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

Correct Answer: A

Explanation: Choice "a" is correct. The scope of an audit is not restricted when an attorney's response is limited to matters to which the attorney has given substantive attention in the form of legal representation. The attorney may also limit his or her response to matters that are considered individually or collectively to be material. Choices "b", "c", and "d" are incorrect. The scope of an audit may be restricted when an attorney's response is limited to:

1.

An evaluation of the likelihood of an unfavorable outcome of the matter disclosed by the entity. (The attorney's response should also address the nature of the claim, the progress to date, and the intended response.)

2.

The attorney's opinion of the entity's historical experience in recent similar litigation. (The attorney's response should address the current situation, which may not parallel historical experience).

3.

The probable outcome of asserted claims and pending or threatened litigation. (The attorney's response should also address the nature of the claim, the progress to date, and the intended response, as well as unasserted claims).

Correct Answer: D

Explanation:

Choice "d" is correct. In an engagement to express a separate opinion on an entity's internal control, the

scope is extensive, and the purpose is directed primarily toward the internal control report. In an audit, the

scope is less extensive, and the purpose is to determine the nature, timing, and extent of auditing

procedures. Similar procedures generally would be used in both types of engagements.

Choices "a", "b", and "c" are incorrect, based on the above Explanation.

Correct Answer: A

Explanation:

Choice "a" is correct. Among the ratios listed, the ratio that is appropriate for the evaluation of accounts

receivable is the number of days sales are outstanding. Sales are related to accounts receivable, so the

more days the sales are outstanding, the longer the receivables are outstanding.

Choice "b" is incorrect. Return on total assets is not appropriate for the evaluation of accounts receivable.

It is appropriate for the evaluation of return and of total assets, but not for the evaluation of account

receivable specifically.

Choice "c" is incorrect. The collection to debt ratio has nothing to do with the evaluation of accounts

receivable.

Choice "d" is incorrect. The current ratio is appropriate for the evaluation of liquidity (one of the ways to

evaluate liquidity) but has nothing to do with the evaluation of accounts receivable, other than that

accounts receivable is in the numerator of the current ratio.