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The CPA Quiz - Revisiting the Exam

May 3rd 2010
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I was browsing like every good AW blogger should do and I came across the CPA review quiz.  I decided to take the quiz just to see how it has changed over the years, and how much I have retained since the days long ago when I crammed and sweated to pass  this most prestigious of awards.

Question# 1 - The objective of a review of interim financial information of a public entity is not to provide an accountant with information regarding:

I had some audit experience when I started my career at Touche Ross but I never audited a public company before.  Hope that doesn't affect my answer.

A. material modifications that need to be made to the financial statements so that they will conform with generally accepted accounting principles

Sure that makes a lot of sense, probably not this one.

B. the client's internal control

Seems logical too. 

C. whether or not there is agreement between the interim financial information and the general ledger of the public company

I would certainly expect the interim financial information; balance sheet, income statement, et al would reconcile to the general ledger.  Can't be this one.

D. whether or not a reasonable basis exists for the auditor to express positive opinion assurance

I must confess that I have never read the audit opinion that is attached to my financial statements.  The auditors' would tell me if there where any issues or problems.  I think audit opinions have gone through several iterations since I was last involved in performing an audit about 20 years ago.  Is positive opinion assurance the same as an unqualified opinion?  And what is the wording  now for a review versus an audit?  I'm guessing a review is "positive" , so this seems reasonable too. 

I'm going with - B. the client's internal control.  I'm guessing that perhaps internal control might not be required in interim statements.

And the answer is........D?  A review does not provide assurance that the accountant will become aware of all significant matters that would be disclosed in an audit, nor does it provide the basis for expressing positive opinion assurance or the updating of a previous audit opinion.

I always hated doing audits.

Question# 2 - Business Environment and Concepts Using eBay to sell your ex-fiancee's engagement ring would be an example of:

A. C2C
B. B2C
C. B2B
D. B2S

I have never bought or sold anything on  eBay.  I have absolutely no clue as to what these  acronyms are.  The fact that jumps out at me on this question is that this guy had enough savvy to get the ring back, sell it on eBay and cut his losses.  I'm going with B. B2C for Bachelor to Cash.

The answer is A - C2C is consumer to consumer. You are a consumer utilizing the eBay service to sell a product to another consumer. B2C is business to consumer, B2B is business to business, and B2S is buyer to supplier.

Rats! What possible  good can come from knowing the answer to this question.  It should be deleted and replaced with a question on Excel pivot tables.

Question #3  - Financial Accounting and Reporting A company buys 10 items of inventory for $9 each and then sells 8 of them. The company then buys another 10 items for $11 each and sells 8 of them. The company then buys a final 10 items for $12 each, and the year ends. The company holds 14 items at the end of the year. Which of the following statements is true?

A. FIFO perpetual will give a higher ending inventory balance than FIFO periodic


B. LIFO perpetual will give an ending inventory balance of $160

I'm not on LIFO, and IFRS will obsolete it anyway.

C. LIFO periodic will give an ending inventory balance of $138


D. FIFO perpetual will give an ending inventory balance of $168

Here is the FIFO perpetual calculation:

Buy # Remaining Price Extension
1 0 9 0
2 4 11 44
3 10 12 120
    Total 164

The answer of 168 comes from multiplying the final balance of 14 times the last price of 12.

The real answer is what do I want ending inventory to be.  If I want to report more income  I'll set my inventory at $168.  The adjustment to the perpetual will throw $4 into a favorable variance account.   My justification is that we are on a standard cost system, so I can only have one price anyway, and it appears that costs are rising so, of course, I'm going to set the price at the last invoice cost.  Else, if I know that income was good and I want to set up a reserve to cover "future" losses I will set the cost lower say at the average of the last three buys or 10.67 which will give me an ending value of $149.  Well the recession has proved costly to the bottom line, so I'm going to set my inventory high and go with D.

You answered: D. FIFO perpetual will give an ending inventory balance of $168.

The answer is B - Calculated as follows:

Buy # Remaining Price Extension
1 2 9 18
2 2 11 22
3 10 12 120
    Total 160

I'm wrong, but I'm right.


Question #4 - A principal and agent relationship requires a:

A. Power of attorney

Not necessarily

B. Written agreement

I doubt it

C. Meeting of the minds and consent to act


D. Specified consideration

I already said yes to D and this refers to contracts

And the answer is C - An agency requires an agreement and a meeting of the minds. The principal gives the agent consent to act.

I only got one out of four....maybe I should have been a lawyer.