CPA ACTUAL PRACTICE EXAM
EACH QUESTION INCLUDES THE
CORRECT ANSWER AND A
RATIONALE
Disclaimer: This practice exam is for educational purposes only and does not constitute legal or professional advice.
The questions are based on general principles and may not reflect recent changes in laws or standards. Candidates
should refer to official study materials for the most current information
CPA Practice Examination
Section 1: Auditing & Attestation (AUD)
*Questions 1-38*
1. An auditor’s primary consideration regarding an entity’s internal controls is
whether the controls:
a) Affect the financial statement assertions.
b) Prevent management override.
c) Relate to the reliability of financial reporting.
d) Operate effectively to prevent or detect material misstatements.
,Answer: d
While internal controls encompass many objectives, from an auditing perspective, the
auditor’s primary focus is on controls that directly impact the risk of material
misstatement in the financial statements.
2. Which of the following types of audit evidence is generally considered the most
reliable?
a) Confirmation of accounts receivable received from the client’s customer.
b) A sales invoice prepared by the client’s billing department.
c) A bank statement obtained from the client’s files.
d) Analytical procedures performed by the audit senior.
Answer: a
External confirmations obtained directly by the auditor from a third party are considered
highly reliable because they originate from a source independent of the client.
3. In assessing the risk of material misstatement, the auditor is required to identify
risks that are:
a) Significant and require special audit consideration.
b) Due to fraud rather than error.
c) Pervasive to the financial statements as a whole.
d) Related to the entity’s information technology environment.
Answer: a
*ISA 315 and AU-C 315 require the auditor to determine whether identified risks are
significant risks that require special audit consideration, often because they involve
fraud, related parties, or significant transactions outside the normal course of business.*
4. Which of the following circumstances would most likely cause an auditor to
issue a qualified opinion rather than an unmodified opinion?
a) A material misstatement that is not pervasive to the financial statements.
b) A material and pervasive uncertainty about the entity’s ability to continue as a going
concern.
,c) A scope limitation imposed by the client that is material but not pervasive.
d) A lack of consistency in the application of accounting principles.
Answer: a
A qualified opinion is issued when the auditor concludes that misstatements are material
but not pervasive, or when a scope limitation is material but not pervasive. A "lack of
consistency" typically results in an emphasis-of-matter paragraph, not a modified opinion.
5. An auditor discovers a material fraud committed by the chief executive officer
(CEO). What is the auditor’s primary responsibility?
a) Resign from the engagement immediately.
b) Report the fraud to the audit committee of the board of directors.
c) Report the fraud to the Securities and Exchange Commission (SEC).
d) Issue a disclaimer of opinion.
Answer: b
The auditor’s primary responsibility is to communicate material fraud to the appropriate
level of management and to those charged with governance (e.g., the audit committee).
Reporting to external parties is generally not the auditor’s responsibility unless required by
law or regulation.
6. What is the primary purpose of a management representation letter?
a) To provide the auditor with substantive evidence to reduce audit risk.
b) To document the auditor’s understanding of the entity’s internal control.
c) To confirm oral representations made by management and to document the
continued appropriateness of those representations.
d) To serve as a substitute for other audit procedures.
Answer: c
The representation letter does not provide substantive evidence in lieu of other procedures.
Its purpose is to document management’s representations, reduce the risk of
misunderstanding, and confirm that oral representations remain valid.
, 7. Which of the following is a control that would most likely be used to ensure that
all sales invoices are properly recorded in the general ledger?
a) Prenumbered sales invoices are accounted for.
b) The billing department reconciles the sales invoice total to the sales journal total.
c) Sales invoices are matched to shipping documents before being recorded.
d) Customer accounts are reconciled monthly to the accounts receivable subsidiary
ledger.
Answer: b
Reconciling the sales invoice total (from the billing system) to the sales journal total (the
general ledger entry) is a direct control over the completeness and accuracy of the
recording of sales transactions.
8. In performing analytical procedures, the auditor develops an expectation of a
recorded amount. The difference between the expectation and the recorded
amount is the:
a) Tolerable misstatement.
b) Variance.
c) Threshold.
d) Exception.
Answer: b
The term "variance" or "unexpected difference" is used to describe the gap between the
auditor’s expectation and the client’s recorded amount.
9. When auditing an entity’s inventory, the auditor must observe the client’s
physical count of inventory. This is a:
a) Required procedure for all audits.
b) Required procedure for all audits unless impracticable.
c) Optional procedure depending on the effectiveness of internal control.
d) Required procedure only for manufacturing entities.
EACH QUESTION INCLUDES THE
CORRECT ANSWER AND A
RATIONALE
Disclaimer: This practice exam is for educational purposes only and does not constitute legal or professional advice.
The questions are based on general principles and may not reflect recent changes in laws or standards. Candidates
should refer to official study materials for the most current information
CPA Practice Examination
Section 1: Auditing & Attestation (AUD)
*Questions 1-38*
1. An auditor’s primary consideration regarding an entity’s internal controls is
whether the controls:
a) Affect the financial statement assertions.
b) Prevent management override.
c) Relate to the reliability of financial reporting.
d) Operate effectively to prevent or detect material misstatements.
,Answer: d
While internal controls encompass many objectives, from an auditing perspective, the
auditor’s primary focus is on controls that directly impact the risk of material
misstatement in the financial statements.
2. Which of the following types of audit evidence is generally considered the most
reliable?
a) Confirmation of accounts receivable received from the client’s customer.
b) A sales invoice prepared by the client’s billing department.
c) A bank statement obtained from the client’s files.
d) Analytical procedures performed by the audit senior.
Answer: a
External confirmations obtained directly by the auditor from a third party are considered
highly reliable because they originate from a source independent of the client.
3. In assessing the risk of material misstatement, the auditor is required to identify
risks that are:
a) Significant and require special audit consideration.
b) Due to fraud rather than error.
c) Pervasive to the financial statements as a whole.
d) Related to the entity’s information technology environment.
Answer: a
*ISA 315 and AU-C 315 require the auditor to determine whether identified risks are
significant risks that require special audit consideration, often because they involve
fraud, related parties, or significant transactions outside the normal course of business.*
4. Which of the following circumstances would most likely cause an auditor to
issue a qualified opinion rather than an unmodified opinion?
a) A material misstatement that is not pervasive to the financial statements.
b) A material and pervasive uncertainty about the entity’s ability to continue as a going
concern.
,c) A scope limitation imposed by the client that is material but not pervasive.
d) A lack of consistency in the application of accounting principles.
Answer: a
A qualified opinion is issued when the auditor concludes that misstatements are material
but not pervasive, or when a scope limitation is material but not pervasive. A "lack of
consistency" typically results in an emphasis-of-matter paragraph, not a modified opinion.
5. An auditor discovers a material fraud committed by the chief executive officer
(CEO). What is the auditor’s primary responsibility?
a) Resign from the engagement immediately.
b) Report the fraud to the audit committee of the board of directors.
c) Report the fraud to the Securities and Exchange Commission (SEC).
d) Issue a disclaimer of opinion.
Answer: b
The auditor’s primary responsibility is to communicate material fraud to the appropriate
level of management and to those charged with governance (e.g., the audit committee).
Reporting to external parties is generally not the auditor’s responsibility unless required by
law or regulation.
6. What is the primary purpose of a management representation letter?
a) To provide the auditor with substantive evidence to reduce audit risk.
b) To document the auditor’s understanding of the entity’s internal control.
c) To confirm oral representations made by management and to document the
continued appropriateness of those representations.
d) To serve as a substitute for other audit procedures.
Answer: c
The representation letter does not provide substantive evidence in lieu of other procedures.
Its purpose is to document management’s representations, reduce the risk of
misunderstanding, and confirm that oral representations remain valid.
, 7. Which of the following is a control that would most likely be used to ensure that
all sales invoices are properly recorded in the general ledger?
a) Prenumbered sales invoices are accounted for.
b) The billing department reconciles the sales invoice total to the sales journal total.
c) Sales invoices are matched to shipping documents before being recorded.
d) Customer accounts are reconciled monthly to the accounts receivable subsidiary
ledger.
Answer: b
Reconciling the sales invoice total (from the billing system) to the sales journal total (the
general ledger entry) is a direct control over the completeness and accuracy of the
recording of sales transactions.
8. In performing analytical procedures, the auditor develops an expectation of a
recorded amount. The difference between the expectation and the recorded
amount is the:
a) Tolerable misstatement.
b) Variance.
c) Threshold.
d) Exception.
Answer: b
The term "variance" or "unexpected difference" is used to describe the gap between the
auditor’s expectation and the client’s recorded amount.
9. When auditing an entity’s inventory, the auditor must observe the client’s
physical count of inventory. This is a:
a) Required procedure for all audits.
b) Required procedure for all audits unless impracticable.
c) Optional procedure depending on the effectiveness of internal control.
d) Required procedure only for manufacturing entities.
