PRINCIPLES OF AUDITING EXAM 2 ACTUAL
TEST PAPER 2026 QUESTIONS SOLUTIONS
GRADED A+
◉ What are the two types of assurance services?
Answer: 1) Those that increase reliability of information; 2) Those
that facilitate decision making.
◉ What does it mean to attest to information?
Answer: To provide assurance as to its reliability.
◉ What is a CPA's role in attest engagements?
Answer: CPAs provide a report on subject matter or an assertion
about that subject matter.
◉ What are suitable criteria in auditing?
Answer: Standards for presentation generally established or
developed by expert groups.
◉ What is the financial reporting framework commonly used in the
US?
Answer: Generally Accepted Accounting Principles (GAAP).
,◉ What are the three types of attest engagements?
Answer: Examinations, reviews, and performance of agreed-upon
procedures.
◉ What is the purpose of an examination in auditing?
Answer: To provide reasonable assurance that the subject matter or
assertion is materially correct.
◉ How does a review differ from an examination?
Answer: A review is substantially less in scope and provides limited
assurance that the information is materially correct.
◉ What is an agreed-upon procedure in auditing?
Answer: Procedures mutually decided upon to be performed during
an audit.
◉ What is the main goal of financial statement audits?
Answer: To obtain reasonable assurance that the financial
statements follow GAAP or another appropriate accounting
framework.
◉ What types of evidence do auditors gather during an audit?
,Answer: Information about internal controls, document inspection,
asset observation, inquiries, and other audit procedures.
◉ What assertions does an audit address regarding the balance
sheet?
Answer: Existence of assets, rights to the assets, and proper
valuation in conformity with GAAP.
◉ What is the significance of the term 'audited' in financial
statements?
Answer: It indicates that the financial statements are accompanied
by an audit report prepared by independent public accountants.
◉ What is corporate governance?
Answer: Rules, processes, and laws by which businesses are
operated, regulated, and controlled.
◉ What is the role of the audit committee?
Answer: To oversee financial reporting, regulatory compliance, and
the work of external auditors.
◉ What does COSO stand for?
Answer: Committee of Sponsoring Organizations.
, ◉ What did the SOX Act of 2002 create?
Answer: The Public Company Accounting Oversight Board (PCAOB).
◉ What are compliance audits dependent on?
Answer: The existence of verifiable data and recognized criteria or
standards.
◉ What is the purpose of operational audits?
Answer: To measure the performance of a specific unit of an
organization in terms of effectiveness or efficiency.
◉ What is the goal of internal auditors?
Answer: To investigate and appraise the effectiveness of
organizational units and evaluate internal controls.
◉ What is the role of Government Accountability Office auditors?
Answer: To conduct compliance, operational, and financial audits for
government programs and contracts.
◉ What do Internal Revenue Agents do?
Answer: Enforce federal tax laws and conduct compliance audits of
income tax returns.
TEST PAPER 2026 QUESTIONS SOLUTIONS
GRADED A+
◉ What are the two types of assurance services?
Answer: 1) Those that increase reliability of information; 2) Those
that facilitate decision making.
◉ What does it mean to attest to information?
Answer: To provide assurance as to its reliability.
◉ What is a CPA's role in attest engagements?
Answer: CPAs provide a report on subject matter or an assertion
about that subject matter.
◉ What are suitable criteria in auditing?
Answer: Standards for presentation generally established or
developed by expert groups.
◉ What is the financial reporting framework commonly used in the
US?
Answer: Generally Accepted Accounting Principles (GAAP).
,◉ What are the three types of attest engagements?
Answer: Examinations, reviews, and performance of agreed-upon
procedures.
◉ What is the purpose of an examination in auditing?
Answer: To provide reasonable assurance that the subject matter or
assertion is materially correct.
◉ How does a review differ from an examination?
Answer: A review is substantially less in scope and provides limited
assurance that the information is materially correct.
◉ What is an agreed-upon procedure in auditing?
Answer: Procedures mutually decided upon to be performed during
an audit.
◉ What is the main goal of financial statement audits?
Answer: To obtain reasonable assurance that the financial
statements follow GAAP or another appropriate accounting
framework.
◉ What types of evidence do auditors gather during an audit?
,Answer: Information about internal controls, document inspection,
asset observation, inquiries, and other audit procedures.
◉ What assertions does an audit address regarding the balance
sheet?
Answer: Existence of assets, rights to the assets, and proper
valuation in conformity with GAAP.
◉ What is the significance of the term 'audited' in financial
statements?
Answer: It indicates that the financial statements are accompanied
by an audit report prepared by independent public accountants.
◉ What is corporate governance?
Answer: Rules, processes, and laws by which businesses are
operated, regulated, and controlled.
◉ What is the role of the audit committee?
Answer: To oversee financial reporting, regulatory compliance, and
the work of external auditors.
◉ What does COSO stand for?
Answer: Committee of Sponsoring Organizations.
, ◉ What did the SOX Act of 2002 create?
Answer: The Public Company Accounting Oversight Board (PCAOB).
◉ What are compliance audits dependent on?
Answer: The existence of verifiable data and recognized criteria or
standards.
◉ What is the purpose of operational audits?
Answer: To measure the performance of a specific unit of an
organization in terms of effectiveness or efficiency.
◉ What is the goal of internal auditors?
Answer: To investigate and appraise the effectiveness of
organizational units and evaluate internal controls.
◉ What is the role of Government Accountability Office auditors?
Answer: To conduct compliance, operational, and financial audits for
government programs and contracts.
◉ What do Internal Revenue Agents do?
Answer: Enforce federal tax laws and conduct compliance audits of
income tax returns.
