[jeff]

Welcome to the Q3 2017 CPA Exam Study Group for AUD. 🙂

Introduce yourselves and let your fellow NINJAs know when you plan to take your AUD exam.

The Five Steps (NINJA Framework): https://www.another71.com/pass-the-cpa-exam/

[Eli]

@My cousin Vinny:

As I was rereading through roger's text, I remembered your question. I hope this helps:

Roughly paraphrasing–It is inappropriate to indicate in a report that an engagement was performed in accordance with SSARS unless ALL relevant sections of SSARS are complied with.

It seems like the MAJORITY of the time answer “a” is incorrect, but there is a circumstance where answer “a” could be true.

[Eli]

@My cousin Vinny:

As I was rereading through roger's text, I remembered your question. I hope this helps:

Roughly paraphrasing–It is inappropriate to indicate in a report that an engagement was performed in accordance with SSARS unless ALL relevant sections of SSARS are complied with.

It seems like the MAJORITY of the time answer “a” is incorrect, but there is a circumstance where answer “a” could be true.

[Lexi]

Hi guys,

I'm almost done reviewing my material with Roger and the mcq's, seems to me there a lot of practice questions with Roger but thinking about buying the Ninja practice questions, should I? Any experience with it is greatly appreciated.

Thanks

[My Cousin Vinny]

@eli thanks for taking the time man!

[LCG]

As far as timing per testlet goes, what is everyone's strategy?

[Martin]

Taking AUD next Friday, and have been using Becker. Got a 70% on my first mock exam.

[mperez102204]

Hey everyone….this is my 3rd time at AUD…. i am really hoping to pass the test in AUG, which is why i have already started to study the material (really just wanted to keep it fresh). Although, i took twice practice exams and received a 76 and 79. I am being killed by the TBS. Can anyone help me understand this one a bit better… The explanations from Wiley are okay, but sometimes it is easier to hear it from someone else studying.. also – what was the method of thinking because I am obviously not there. Thanks

DietWeb Inc. (hereafter DietWeb) was incorporated and began business in March of 20X1, seven years ago. You are working on the 20X8 audit—your CPA firm's fifth audit of DietWeb. Analyze the following financial statements and reply to each of the questions that follow.

DietWeb, Inc.
BALANCE SHEET
December 31, 20X8 and 20X7
(in thousands)
20X8 20X7
Assets
Current assets
Cash and cash equivalents $3,032 $1,072
Trade receivables 485 450
Prepaid advertising expenses 59 609
Prepaid expenses and other current assets 175 230
Total current assets 3,751 2,361
Fixed assets, net 3,321 3,926
Total assets $7,072 $6,287
Liabilities and shareholders' equity
Current liabilities
Accounts payable $1,070 $ 909
Current maturities of notes payable 42 316
Deferred revenue 1,973 1,396
Other current liabilities 171 12
Total current liabilities 3,256 2,633
Long-term debt, less current maturity 34 176
Accrued liabilities 792 690
Deferred tax liability 15 145
Total liabilities 4,097 3,644
Shareholders' equity
Common stock 6,040 4,854
Retained earnings (3,065) (2,211)
Total shareholders' equity 2,975 2,643
Total liabilities plus shareholders' equity $7,072 $6,287
DietWeb, Inc.
INCOME STATEMENT
Two Years Ended December 31, 20X8 and 20X7
(in thousands)
20X8 20X7
Revenue $19,166 $14,814
Costs and expenses
Cost of revenue 2,326 1,528
Product development 725 653
Sales and marketing 13,903 8,710
General and administrative 2,531 2,575
Depreciation and amortization 629 661
Impairment of intangible assets 35 —
Total costs and expenses 20,149 14,127
Net income before taxes (983) 687
Income tax benefit 129 125
Net income (loss) $ (854) $ 812
DietWeb, Inc.
STATEMENT OF CASH FLOWS
Year Ended December 31, 20X8
20X8 20X7
Cash flows from operations
Net income (loss) $(854) 812
Adjustments to net income
Depreciation 629 660
Increase in receivables (35) (47)
Decrease (Increase) in prepaid advertising 550 (650)
Decrease in other current assets 55 74
Increase (Decrease) in accounts payable 161 (540)
Increase in accrued liabilities 102 43
Increase (Decrease) in deferred revenue 432 (665)
Increase in common stock issued 1,186 —
Increase in other current liabilities 159 43
Net cash provided (used) by operations 2,385 (270)
Cash flows from operations
Purchase of property and equipment (320) 2,016
Cash flows from financing activities
New debt 613 40
Debt payments (718) (918)
Net cash provided (used) by financing activities (105) (878)
Net increase in cash and cash equivalents $1,960 868
Cash and equivalents at beginning of year $1,072 204
Cash and equivalents at end of year $3,032 1072
Select your answer to the questions below and enter the relevant capital letter in the space provided.

1. The most likely misstatement in the financial statements is
A. The increase in cash in 20X8.
B. Treatment of impaired intangible assets as an expense in 20X8.
C. Treatment of common stock issued as an adjustment to net income (loss) under cash flow from operations.
D. An income tax benefit on the income statement as contrasted to income tax expense.
A, B, C, or D

Rationale:

1. (C) The requirement is to identify a likely misstatement in the financial statements. Answer (C) is correct because common stock issued should be treated under financing rather than operations. Answer (A) is incorrect because an increase in cash may well occur – even during a year in which the company encounters a loss. Answer (B) is incorrect because there is no indication that the impairment expense is inappropriate. Answer (D) is incorrect because previous years' pattern of income and losses may create a situation in which a net income tax benefit occurs.

2. Which of the following is the most unexpected change on the balance sheet, if one assumes the revenue increase in 20X8 is correct?
A. Decrease in prepaid advertising expenses.
B. Increase in accounts payable.
C. Decrease in deferred revenues.
D. Increase in common stock.
A, B, C, or D

Rationale:

2. (A) The requirement is to identify, of the balance sheet changes listed, the most unexpected one. Answer (A) is unexpected in that prepaid advertising expenses decreased by more than ninety percent – at a time when the company increased its sales and marketing expenses so significantly. Answer (B) is incorrect because the relatively small increase in accounts payable may be expected given the increase in revenues. Answer (C) is incorrect because one would expect such an increase in deferred revenues as revenues increase. Answer (D) is incorrect since the company simply issued more stock – as indicated in the company profile.

3. Which of the following is most likely to lead the auditors to question whether DietWeb has the ability to continue as a going concern?
A. The net loss incurred in 20X8.
B. The decrease in cash that occurred in 20X8.
C. Increases in fixed assets during 20X8.
D. Mr. Readings serving as both CEO and chairman of the board of directors.
A, B, C, or D

Rationale:

3. (A) The requirement is to identify the factor that might lead the auditors to question whether DietWeb has the ability to continue as a going concern. Answer (A) is correct because the current net loss may raise a question as to future profitability. Answer (B) is incorrect because there was an increase in cash, not a decrease. Answer (C) is incorrect because fixed assets decreased rather than increased during 20X8. Answer (D) is incorrect because Mr. Reading's serving as CEO indicates no particular problem.

4. Which of the following classifications is likely to be incorrect?
A. Classification of prepaid expenses as assets.
B. Classification of accrued liabilities as a noncurrent liability.
C. A deferred tax liability with a positive balance.
D. Retained earnings including a negative balance.
A, B, C, or D

Rationale:

4. (B) The requirement is to identify an incorrect classification in the financial statements. Answer (B) is correct because accrued liabilities are in general current, not noncurrent, liabilities. Answer (A) is incorrect because prepaid expenses are ordinarily assets. Answer (C) is incorrect because one would expect the deferred tax liability to have a positive balance. Answer D is incorrect because the retained earnings negative balance may be explained by early year losses.

5. Which of the following changes that have been recorded seems most unexpected?
A. The decrease in fixed assets.
B. The decrease in prepaid expenses and other current assets.
C. An increase in cash during a year in which there is a net loss.
D. An increase in accrued liabilities, given the large increase in sales.
A, B, C, or D

Rationale:

5. (A) The requirement is to identify the most unexpected change. Answer (A) is most unexpected because the expanded scale of operations would lead one to expect an increase in fixed assets, not a decrease. Answer (B) is incorrect because small changes in prepaid expense and other current assets are expected. Answer (C) is incorrect because it is not surprising that cash may increase when there is a net loss – particularly in a year when common stock has been issued. Answer (D) is incorrect because an increase in accrued liabilities is consistent with an increase in the scale of operations as indicated by a large increase in sales.

TBSAWB0008

[SallyCPA]

I've heard that the new audit sims are testing less report wording than in the old format. Does anyone know what to focus on for the new sims?

[dbacpa]

I am having trouble understanding the difference between vouching and tracing. Does anyone have an easy way to differentiate between the two?

[Dman1]

@dbacpa

With vouching you start from the F/S or G/L and trace the balance to the source documents: sales invoices, shipping documents for revenue or purchase receipts for fixed assets. Basically trying to prove that they didn't records any fictitious sales or assets in their G/L. You are testing the assertions existence and occurrence.

Tracing: you start from source documents (vendor invoices, purchase orders, etc.) and make sure the recorded liabilities are complete. Testing completeness.

[SOX with sandals]

I sit for AUD this weekend. I am using CPAExcel (WTB and book) and accompanying flash cards. Took one practice exam, scored a 74… Will complete my third pass of the test bank questions (about 2,100 MCQ) today. I have been doing a minimum of 100 MCQ and a maximum of 300 questions a day for MCQ, and have incorporated SIMS as well. Although for sims, I prefer to use the back of my book, as I don't like how the software makes you do minimum 10 at a time. What concerns me is that for MCQ, I have been trending 80, sometimes a tad lower, 78-79. This concerns me, as I was told I should be scoring in the 90s before my exam day.

All that considered, am I in bad shape for the exam? What should I focus on strategy-wise between now and Saturday to review before my exam?

[Anonymous]

Hello everyone!

I am currently studying for my AUD cpa exam. I started studying on June 5th with Wiley and will take my exam on July 17th. Praying that I pass, I understand mostly everything but sometimes some of the answers don't make any sense to me so I'll probably post some questions in here as I go! Also I am taking Far on October 5th and Reg on November 25th, FUN!

[Eli]

My exam experience:

MCQ was decent. Tagged less than 8 questions per testlet. Of the eight questions, I felt like I made solid educated guesses on at least half of them. The second testlet did not appear to get any more tricky, so I don't know if that means I know the material well or I did a lot worse than I thought on the first testlet. I did not see many curve balls, so if you are doing well on ninja mcq you should be well prepared for the real exam. Took me 1 hour to complete both testlets and that includes rechecking all of my answers.

2 DRS SIMS right off the bat. They took me forever. I honestly felt like I bombed these two, so hopefully one of them was preset.

2 research sims. Very confident in my answers for these. It took me less than 5 minutes to find each one lol. One of them is probably preset so I probably won't get credit for one of them.

The rest of the SIMS were fair. If you know the material, you'll do just fine on them. It felt like there was more than enough time to complete the sims after the DRS.

And don't forget to use Auth literature. It definitely saved me for a couple of the SIMS.

[notanauditor]

Anyone can help me understand why the situation “early in year 2, the company extended its existing warranty program on some of its major products in an effort to increase revenue” increases inherent risk? This is a sim from the AICPA sample exam.

Thanks in advance!

[kctennis95]

I'm confused about this question on Becker:
– A report on internal control over compliance will include which of the following assertions?
Answer: A disclaimer of opinion on internal control over compliance.

When would you express an opinion on internal control over compliance? Which section in Becker is this in? Thanks!

[Author]

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