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CPA Exam — AUD practice questions

208 free questions with answers and explanations.

Practice test
  1. 51.An auditor is performing substantive procedures on a client's property, plant, and equipment (PP&E) balance. The auditor selects a sample of additions recorded during the year and examines supporting documentation, such as vendor invoices, receiving reports, and authorization forms. Which assertion is the auditor primarily testing with this procedure?Performing Further Procedures and Obtaining Evidence
  2. 52.During the audit of a publicly traded company's financial statements, the auditor discovers that the client's largest customer filed for bankruptcy on January 15, subsequent to the December 31 year-end but before the audit report date. The customer's bankruptcy will significantly impact the collectibility of a material accounts receivable balance. What is the auditor's most appropriate course of action regarding this event?Performing Further Procedures and Obtaining Evidence
  3. 53.A client uses a third-party service organization to process its payroll. The auditor has obtained a Service Organization Control (SOC) 1 Type 2 report that covers the period under audit. The report indicates that the service organization's controls were suitably designed and operating effectively. Which of the following is the most appropriate action for the auditor to take regarding the client's payroll controls?Performing Further Procedures and Obtaining Evidence
  4. 54.An auditor is evaluating the audit evidence obtained for a client's inventory balance. Which of the following factors is most indicative of the appropriateness of audit evidence?Performing Further Procedures and Obtaining Evidence
  5. 55.An auditor is performing a review of a client's significant accounting estimates, specifically the allowance for doubtful accounts. Which of the following approaches is generally considered the most persuasive and independent method for auditing such an estimate?Performing Further Procedures and Obtaining Evidence
  6. 56.An auditor is performing an audit of financial statements and discovers that a major customer declared bankruptcy two weeks after the balance sheet date. The customer owed the client a significant amount that was deemed uncollectible. The client's financial statements were issued two months after the bankruptcy filing. How should this event be treated in the financial statements?Performing Further Procedures and Obtaining Evidence
  7. 57.During the audit of a publicly traded company, the auditor discovers that one of the client's key executives resigned unexpectedly two weeks after the balance sheet date due to allegations of fraud. The fraud is alleged to have occurred in the prior fiscal year. This event is considered a:Performing Further Procedures and Obtaining Evidence
  8. 58.An auditor is performing tests of controls for a client's purchasing process. The client's control requires that all purchase orders (POs) over $5,000 be approved by two authorized managers. The auditor selects a sample of POs over $5,000 and examines them for the two required signatures. Out of a sample of 50 POs, 4 were found to have only one signature. The auditor determines that this deviation rate is unacceptable. Which of the following is the MOST appropriate next step for the auditor?Performing Further Procedures and Obtaining Evidence
  9. 59.An auditor is reviewing a client's significant accounting estimates, such as the allowance for doubtful accounts and inventory obsolescence. Which of the following approaches to auditing accounting estimates would generally be considered the most effective and provide the highest level of assurance?Performing Further Procedures and Obtaining Evidence
  10. 60.An auditor is using non-statistical sampling to test the operating effectiveness of a control. The auditor selects 40 items from a population and finds 2 deviations. If the tolerable deviation rate is 5%, what would be the most appropriate conclusion?Performing Further Procedures and Obtaining Evidence
  11. 61.An auditor is using Audit Data Analytics (ADA) to identify potential related party transactions. Which of the following ADA techniques would be most effective for this purpose?Performing Further Procedures and Obtaining Evidence
  12. 62.A client uses an external service organization to process its payroll. The external auditor plans to rely on the service organization's controls. Which of the following is the MOST effective approach for the external auditor to obtain assurance regarding the operating effectiveness of these controls?Performing Further Procedures and Obtaining Evidence
  13. 63.An auditor is performing substantive analytical procedures on a client's operating expenses. The auditor notes a significant, unexpected decrease in 'Repairs and Maintenance' expense compared to the prior year, despite stable production levels. What is the most likely audit implication of this observation?Performing Further Procedures and Obtaining Evidence
  14. 64.An auditor is performing tests of controls over cash disbursements. The control requires that all checks over $10,000 be approved by two authorized signatories. The auditor selects a sample of 30 checks exceeding $10,000 and finds that 3 of them only have one signatory. This finding is considered a:Performing Further Procedures and Obtaining Evidence
  15. 65.An auditor is evaluating the audit evidence obtained during the audit of a private company. Which of the following factors would generally increase the persuasiveness of audit evidence?Performing Further Procedures and Obtaining Evidence
  16. 66.An auditor is using Audit Data Analytics (ADA) to identify potential related party transactions that might not have been properly disclosed. Which of the following ADA techniques would be MOST effective for this purpose?Performing Further Procedures and Obtaining Evidence
  17. 67.A client's internal audit function is considered highly competent and objective. The external auditor decides to use the internal auditors to provide direct assistance in performing certain substantive procedures. Which of the following tasks would be most appropriate for the internal auditors to perform under the direct supervision of the external auditor?Performing Further Procedures and Obtaining Evidence
  18. 68.An auditor is planning to use audit data analytics (ADA) to identify unusual journal entries for potential management override of controls. Which of the following characteristics of journal entries would be most indicative of a higher risk of management override?Performing Further Procedures and Obtaining Evidence
  19. 69.A client's management has identified several related party transactions during the year. Which of the following is the auditor's primary concern regarding these transactions?Performing Further Procedures and Obtaining Evidence
  20. 70.An auditor is testing the completeness assertion for accounts payable. Which of the following procedures would be most effective?Performing Further Procedures and Obtaining Evidence
  21. 71.An auditor is performing tests of controls related to the client's payroll processing system. Which of the following audit procedures would provide the MOST relevant evidence for the completeness assertion of recorded payroll expenses?Performing Further Procedures and Obtaining Evidence
  22. 72.An auditor is testing the operating effectiveness of a client's control that requires all cash disbursements over $5,000 to be approved by two authorized managers. The auditor selects a sample of 40 cash disbursements over $5,000 from the population and finds that 3 of them lacked the required second approval. The auditor's tolerable deviation rate is 5%, and the expected deviation rate is 1%. Based on this sample, what is the most appropriate conclusion regarding the control's operating effectiveness?Performing Further Procedures and Obtaining Evidence
  23. 73.When an auditor uses the work of an internal auditor, which of the following factors would least likely influence the external auditor's assessment of the internal auditor's objectivity?Performing Further Procedures and Obtaining Evidence
  24. 74.An auditor is evaluating the overall reasonableness of a client's financial statements using analytical procedures. The client operates in a highly competitive retail industry. Which of the following relationships would generally be expected to be most predictable for this type of client?Performing Further Procedures and Obtaining Evidence
  25. 75.An auditor is using monetary unit sampling (MUS) to test the valuation assertion for accounts receivable. The auditor selects a sample of accounts and finds that one sampled account with a recorded balance of $10,000 has an audit value of $9,000. The sampling interval is $50,000. What is the projected misstatement for this specific item, assuming the auditor uses the tainting factor approach?Performing Further Procedures and Obtaining Evidence
  26. 76.An auditor is reviewing a client's significant accounting estimates, such as the allowance for doubtful accounts and warranty liabilities. Which of the following audit procedures would provide the most persuasive evidence regarding the reasonableness of these estimates?Performing Further Procedures and Obtaining Evidence
  27. 77.An auditor is evaluating the overall reasonableness of the client's financial statements using analytical procedures. The client operates in a highly seasonal industry. Which of the following analytical procedures would be most effective in this context?Performing Further Procedures and Obtaining Evidence
  28. 78.An auditor is performing substantive procedures on the revenue cycle of a retail client. Which of the following audit procedures would provide the most reliable evidence regarding the occurrence assertion for sales transactions?Performing Further Procedures and Obtaining Evidence
  29. 79.An auditor is evaluating the controls over cash disbursements. The control requires that all checks over $5,000 must be signed by two authorized signatories. During testing, the auditor finds several checks exceeding $5,000 signed by only one person. This indicates:Performing Further Procedures and Obtaining Evidence
  30. 80.An auditor is performing an audit of a manufacturing company. During the inventory observation, the auditor identifies several large, slow-moving items in the finished goods warehouse that appear to be obsolete. Which financial statement assertion is most directly affected by this observation?Performing Further Procedures and Obtaining Evidence
  31. 81.An auditor uses audit data analytics (ADA) to identify unusual patterns in journal entries. This procedure is primarily designed to address which of the following risks?Performing Further Procedures and Obtaining Evidence
  32. 82.Which of the following audit procedures would most likely be used to test the existence assertion for accounts receivable?Performing Further Procedures and Obtaining Evidence
  33. 83.An auditor performs a test by comparing the current year's gross profit percentage to the prior year's and to industry averages. This is an example of which type of audit procedure?Performing Further Procedures and Obtaining Evidence
  34. 84.An auditor is evaluating the client's ability to continue as a going concern. Management has developed a plan to mitigate substantial doubt, including selling off non-essential assets and renegotiating debt terms. Which of the following audit procedures would provide the most persuasive evidence regarding the feasibility of management's plan to sell non-essential assets?Performing Further Procedures and Obtaining Evidence
  35. 85.An auditor is performing tests of controls related to a client's purchasing cycle. The control states that all purchase orders (POs) must be sequentially numbered and that the accounting department must reconcile POs to vendor invoices and receiving reports before payment. The auditor selects a sample of payment vouchers and traces them back to the underlying purchase orders, vendor invoices, and receiving reports. Which of the following control objectives is the auditor primarily testing?Performing Further Procedures and Obtaining Evidence
  36. 86.A client is experiencing significant recurring operating losses and negative cash flows from operations. The auditor should primarily consider which of the following in assessing the entity's ability to continue as a going concern?Performing Further Procedures and Obtaining Evidence
  37. 87.An auditor uses non-statistical sampling for tests of controls. Which of the following is a limitation of non-statistical sampling compared to statistical sampling?Performing Further Procedures and Obtaining Evidence
  38. 88.An auditor is performing substantive procedures on the accounts payable balance. The auditor selects a sample of cash disbursements made shortly after year-end and traces them to supporting documentation, such as vendor invoices and receiving reports, to determine if the related liabilities were recorded in the correct period. This procedure is primarily designed to address which assertion?Performing Further Procedures and Obtaining Evidence
  39. 89.A client uses a third-party data center for significant portions of its IT infrastructure. The auditor is reviewing the service organization's SOC 1, Type 2 report. Which of the following aspects of the report is most critical for the auditor to assess when relying on the controls at the service organization?Performing Further Procedures and Obtaining Evidence
  40. 90.An auditor is evaluating the reasonableness of a client's allowance for doubtful accounts. Which of the following audit procedures would provide the MOST appropriate evidence regarding the valuation assertion for accounts receivable?Performing Further Procedures and Obtaining Evidence
  41. 91.An auditor is performing an audit of a manufacturing company. During the inventory observation, the auditor notes several bins of raw materials that appear dusty and disorganized. The client uses a standard cost system. Which of the following assertions for inventory is most likely to be at risk due to this observation?Performing Further Procedures and Obtaining Evidence
  42. 92.An auditor is performing substantive procedures on the revenue cycle of a client that operates a subscription-based software service. The auditor selects a sample of customers from the billing system's active subscriber list and traces these to recorded revenue in the general ledger. Which assertion is the auditor primarily testing?Performing Further Procedures and Obtaining Evidence
  43. 93.An auditor is reviewing the inventory count procedures for a manufacturing client. The client's inventory includes raw materials, work-in-process (WIP), and finished goods, stored in multiple warehouses. The auditor's primary concern relates to the valuation assertion for WIP inventory. Which of the following procedures would be most effective in addressing this concern?Performing Further Procedures and Obtaining Evidence
  44. 94.An auditor is performing tests of controls over the client's sales order processing system. The control being tested requires that all sales orders be approved by a sales manager before being entered into the system. Which of the following audit procedures would be most effective in testing the operating effectiveness of this control?Performing Further Procedures and Obtaining Evidence
  45. 95.An auditor plans to use a monetary unit sampling (MUS) approach for testing the valuation assertion of accounts receivable. If the auditor expects a low rate of misstatement, which of the following is generally true regarding MUS?Performing Further Procedures and Obtaining Evidence
  46. 96.An auditor is evaluating a client's revenue recognition for long-term construction contracts. The client uses the percentage-of-completion method. To test the accuracy of revenue recognized, the auditor should primarily focus on which of the following?Performing Further Procedures and Obtaining Evidence
  47. 97.An auditor is planning to use monetary unit sampling (MUS) to test the valuation assertion for accounts receivable. The auditor has determined a tolerable misstatement of $5,000 and expects no misstatements. Which of the following factors would lead the auditor to select a LARGER sample size for MUS?Performing Further Procedures and Obtaining Evidence
  48. 98.An auditor is performing substantive analytical procedures on a client's revenue accounts. Which of the following procedures would be most effective in detecting unrecorded revenue?Performing Further Procedures and Obtaining Evidence
  49. 99.A client uses an external service organization to process its payroll. The auditor is reviewing the service organization's SOC 1 Type 2 report. Which of the following statements best describes the primary benefit of a SOC 1 Type 2 report to the client's auditor?Performing Further Procedures and Obtaining Evidence
  50. 100.An auditor is testing the allowance for doubtful accounts for a client that primarily sells on credit. Which of the following procedures would provide the most reliable evidence regarding the valuation of accounts receivable?Performing Further Procedures and Obtaining Evidence