouncements, including those in the governmental and not-for-profit areas, are tested
in the testing window starting six months after the pronouncement’s effective date. If early application is permitted, a
pronouncement is tested six months after the issuance date; candidates are responsible for the old pronouncement also
until it is superseded. Federal laws are tested six months following their effective date. The AICPA posts content changes
regularly on its Internet site at www.cpa-exam.org.

1More information may be obtained from the AICPA’s Uniform CPA Examination Candidate Bulletin, which you can find on the
AICPA’s website at www.cpa-exam.org.

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