AUDIT CPA EXAM | QUESTIONS AND ANSWERS |
2026/2027 UPDATE | WITH COMPLETE SOLUTION
Management is responsible for Answer - Financial statements - the
preparation and fair presentation
Internal controls - design, implementation and maintenance relevant to the FS
Providing auditor with access to info and persons needed to complete the audit
The preparation and fair presentation of the FS requires Answer - identification
of the applicable financial reporting framework
preparation and fair presentation in accordance with framework
inclusion of adequate description of the framework
to obtain reasonable assurance Answer - plan the work and properly supervise
the assistants
determine and apply appropriate materiality levels
identify and assess risks of material misstatement, whether due to error or
fraud
,and obtain sufficient appropriate audit evidence
The applicable financial reporting framework Answer - The financial reporting
framework that is acceptable in view of the nature of the entity and the
objective of the financial statements
Includes general purpose: designed to meet needs of a wide range of users
(GAAP & IFRS)
and special purpose frameworks
Fair presentation frameworks Answer - All financial reporting frameworks in
the US are fair presentation frameworks
Acknowledges explicity or implicitly that to achieve fair presentation of the FS,
it may be necessary for management to provide disclosures beyond those
specifically required
Acknowledges explicitly that it may be necessary for mgmt (RARE) to depart
from a requirement to achieve fair presentation
Auditing standards Answer - (GAAS) Generally accepted auditing standards -
mandatory on all audit engagements
(GAGAS) Generally accepted government auditing standards - audits of
government organizations, programs or activities that receive government
funds
(PCAOB) - established pursuant to SOX - establish auditing standards for issuers
,(ISA) International standards of auditing
The term "must" or "is required" Answer - indicates an unconditional
requirement
must be followed in all cases
The term "should" Answer - presumptively mandatory requirement
must be followed in all cases where the requirement is relevant but allows for
departures in rare circumstances if there is appropriate justification
Conditions that indicate possible fraud Answer - Pressure
Opportunity
Rationalization
If there is substantial doubt about going concern, the auditor should: Answer -
consider the adequacy of the disclosure about the entity's possible inability to
continue as a going concern
include an emphasis of matter paragraph in the auditors report to reflect this
conclusion
Going concern documentation Answer - Conditions or events that gave rise to
the concern
Any mitigating factors the auditor finds significant
, Audit work performed to evaluate mgmt plans
Conclusion about whether it remains or is alleviated
The effect on the financial statements and disclosures
Mitigating factors Answer - when an auditors believe there is substantial doubt
about going concern, the auditor is required to consider MANAGEMENTS PLAN
FOR DEALING WITH the conditions or events that led to the auditors belief
-Plan to borrow money or restructure debt
-Plan to sell assets
-Plan to delay or reduce expenditures
-Plan to increase ownership equity
Must have BOTH intent and ability
No audit work can be done Answer - NO AUDIT OPINION
not even a bad opinion
Subsequent discovery of facts after report release date: If client refuses to
follow procedures
"DAR" them to fix it Answer - Disassociate
2026/2027 UPDATE | WITH COMPLETE SOLUTION
Management is responsible for Answer - Financial statements - the
preparation and fair presentation
Internal controls - design, implementation and maintenance relevant to the FS
Providing auditor with access to info and persons needed to complete the audit
The preparation and fair presentation of the FS requires Answer - identification
of the applicable financial reporting framework
preparation and fair presentation in accordance with framework
inclusion of adequate description of the framework
to obtain reasonable assurance Answer - plan the work and properly supervise
the assistants
determine and apply appropriate materiality levels
identify and assess risks of material misstatement, whether due to error or
fraud
,and obtain sufficient appropriate audit evidence
The applicable financial reporting framework Answer - The financial reporting
framework that is acceptable in view of the nature of the entity and the
objective of the financial statements
Includes general purpose: designed to meet needs of a wide range of users
(GAAP & IFRS)
and special purpose frameworks
Fair presentation frameworks Answer - All financial reporting frameworks in
the US are fair presentation frameworks
Acknowledges explicity or implicitly that to achieve fair presentation of the FS,
it may be necessary for management to provide disclosures beyond those
specifically required
Acknowledges explicitly that it may be necessary for mgmt (RARE) to depart
from a requirement to achieve fair presentation
Auditing standards Answer - (GAAS) Generally accepted auditing standards -
mandatory on all audit engagements
(GAGAS) Generally accepted government auditing standards - audits of
government organizations, programs or activities that receive government
funds
(PCAOB) - established pursuant to SOX - establish auditing standards for issuers
,(ISA) International standards of auditing
The term "must" or "is required" Answer - indicates an unconditional
requirement
must be followed in all cases
The term "should" Answer - presumptively mandatory requirement
must be followed in all cases where the requirement is relevant but allows for
departures in rare circumstances if there is appropriate justification
Conditions that indicate possible fraud Answer - Pressure
Opportunity
Rationalization
If there is substantial doubt about going concern, the auditor should: Answer -
consider the adequacy of the disclosure about the entity's possible inability to
continue as a going concern
include an emphasis of matter paragraph in the auditors report to reflect this
conclusion
Going concern documentation Answer - Conditions or events that gave rise to
the concern
Any mitigating factors the auditor finds significant
, Audit work performed to evaluate mgmt plans
Conclusion about whether it remains or is alleviated
The effect on the financial statements and disclosures
Mitigating factors Answer - when an auditors believe there is substantial doubt
about going concern, the auditor is required to consider MANAGEMENTS PLAN
FOR DEALING WITH the conditions or events that led to the auditors belief
-Plan to borrow money or restructure debt
-Plan to sell assets
-Plan to delay or reduce expenditures
-Plan to increase ownership equity
Must have BOTH intent and ability
No audit work can be done Answer - NO AUDIT OPINION
not even a bad opinion
Subsequent discovery of facts after report release date: If client refuses to
follow procedures
"DAR" them to fix it Answer - Disassociate
