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CPA Exam Test with Answers

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Management 's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity 's control environment when A. The audit committee is active in overseeing the entity’s financial reporting policies. Answer A is incorrect. An active audit committee tends to temper management 's aggressive stance. B. External policies established by parties outside the entity affect its accounting practices. Answer B is incorrect. External policies tend to moderate such management tendencies. C. Management is dominated by one individual who is also a shareholder. Answer C is correct because these noted factors tend to have an especially significant influence on …show more content…

close Answer C is correct. Rapid growth of the organization is considered a risk factor when considering a client 's risk assessment policies. While obtaining an understanding of a client 's risk assessment policies, an auditor ordinarily considers how management A. Identifies risks. Answer A is correct. An auditor should obtain sufficient knowledge of the entity 's risk assessment process to understand how management considers risks relevant to financial reporting objectives and decide about actions to address those risks; that knowledge might include understanding of how management identifies risks, estimates their significance, and assesses the likelihood of their occurrence, and relates them to financial reporting. B. Eliminates significant risks. This answer is incorrect. Refer to the correct answer explanation. C. Assesses the likelihood of occurrence of subsequent events. This answer is incorrect. Refer to the correct answer explanation. D. Relates risk assessment to compliance with marketing objectives. This answer is incorrect. Refer to the correct answer explanation. close Risk assessment. For financial reporting purposes an entity 's risk assessment is its identification, analysis, and management of risks relevant to the preparation of financial statements following GAAP (or some other comprehensive basis). The following are considered risks that may affect an entity 's ability to properly record, process, summarize and report financial

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