Table Of Content

CONTENTS Half Title page Title page Copyright page Preface About the Authors About the Contributor Introduction Chapter 1: Beginning Your CPA Review Program General Comments on the Examination Attributes of Examination Success Purpose and Organization of this Review Textbook Self-Study Program Planning for the Examination Chapter 2: Examination Grading Chapter 3: The Solutions Approach Chapter 4: Taking the Examination Examination Strategies CPA Exam Checklist Chapter 5: Exam Content Overview AICPA Content and Skills Specifications Researching AICPA Professional Standards Overview of the Attest Function Professional Standards Appendix Auditing and Attestation Module 1: Professional Responsibilities A. AICPA Requirements B. The Sarbanes–Oxley Act of 2002 C. Public Company Accounting Oversight Board D. International Standards—Ethical E. International Standards—Auditing/Assurance F. Other Key Terms Multiple-Choice Questions (1-47) Multiple-Choice Answers Simulations Simulation Solutions Module 2: Engagement Planning, Obtaining an Understanding of the Client and Assessing Risks A. Basic Concepts B. Audit Planning C. Obtain an Understanding of the Entity and Its Environment D. Assess the Risks of Material Misstatement and Design Further Audit Procedures E. Quality Control Key Terms Multiple-Choice Questions (1-113) Multiple-Choice Answers Simulations Simulation Solutions Module 3: Understanding Internal Control and Assessing Control Risk A. The Nature of Internal Control B. The Auditor’s Consideration of Internal Control C. Audits (Examinations) of Internal Control D. Accounting Cycles E. Other Considerations Key Terms Multiple-Choice Questions (1-166) Multiple-Choice Answers Simulations Simulation Solutions Module 4: Responding to Risk Assessment: Evidence Accumulation and Evaluation A. Evidence—General B. Evidence—Specific (Substantive Procedures) C. Other Specific Audit Evidence Topics D. Completing the Audit E. Other Related Topics Key Terms Multiple-Choice Questions (1-169) Multiple-Choice Answers Simulations Simulation Solutions Module 5: Reporting A. Financial Statement Audit Reports—General B. Financial Statement Audit Reports—Detailed C. Accountant Association other than Audits D. Reporting on Compliance Key Terms Multiple-Choice Questions (1-164) Multiple-Choice Answers Simulations Simulation Solutions Module 6: Accounting and Review Services Financial Statement Compilations A. Nature of Compilations B. Planning Compilations C. Compilation Procedures D. Overall Compilation Reporting Issues Financial Statement Reviews A. Nature of Reviews B. Planning Reviews C. Review Procedures D. Overall Review Reporting Issues Statements On Standards for Accounting and Review Services Key Terms Multiple-Choice Questions (1-49) Multiple-Choice Answers Simulations Simulation Solutions Module 7: Audit Sampling A. Basic Audit Sampling Concepts B. Sampling in Tests of Controls C. Sampling in Substantive Tests of Details Key Terms Multiple-Choice Questions (1-58) Multiple-Choice Answers Simulations Simulation Solutions Module 8: Auditing with Technology A. The Auditor’s Consideration of Internal Control When a Computer Is Present B. Computerized Audit Tools Key Terms Multiple-Choice Questions (1-32) Multiple-Choice Answers Simulations Simulation Solutions Outlines of Professional Standards Statements on Standards for Attestation Engagements Statements on Auditing Standards Appendix 1: Examples of Fraud Risk Factors Appendix 2: Programs and Controls Related to Fraud Standards of the Public Company Accounting Oversight Board Government Auditing Standards Information Technology Supplement A. Information Systems within a Business B. Characteristics of IT Systems—General C. Characteristics of IT Systems—Specific D. Control Objectives for Information and Related Technology (COBIT) E. Effect of IT on Internal Control F. Flowcharting Key Terms Appendices Appendix A: Auditing and Attestation Sample Examination Testlet 1 Hints for Testlet 1 Answers to Testlet 1 Explanations to Testlet 1 Testlet 2 Hints for Testlet 2 Answers to Testlet 2 Explanations to Testlet 2 Testlet 3 Hints for Testlet 3 Answers to Testlet 3 Explanations to Testlet 3 Testlet 4 Answers to Testlet 4 Appendix B: Sample Auditing and Attestation Testlet Released by the AICPA Appendix C: 2011 Released AICPA Questions for Auditing and Attestation Index WILEY CPA EXAM REVIEW 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 2000. 2. Example audit reports from Statements on Auditing Standards and Statements on Standards for Accounting and Review Services. 3. Information for Uniform CPA Examination Candidates, Board of Examiners, 2000. 4. Material from AU 319 (SAS 55 and SAS 78) and an AICPA Audit Guide, both titled Consideration of Internal Control in a Financial Statement Audit. 5. Material from AICPA Auditing Procedures Studies: Consideration of the Internal Control Structure in a Computer Environment: A Case Study; Auditing with Computers; Auditing in Common Computer Environments; Audit Implications of EDI. 6. 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. 7. 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 © 2012 by John Wiley & Sons, Inc. All rights reserved. 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Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our Web site at www.wiley.com ISBN 978-0-470-92390-0 (paperback); 978-1-118-18288-8 (ebk); 978-1-118-18289-5 (ebk); 978-1-118-18290-1 (ebk) A catalogue record for this book is available from the British Library. PREFACE Don’t forget to visit our Web site at www.wiley.com/cpa for supplements and updates. Passing the CPA exam upon your first attempt is possible! The Wiley CPA Examination Review preparation materials provide you with the necessary materials (visit our Web site at www.wiley.com/cpa for more information). It’s up to you to add the hard work and commitment. Together we can beat the pass rate on each section of about 45%. All Wiley CPA 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 CPA Examination Review Auditing and Attestation text. The AICPA Content Specification Outlines on Auditing and Attestation for the Computerized CPA Examination beginning in 2011 AICPA questions released in 2011 The new task-based simulations Coverage of new audit and attestation standards, especially Latest AICPA auditing, ethics, and quality control standards Latest Public Company Accounting Oversight Board auditing standards International auditing standards 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 with discussion, examples, and demonstrations of the key exam concepts. Following each text area, actual American Institute of Certified Public Accountants (AICPA) unofficial questions and answers are presented to test your knowledge. We are indebted to the AICPA for permission to reproduce and adapt examination materials from past examinations. Author constructed questions and simulations are provided for new areas or areas that require updating. All author constructed questions and simulations are modeled after AICPA question formats. The multiple-choice questions are grouped into topical areas, giving candidates a chance to assess their areas of strength and weakness. Selection and inclusion of topical content is based upon current AICPA Content Specification Outlines. Only testable topics are presented. If the CPA exam does not test it, this text does not present it. The CPA exam is one of the toughest exams you will ever take. It will not be easy. But if you follow our guidelines and focus on your goal, you will be thrilled with what you can accomplish. Ray Whittington September 2011 ABOUT THE AUTHORS Ray Whittington, PhD, CPA, CMA, CIA, is the dean of the College of Commerce 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 continuing education courses. Patrick R. Delaney, deceased, was the dedicated author and editor of the Wiley CPA Exam Review books for twenty years. He was the Arthur Andersen LLP Alumni Professor of Accountancy and Department Chair at Northern Illinois University. He received his PhD in Accountancy from the University of Illinois. He had public accounting experience with Arthur Andersen LLP and was coauthor of GAAP: Interpretation and Application, also published by John Wiley & Sons, Inc. He served as Vice President and a member of the Illinois CPA Society’s Board of Directors, and was Chairman of its Accounting Principles Committee; was a past president of the Rockford Chapter, Institute of Management Accountants; and had served on numerous other professional committees. He was a member of the American Accounting Association, American Institute of Certified Public Accountants, and Institute of Management Accountants. Professor Delaney was published in The Accounting Review and was a recipient of the Illinois CPA Society’s Outstanding Educator Award, NIU’s Excellence in Teaching Award, and Lewis University’s Distinguished Alumnus Award. He was involved in NIU’s CPA Review Course as director and instructor. ABOUT THE CONTRIBUTOR Kurt Pany, PhD, CPA, is a Professor of Accounting at Arizona State University. Prior to entering academe, he worked as a staff auditor for Deloitte and Touche. He is a former member of the AICPA’s Auditing Standards Board and has taught in the Arizona CPA Review Course.