PRINCIPLES OF AUDITING EXAM 2 FINAL PAPER
2026 COMPLETE QUESTIONS ANSWERS
PREMIUM STUDY GUIDE
◉ What is the AICPA Peer Review Program?
Answer: A critical review of one public accounting firm's practices
by another firm.
◉ What is required for CPAs regarding continuing professional
education?
Answer: 120 hours every three years.
◉ What is the Uniform CPA Examination?
Answer: An examination developed and graded by the AICPA for CPA
certification.
◉ What are the three core sections of the CPA exam?
Answer: Auditing and Attestation (AUD), Financial Accounting and
Reporting (FAR), Taxation and Regulation (REG)
◉ Which organization grants permits to practice as a CPA?
Answer: State Boards of Accountancy
,◉ What does FASB stand for?
Answer: Financial Accounting Standards Board
◉ What is the primary function of the PCAOB?
Answer: To oversee public accounting firms that audit public
companies
◉ List one of the four primary duties of the PCAOB.
Answer: Register public accounting firms, establish auditing
standards, inspect audits, investigate violations
◉ What is the main objective of the SEC?
Answer: To protect investors and ensure full disclosure of financial
information
◉ What does GAAS stand for?
Answer: Generally Accepted Auditing Standards
◉ What is the purpose of an audit according to GAAS?
Answer: To provide users with an opinion on whether financial
statements are presented fairly
,◉ What is meant by 'reasonable assurance' in auditing?
Answer: A level of assurance that audit risk is acceptably low, but
not absolute
◉ What is the difference between errors and fraud in financial
statements?
Answer: Errors are unintentional misstatements, while fraud
involves intentional acts to misstate financials
◉ What are 'direct effect laws'?
Answer: Laws that have a direct effect on financial statements,
determining reported amounts or disclosures
◉ What is an 'unqualified' audit report?
Answer: Indicates that the audit was adequate and financial
statements present fairly in conformity with GAAP
◉ What does the term 'material' mean in financial reporting?
Answer: An omission is material if it could influence the judgment of
a reasonable person relying on the report
◉ What is the role of management in financial statements?
Answer: Management is responsible for the preparation and fair
presentation of the financial statements
, ◉ What is the significance of 'professional skepticism' in auditing?
Answer: It involves questioning and critically assessing audit
evidence to detect potential misstatements
◉ What is the hierarchy of GAAS?
Answer: Standards (must be applied), Interpretive Publications
(recommendations), Other Auditing Publications
◉ What is the role of the AICPA's Auditing Standards Board?
Answer: To issue auditing standards in the form of Clarified
Statements on Auditing Standards (SASs)
◉ What does PCAOB stand for?
Answer: Public Company Accounting Oversight Board
◉ What is the auditor's responsibility regarding compliance with
laws?
Answer: Auditors must understand the legal framework and
perform procedures to identify noncompliance
◉ What are the levels of responsibility according to AICPA?
2026 COMPLETE QUESTIONS ANSWERS
PREMIUM STUDY GUIDE
◉ What is the AICPA Peer Review Program?
Answer: A critical review of one public accounting firm's practices
by another firm.
◉ What is required for CPAs regarding continuing professional
education?
Answer: 120 hours every three years.
◉ What is the Uniform CPA Examination?
Answer: An examination developed and graded by the AICPA for CPA
certification.
◉ What are the three core sections of the CPA exam?
Answer: Auditing and Attestation (AUD), Financial Accounting and
Reporting (FAR), Taxation and Regulation (REG)
◉ Which organization grants permits to practice as a CPA?
Answer: State Boards of Accountancy
,◉ What does FASB stand for?
Answer: Financial Accounting Standards Board
◉ What is the primary function of the PCAOB?
Answer: To oversee public accounting firms that audit public
companies
◉ List one of the four primary duties of the PCAOB.
Answer: Register public accounting firms, establish auditing
standards, inspect audits, investigate violations
◉ What is the main objective of the SEC?
Answer: To protect investors and ensure full disclosure of financial
information
◉ What does GAAS stand for?
Answer: Generally Accepted Auditing Standards
◉ What is the purpose of an audit according to GAAS?
Answer: To provide users with an opinion on whether financial
statements are presented fairly
,◉ What is meant by 'reasonable assurance' in auditing?
Answer: A level of assurance that audit risk is acceptably low, but
not absolute
◉ What is the difference between errors and fraud in financial
statements?
Answer: Errors are unintentional misstatements, while fraud
involves intentional acts to misstate financials
◉ What are 'direct effect laws'?
Answer: Laws that have a direct effect on financial statements,
determining reported amounts or disclosures
◉ What is an 'unqualified' audit report?
Answer: Indicates that the audit was adequate and financial
statements present fairly in conformity with GAAP
◉ What does the term 'material' mean in financial reporting?
Answer: An omission is material if it could influence the judgment of
a reasonable person relying on the report
◉ What is the role of management in financial statements?
Answer: Management is responsible for the preparation and fair
presentation of the financial statements
, ◉ What is the significance of 'professional skepticism' in auditing?
Answer: It involves questioning and critically assessing audit
evidence to detect potential misstatements
◉ What is the hierarchy of GAAS?
Answer: Standards (must be applied), Interpretive Publications
(recommendations), Other Auditing Publications
◉ What is the role of the AICPA's Auditing Standards Board?
Answer: To issue auditing standards in the form of Clarified
Statements on Auditing Standards (SASs)
◉ What does PCAOB stand for?
Answer: Public Company Accounting Oversight Board
◉ What is the auditor's responsibility regarding compliance with
laws?
Answer: Auditors must understand the legal framework and
perform procedures to identify noncompliance
◉ What are the levels of responsibility according to AICPA?
