CPA Exam — AUD practice questions
208 free questions with answers and explanations.
- 101.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
- 102.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
- 103.An auditor is engaged to examine the financial statements of a private company and is considering whether to use the work of the company's internal audit function. Which of the following factors would LEAST likely influence the external auditor's assessment of the internal auditors' objectivity?Performing Further Procedures and Obtaining Evidence
- 104.An auditor is evaluating the client's allowance for doubtful accounts. The client operates in a highly cyclical industry and has experienced a recent downturn. Which of the following audit procedures would provide the MOST persuasive evidence regarding the valuation assertion for accounts receivable?Performing Further Procedures and Obtaining Evidence
- 105.An auditor's report on comparative financial statements should generally be dated as of the date of the:Forming Conclusions and Reporting
- 106.A CPA is engaged to perform a review of a non-public entity's interim financial information. Which of the following is most likely to be included in the CPA's review report?Forming Conclusions and Reporting
- 107.An auditor is performing an engagement to review the financial statements of a non-public entity. Which of the following procedures is typically performed during a review engagement?Forming Conclusions and Reporting
- 108.A CPA is reporting on financial statements prepared in accordance with a special purpose framework. The auditor's report should include an emphasis-of-matter paragraph that:Forming Conclusions and Reporting
- 109.An auditor has completed an audit of a non-public entity's financial statements. The auditor found a material misstatement that is isolated to a specific account balance and does not affect the overall financial statements. The auditor concludes that the misstatement is material but not pervasive. Which of the following audit opinions should the auditor express?Forming Conclusions and Reporting
- 110.An auditor has completed an audit of a non-public entity's financial statements. The auditor found that the client refused to allow the auditor to confirm accounts receivable, which represents 25% of total assets. The auditor was unable to perform alternative procedures to satisfy themselves about the existence of accounts receivable. What type of opinion should the auditor issue?Forming Conclusions and Reporting
- 111.A CPA performing a compilation engagement for a non-public entity has identified a material departure from the applicable financial reporting framework that management refuses to correct. The departure is not intended to mislead users. What action should the CPA take?Forming Conclusions and Reporting
- 112.A CPA firm has just completed the audit of a non-issuer. The engagement partner is reviewing the audit documentation before signing the audit report. The partner notices that several significant judgments made during the audit, particularly regarding the valuation of complex financial instruments, are not clearly documented, nor is there evidence of supervisory review. Which element of quality control is primarily deficient in this scenario?Ethics, Professional Responsibilities, and General Principles
- 113.An auditor has completed an audit of a publicly traded company. The auditor concluded that the financial statements are presented fairly in all material respects in accordance with GAAP, but there is substantial doubt about the entity's ability to continue as a going concern. Which of the following best describes the appropriate auditor's opinion and the additional paragraph required?Forming Conclusions and Reporting
- 114.A CPA is reporting on the financial statements of a non-public entity that are prepared in accordance with a special purpose framework (SPF) for regulatory purposes. The CPA determines that the financial statements are presented fairly, in all material respects, in accordance with the SPF. Which of the following is an essential element of the CPA's report?Forming Conclusions and Reporting
- 115.A CPA is engaged to perform an agreed-upon procedures engagement concerning a client's compliance with certain loan covenants. The practitioner's report should include a statement that:Forming Conclusions and Reporting
- 116.A CPA is reporting on financial statements prepared in accordance with the income tax basis of accounting. Which of the following elements must be included in the auditor's report?Forming Conclusions and Reporting
- 117.A CPA is engaged to perform an examination of internal control over financial reporting. Which of the following is a characteristic of an examination engagement?Forming Conclusions and Reporting
- 118.A practitioner is engaged to report on an entity's compliance with specified requirements. This type of engagement is known as a(n):Forming Conclusions and Reporting
- 119.A CPA is performing a review engagement of a non-public entity's financial statements. Which of the following statements is true regarding the assurance provided in a review engagement?Forming Conclusions and Reporting
- 120.An auditor concludes that a client's financial statements are presented fairly in all material respects, except for a material misstatement related to inventory valuation, which is not pervasive. Which type of audit opinion should the auditor issue?Forming Conclusions and Reporting
- 121.An auditor is engaged to perform an examination of internal control over financial reporting for a non-public entity. The auditor identifies a material weakness in internal control. Management acknowledges the weakness but believes the cost of remediation outweighs the benefits. Assuming the financial statements are not materially misstated as a result of this weakness, what is the appropriate reporting outcome for the internal control examination?Forming Conclusions and Reporting
- 122.A CPA firm is considering accepting a new audit engagement for a non-issuer. During the client acceptance process, the firm discovers that a significant portion of the prospective client's revenue is derived from transactions with a related party whose financial statements are not audited. The CPA firm's policy requires additional procedures for such engagements. Which of the following is the most appropriate action for the CPA firm to take regarding this discovery?Ethics, Professional Responsibilities, and General Principles
- 123.An auditor modifies an unmodified opinion by adding an other-matter paragraph. This paragraph should address matters relevant to users' understanding of the audit, the auditor's responsibilities, or the auditor's report, and it typically appears:Forming Conclusions and Reporting
- 124.An auditor is planning an audit of a non-issuer. The auditor's preliminary assessment indicates a high inherent risk for accounts receivable due to the client's complex revenue recognition policies and a history of significant adjustments. The control risk for accounts receivable is assessed as moderate because some controls are present but not consistently applied. Based on these assessments, what level of detection risk is the auditor most likely to accept for accounts receivable?Ethics, Professional Responsibilities, and General Principles
- 125.A CPA is engaged to compile the financial statements of a small, non-public entity. In connection with this engagement, which of the following is a required procedure for the CPA?Forming Conclusions and Reporting
- 126.An auditor is engaged to perform an examination of management's assertion about an entity's compliance with specified contractual provisions. Which of the following levels of assurance is typically provided in an examination engagement?Forming Conclusions and Reporting
- 127.An auditor is performing an attestation engagement to examine management's assertion about the effectiveness of internal control over financial reporting. Which of the following is true regarding the level of assurance provided in this type of engagement?Forming Conclusions and Reporting
- 128.An auditor's report on comparative financial statements should generally be dated as of the date of the auditor's completion of fieldwork for the:Forming Conclusions and Reporting
- 129.An auditor concludes that a client's financial statements are materially misstated due to a departure from GAAP, and the effect of the misstatement is pervasive. The auditor should express a(n):Forming Conclusions and Reporting
- 130.An auditor's report on financial statements prepared in accordance with the cash basis of accounting should include an Emphasis-of-Matter paragraph that:Forming Conclusions and Reporting
- 131.A practitioner is engaged to report on an entity's compliance with specified requirements. The engagement is structured to provide a high level of assurance. What type of report conclusion should the practitioner provide?Forming Conclusions and Reporting
- 132.An auditor's report includes an emphasis-of-matter paragraph to highlight a matter appropriately presented or disclosed in the financial statements that, in the auditor's judgment, is fundamental to users' understanding. Which of the following would most likely warrant an emphasis-of-matter paragraph?Forming Conclusions and Reporting
- 133.An auditor's report on an entity's financial statements includes an Other-Matter paragraph. Which of the following situations would most likely warrant the inclusion of such a paragraph?Forming Conclusions and Reporting
- 134.A CPA is engaged to compile the financial statements of a small, non-public entity. In connection with this engagement, the CPA is required to:Forming Conclusions and Reporting
- 135.A CPA is engaged to perform an agreed-upon procedures engagement concerning a client's compliance with specific loan covenants. The practitioner's report on this engagement should include which of the following elements?Forming Conclusions and Reporting
- 136.An auditor is performing an audit of a publicly traded company. During the audit, the auditor discovers management's intent to sell a significant segment of its business, which is adequately disclosed in the financial statements. The auditor believes this matter is fundamental to users' understanding of the financial statements. How should the auditor address this in the audit report?Forming Conclusions and Reporting
- 137.A CPA is reporting on financial statements prepared in accordance with the income tax basis of accounting. This is an example of which type of financial reporting framework?Forming Conclusions and Reporting
- 138.An auditor is performing an audit for a client that has changed its accounting method for inventory valuation from FIFO to LIFO. The auditor agrees that the new method is preferable and the change is properly accounted for and disclosed. How should the auditor's report address this change?Forming Conclusions and Reporting
- 139.A practitioner is engaged to perform an agreed-upon procedures engagement related to a client's compliance with specific loan covenants. Which of the following statements about the report on an agreed-upon procedures engagement is correct?Forming Conclusions and Reporting
- 140.An auditor is performing an audit for a client that has changed its accounting method for valuing inventory from FIFO to LIFO. This change was appropriately justified, applied retrospectively, and adequately disclosed in the financial statements. The auditor concurs with the change and its presentation. What effect will this have on the auditor's report?Forming Conclusions and Reporting
- 141.An auditor is unable to obtain sufficient appropriate audit evidence due to a significant scope limitation imposed by management. The potential effects of this limitation on the financial statements are material and pervasive. In this situation, the auditor should issue a(n):Forming Conclusions and Reporting
- 142.A CPA is performing an engagement to review the financial statements of a non-public entity. Which of the following procedures would typically be performed in such an engagement?Forming Conclusions and Reporting
- 143.A client has consistently used the cash basis of accounting, which is a special purpose framework, for its financial statements. The auditor has determined that the financial statements are presented fairly in accordance with this framework. The auditor's report should include:Forming Conclusions and Reporting
- 144.A CPA firm is performing an annual audit for a public company. During the audit, the engagement team identifies a significant deficiency in internal control related to the company's revenue recognition process. The company's management has acknowledged the deficiency but states that they have no immediate plans to remediate it due to cost considerations. What is the auditor's primary responsibility regarding this identified deficiency?Ethics, Professional Responsibilities, and General Principles
- 145.An auditor has completed an audit of a publicly traded company. The audit revealed that the company has prepared its financial statements in accordance with U.S. GAAP, and there are no material misstatements or scope limitations. However, the auditor noted a significant uncertainty regarding the outcome of a major lawsuit that is adequately disclosed in the financial statements. What opinion should the auditor issue?Forming Conclusions and Reporting
- 146.A CPA firm is engaged to perform an audit of a private company. During the planning phase, the auditor discovers that the client's CEO has a significant personal investment in a key supplier, and the client's purchasing manager is the CEO's spouse. The auditor assesses this situation as creating a significant threat to independence. What type of threat is most directly exemplified by this scenario?Ethics, Professional Responsibilities, and General Principles
- 147.A client's financial statements contain a material misstatement due to an inappropriate accounting method. The auditor concludes that the misstatement is both material and pervasive to the financial statements. In this situation, the auditor should express which of the following opinions?Forming Conclusions and Reporting
- 148.A CPA is performing a review engagement of a non-public entity's financial statements. Which of the following statements about the CPA's assurance is correct?Forming Conclusions and Reporting
- 149.When developing an overall audit strategy, an auditor determines that the client operates in a highly competitive and rapidly evolving industry. This environmental factor would most likely increase the auditor's assessment of inherent risk related to:Assessing Risk and Developing a Planned Response
- 150.An auditor is performing risk assessment procedures for a client. Which of the following procedures would be most effective in identifying fraud risks related to revenue recognition?Assessing Risk and Developing a Planned Response