2026 Certified Public Accountant Exam New Latest
Version (Past Exam) with All Questions, 100%
Correct Answers and Rationale
SECTION 1: AUD (Auditing and Attestation) - CORE
Total Questions: 30 MCQs + 5 TBSs
AUD - Multiple-Choice Questions (1-30)
Question 1
An auditor is planning an audit for a new client. Which of the following procedures is required to
be performed before accepting the audit engagement?
a) Assessing the risks of material misstatement due to fraud.
b) Determining materiality for the financial statements as a whole.
c) Communicating with the predecessor auditor.
d) Developing the overall audit strategy.
Correct Answer: c) Communicating with the predecessor auditor.
Rationale: AU-C 210 requires the successor auditor to attempt to communicate with the
predecessor auditor before accepting the engagement to obtain information about management
integrity, disagreements, and other factors relevant to the acceptance decision.
Question 2
Which of the following statements is correct concerning the concept of materiality?
a) Materiality is determined based on quantitative factors only.
b) Materiality is a matter of professional judgment.
c) Materiality remains constant throughout the audit.
d) Materiality is determined after the audit is completed.
Correct Answer: b) Materiality is a matter of professional judgment.
Rationale: Materiality involves both quantitative and qualitative considerations and is a matter
of professional judgment. It is determined during planning and may change as the audit
progresses.
Question 3
An auditor discovers that a client has made illegal political contributions. Which of the following
actions should the auditor take first?
a) Report the illegal act to the SEC.
b) Communicate the illegal act to those charged with governance.
c) Withdraw from the engagement.
d) Modify the audit opinion.
Correct Answer: b) Communicate the illegal act to those charged with governance.
Rationale: AU-C 250 requires the auditor to communicate illegal acts to those charged with
governance unless they are clearly inconsequential. The auditor should also consider the effect
on the financial statements and other reporting responsibilities.
Question 4
,Which of the following types of audit evidence is the most reliable?
a) A vendor invoice obtained from the client's files.
b) A confirmation received directly from a third party.
c) A management representation letter.
d) A copy of a bank statement obtained from the client.
Correct Answer: b) A confirmation received directly from a third party.
Rationale: Evidence obtained directly from independent external sources (confirmations) is
generally more reliable than evidence obtained internally or from the client.
Question 5
An auditor assesses the risk of material misstatement at the financial statement level. This risk is
most affected by which of the following?
a) The operating effectiveness of internal controls.
b) The susceptibility of specific account balances to misstatement.
c) The competence of the audit team.
d) Weaknesses in the control environment.
Correct Answer: d) Weaknesses in the control environment.
Rationale: Financial statement-level risks relate pervasively to the financial statements as a
whole and often stem from a weak control environment, which can affect multiple assertions and
accounts.
Question 6
Which of the following audit procedures provides the most reliable evidence regarding the
existence of inventory?
a) Observing the client's physical inventory count.
b) Reviewing the client's perpetual inventory records.
c) Testing the clerical accuracy of inventory listings.
d) Obtaining management's written representation about inventory.
Correct Answer: a) Observing the client's physical inventory count.
Rationale: Observation of the physical inventory count provides direct evidence about the
existence of inventory and is a required audit procedure under GAAS when inventory is material.
Question 7
An auditor is required to establish an understanding with the client regarding the services to be
performed. This understanding should be:
a) Oral only.
b) In a written engagement letter.
c) Implied by the client's acceptance of services.
d) Documented in the auditor's working papers only.
Correct Answer: b) In a written engagement letter.
Rationale: AU-C 210 requires that the auditor document the understanding with the client in a
written engagement letter, which is signed by both parties.
Question 8
Which of the following is an example of a substantive procedure?
a) Inquiring about management's process for identifying related parties.
,b) Observing the client's periodic physical inventory count.
c) Reviewing the client's procedures for approving credit sales.
d) Testing the operating effectiveness of a control over cash receipts.
Correct Answer: b) Observing the client's periodic physical inventory count.
Rationale: Substantive procedures are designed to detect material misstatements at the assertion
level. Observation of the physical inventory count provides direct evidence about the existence
assertion.
Question 9
The audit risk model is: Audit Risk = Inherent Risk × Control Risk × Detection Risk. If inherent
risk and control risk are assessed as high, detection risk should be:
a) High.
b) Low.
c) Moderate.
d) Unchanged.
Correct Answer: b) Low.
Rationale: To maintain an acceptable level of audit risk, detection risk must be inversely related
to the assessed levels of inherent and control risk. If inherent and control risk are high, detection
risk must be low.
Question 10
Which of the following would be considered a related party transaction?
a) A sale of inventory to a major customer.
b) A purchase of raw materials from a supplier.
c) A loan to a company owned by the CEO's brother.
d) A routine payment to a utility company.
Correct Answer: c) A loan to a company owned by the CEO's brother.
Rationale: Related parties include affiliates, principal owners, management, and their immediate
family members. Transactions with entities controlled by family members of management must
be disclosed.
Question 11
An auditor is reviewing a client's journal entries for evidence of management fraud. Which of the
following journal entries should the auditor focus on?
a) Routine, recurring entries.
b) Entries made at the beginning of the period.
c) Entries made at the end of the period.
d) Entries approved by the controller.
Correct Answer: c) Entries made at the end of the period.
Rationale: Fraudulent journal entries are often made at the end of a reporting period to
manipulate financial results. Auditors should focus on non-standard, non-routine, and period-end
entries.
Question 12
Which of the following statements is correct regarding an auditor's responsibility for detecting
fraud?
, a) The auditor is responsible for detecting all fraud, no matter how material or immaterial.
b) The auditor is responsible for detecting material misstatements caused by fraud.
c) The auditor has no responsibility for detecting fraud.
d) The auditor's responsibility for detecting fraud is the same as for detecting errors.
Correct Answer: b) The auditor is responsible for detecting material misstatements caused by
fraud.
Rationale: The auditor has a responsibility to plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether
caused by error or fraud.
Question 13
An auditor issues a qualified opinion due to a material but not pervasive departure from GAAP.
The opinion paragraph should include the word(s):
a) "Except for"
b) "Adverse"
c) "Disclaimer"
d) "Unmodified"
Correct Answer: a) "Except for"
Rationale: A qualified opinion is expressed when the auditor concludes that misstatements are
material but not pervasive. The opinion paragraph includes the phrase "except for" the effects of
the matter.
Question 14
Which of the following is required communication with those charged with governance?
a) The auditor's assessment of the risk of fraud.
b) The auditor's planned scope and timing of the audit.
c) Significant deficiencies in internal control.
d) All of the above.
Correct Answer: d) All of the above.
Rationale: AU-C 260 requires the auditor to communicate with those charged with governance
regarding the auditor's responsibilities, planned scope and timing, significant findings, and
significant deficiencies in internal control.
Question 15
An auditor is performing analytical procedures during the planning phase. Which of the
following is the primary purpose of these procedures?
a) To obtain evidence about specific account balances.
b) To assist in identifying unusual transactions or events.
c) To test the operating effectiveness of internal controls.
d) To form an overall conclusion about the financial statements.
Correct Answer: b) To assist in identifying unusual transactions or events.
Rationale: Analytical procedures performed during planning are designed to enhance the
auditor's understanding of the client's business and to identify areas of potential risk, including
unusual transactions or events.
Question 16
Version (Past Exam) with All Questions, 100%
Correct Answers and Rationale
SECTION 1: AUD (Auditing and Attestation) - CORE
Total Questions: 30 MCQs + 5 TBSs
AUD - Multiple-Choice Questions (1-30)
Question 1
An auditor is planning an audit for a new client. Which of the following procedures is required to
be performed before accepting the audit engagement?
a) Assessing the risks of material misstatement due to fraud.
b) Determining materiality for the financial statements as a whole.
c) Communicating with the predecessor auditor.
d) Developing the overall audit strategy.
Correct Answer: c) Communicating with the predecessor auditor.
Rationale: AU-C 210 requires the successor auditor to attempt to communicate with the
predecessor auditor before accepting the engagement to obtain information about management
integrity, disagreements, and other factors relevant to the acceptance decision.
Question 2
Which of the following statements is correct concerning the concept of materiality?
a) Materiality is determined based on quantitative factors only.
b) Materiality is a matter of professional judgment.
c) Materiality remains constant throughout the audit.
d) Materiality is determined after the audit is completed.
Correct Answer: b) Materiality is a matter of professional judgment.
Rationale: Materiality involves both quantitative and qualitative considerations and is a matter
of professional judgment. It is determined during planning and may change as the audit
progresses.
Question 3
An auditor discovers that a client has made illegal political contributions. Which of the following
actions should the auditor take first?
a) Report the illegal act to the SEC.
b) Communicate the illegal act to those charged with governance.
c) Withdraw from the engagement.
d) Modify the audit opinion.
Correct Answer: b) Communicate the illegal act to those charged with governance.
Rationale: AU-C 250 requires the auditor to communicate illegal acts to those charged with
governance unless they are clearly inconsequential. The auditor should also consider the effect
on the financial statements and other reporting responsibilities.
Question 4
,Which of the following types of audit evidence is the most reliable?
a) A vendor invoice obtained from the client's files.
b) A confirmation received directly from a third party.
c) A management representation letter.
d) A copy of a bank statement obtained from the client.
Correct Answer: b) A confirmation received directly from a third party.
Rationale: Evidence obtained directly from independent external sources (confirmations) is
generally more reliable than evidence obtained internally or from the client.
Question 5
An auditor assesses the risk of material misstatement at the financial statement level. This risk is
most affected by which of the following?
a) The operating effectiveness of internal controls.
b) The susceptibility of specific account balances to misstatement.
c) The competence of the audit team.
d) Weaknesses in the control environment.
Correct Answer: d) Weaknesses in the control environment.
Rationale: Financial statement-level risks relate pervasively to the financial statements as a
whole and often stem from a weak control environment, which can affect multiple assertions and
accounts.
Question 6
Which of the following audit procedures provides the most reliable evidence regarding the
existence of inventory?
a) Observing the client's physical inventory count.
b) Reviewing the client's perpetual inventory records.
c) Testing the clerical accuracy of inventory listings.
d) Obtaining management's written representation about inventory.
Correct Answer: a) Observing the client's physical inventory count.
Rationale: Observation of the physical inventory count provides direct evidence about the
existence of inventory and is a required audit procedure under GAAS when inventory is material.
Question 7
An auditor is required to establish an understanding with the client regarding the services to be
performed. This understanding should be:
a) Oral only.
b) In a written engagement letter.
c) Implied by the client's acceptance of services.
d) Documented in the auditor's working papers only.
Correct Answer: b) In a written engagement letter.
Rationale: AU-C 210 requires that the auditor document the understanding with the client in a
written engagement letter, which is signed by both parties.
Question 8
Which of the following is an example of a substantive procedure?
a) Inquiring about management's process for identifying related parties.
,b) Observing the client's periodic physical inventory count.
c) Reviewing the client's procedures for approving credit sales.
d) Testing the operating effectiveness of a control over cash receipts.
Correct Answer: b) Observing the client's periodic physical inventory count.
Rationale: Substantive procedures are designed to detect material misstatements at the assertion
level. Observation of the physical inventory count provides direct evidence about the existence
assertion.
Question 9
The audit risk model is: Audit Risk = Inherent Risk × Control Risk × Detection Risk. If inherent
risk and control risk are assessed as high, detection risk should be:
a) High.
b) Low.
c) Moderate.
d) Unchanged.
Correct Answer: b) Low.
Rationale: To maintain an acceptable level of audit risk, detection risk must be inversely related
to the assessed levels of inherent and control risk. If inherent and control risk are high, detection
risk must be low.
Question 10
Which of the following would be considered a related party transaction?
a) A sale of inventory to a major customer.
b) A purchase of raw materials from a supplier.
c) A loan to a company owned by the CEO's brother.
d) A routine payment to a utility company.
Correct Answer: c) A loan to a company owned by the CEO's brother.
Rationale: Related parties include affiliates, principal owners, management, and their immediate
family members. Transactions with entities controlled by family members of management must
be disclosed.
Question 11
An auditor is reviewing a client's journal entries for evidence of management fraud. Which of the
following journal entries should the auditor focus on?
a) Routine, recurring entries.
b) Entries made at the beginning of the period.
c) Entries made at the end of the period.
d) Entries approved by the controller.
Correct Answer: c) Entries made at the end of the period.
Rationale: Fraudulent journal entries are often made at the end of a reporting period to
manipulate financial results. Auditors should focus on non-standard, non-routine, and period-end
entries.
Question 12
Which of the following statements is correct regarding an auditor's responsibility for detecting
fraud?
, a) The auditor is responsible for detecting all fraud, no matter how material or immaterial.
b) The auditor is responsible for detecting material misstatements caused by fraud.
c) The auditor has no responsibility for detecting fraud.
d) The auditor's responsibility for detecting fraud is the same as for detecting errors.
Correct Answer: b) The auditor is responsible for detecting material misstatements caused by
fraud.
Rationale: The auditor has a responsibility to plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether
caused by error or fraud.
Question 13
An auditor issues a qualified opinion due to a material but not pervasive departure from GAAP.
The opinion paragraph should include the word(s):
a) "Except for"
b) "Adverse"
c) "Disclaimer"
d) "Unmodified"
Correct Answer: a) "Except for"
Rationale: A qualified opinion is expressed when the auditor concludes that misstatements are
material but not pervasive. The opinion paragraph includes the phrase "except for" the effects of
the matter.
Question 14
Which of the following is required communication with those charged with governance?
a) The auditor's assessment of the risk of fraud.
b) The auditor's planned scope and timing of the audit.
c) Significant deficiencies in internal control.
d) All of the above.
Correct Answer: d) All of the above.
Rationale: AU-C 260 requires the auditor to communicate with those charged with governance
regarding the auditor's responsibilities, planned scope and timing, significant findings, and
significant deficiencies in internal control.
Question 15
An auditor is performing analytical procedures during the planning phase. Which of the
following is the primary purpose of these procedures?
a) To obtain evidence about specific account balances.
b) To assist in identifying unusual transactions or events.
c) To test the operating effectiveness of internal controls.
d) To form an overall conclusion about the financial statements.
Correct Answer: b) To assist in identifying unusual transactions or events.
Rationale: Analytical procedures performed during planning are designed to enhance the
auditor's understanding of the client's business and to identify areas of potential risk, including
unusual transactions or events.
Question 16
