CPA -Audit -Section Simulated Exam
Questions with Guaranteed Pass
Solutions 2026 Updated.
The accuracy of information included in notes that accompany the audited financial statements
of a company whose shares are traded on a stock exchange is the primary responsibility of the
a. Stock exchange officials.
b. Independent auditor.
c. Company's management.
d. Securities and Exchange Commission. - Answer c. Company's management.
When financial statements are presented fairly, they are
a. Free from material misstatement but not free from material error due to fraud.
b. Free from most material misstatements, whether due to fraud or error.
c. Free from material misstatement, whether due to fraud or error.
d. Absolutely assured to not contain material misstatements. - Answer c. Free from material
misstatement, whether due to fraud or error.
An auditor who includes an emphasis-of-matter paragraph in the auditor's report should
a. State that the opinion is modified with respect to the specific matter.
b. State where relevant disclosures can be found.
c. Indicate agreement with the information presented.
,d. Explain why the matter was not disclosed in the financial statements. - Answer b. State
where relevant disclosures can be found.
An audit was performed by Leo Gonzales, CPA, of the financial statements of Lectronic Leasing
Company for the year ended December 31. A cash advance to Computer Credit Corporation is
material to the presentation of Lectronic's financial position. Computer Credit's unaudited
financial statements show negative working capital, negative equity, and losses in each of the 5
preceding years. Mr. Gonzales has suggested an allowance for the uncollectibility of the advance
to Computer Credit. All of the stock of both Lectronic and Computer Credit is owned by Paul
McRae and his family. Mr. McRae adamantly refuses to consider an allowance for
uncollectibility. He insists that Computer Credit eventually will be profitable and be able to
repay the advance. Mr. McRae proposes the following note to
Lectronic's statements:
Note to Financial Statements-
At December 31, the Company had advanced $500,000 to Computer Credit Corp - Answer d.
Unmodified because the issue of collectibility is now settled.
Under which of the following circumstances might an auditor disclaim an opinion?
a. There has been a material change between periods in the method of application of
accounting principles.
b. A group auditor decides to refer to the report of a component auditor who audited a
subsidiary.
c. There are significant uncertainties affecting the financial statements for which the auditor is
unable to obtain sufficient evidence to support management's assertions.
d. The financial statements contain a departure from generally accepted accounting principles,
the effect of which is material. - Answer c. There are significant uncertainties affecting the
financial statements for which the auditor is unable to obtain sufficient evidence to support
management's assertions.
An emphasis-of-matter paragraph is used in the auditor's report to draw users' attention to
a. A material misstatement.
b. A matter appropriately presented or disclosed in the financial statements.
,c. A matter that is not presented or disclosed in the financial statements that is relevant to
users' understanding of the audit.
d. A matter that management wishes to highlight. - Answer b. A matter appropriately
presented or disclosed in the financial statements.
Under which of the following circumstances might an auditor disclaim an opinion?
a. The auditor is unable to obtain sufficient appropriate evidence to support management's
assertions concerning an uncertainty.
b. The financial statements contain a material misstatement.
c. Material related party transactions are disclosed in the financial statements.
d. There has been a material change between periods in the method of application of
accounting principles. - Answer a. The auditor is unable to obtain sufficient appropriate
evidence to support management's assertions concerning an uncertainty.
Auditor A was engaged to audit the financial statements for the most recent year of Company Y,
a nonissuer. At the end of the audit, the auditor determines that either a qualified opinion or a
disclaimer of opinion will be expressed. The most likely reason is that
a. The auditor identified misstatements that are material and pervasive.
b. The auditor was unable to obtain sufficient appropriate evidence to conclude the statements
are presented fairly.
c. Management refused to provide to the auditor material information about revenue
recognition.
d. The auditor did not observe beginning inventory but performed alternative procedures. -
Answer b. The auditor was unable to obtain sufficient appropriate evidence to conclude the
statements are presented fairly.
Adequate disclosure means that sufficient information is presented so that financial statements
are not misleading. The decisions about adequate disclosure should reflect the needs of
a. All readers of the financial statements.
, b. Users with a reasonable knowledge of business.
c. Experts in accounting and finance.
d. Governmental regulatory agencies. - Answer b. Users with a reasonable knowledge of
business.
The auditor's report in an audit of an issuer may be addressed to
a. The board of directors and shareholders.
b. The chief financial officer.
c. The chief operating officer.
d. Whom it may concern. - Answer a. The board of directors and shareholders.
An auditor expresses an adverse opinion if
a. The company's ability to continue as a going concern is subject to substantial doubt.
b. A qualified opinion cannot be expressed because the auditor lacks independence.
c. A misstatement is material and pervasive.
d. A severe scope limitation has been imposed by management. - Answer c. A misstatement is
material and pervasive.
Which of the following statements best describes the distinction between the auditor's
responsibilities and management's responsibilities?
a. Management has responsibility for maintaining and adopting sound accounting policies, and
the auditor has responsibility for the system of internal control.
Questions with Guaranteed Pass
Solutions 2026 Updated.
The accuracy of information included in notes that accompany the audited financial statements
of a company whose shares are traded on a stock exchange is the primary responsibility of the
a. Stock exchange officials.
b. Independent auditor.
c. Company's management.
d. Securities and Exchange Commission. - Answer c. Company's management.
When financial statements are presented fairly, they are
a. Free from material misstatement but not free from material error due to fraud.
b. Free from most material misstatements, whether due to fraud or error.
c. Free from material misstatement, whether due to fraud or error.
d. Absolutely assured to not contain material misstatements. - Answer c. Free from material
misstatement, whether due to fraud or error.
An auditor who includes an emphasis-of-matter paragraph in the auditor's report should
a. State that the opinion is modified with respect to the specific matter.
b. State where relevant disclosures can be found.
c. Indicate agreement with the information presented.
,d. Explain why the matter was not disclosed in the financial statements. - Answer b. State
where relevant disclosures can be found.
An audit was performed by Leo Gonzales, CPA, of the financial statements of Lectronic Leasing
Company for the year ended December 31. A cash advance to Computer Credit Corporation is
material to the presentation of Lectronic's financial position. Computer Credit's unaudited
financial statements show negative working capital, negative equity, and losses in each of the 5
preceding years. Mr. Gonzales has suggested an allowance for the uncollectibility of the advance
to Computer Credit. All of the stock of both Lectronic and Computer Credit is owned by Paul
McRae and his family. Mr. McRae adamantly refuses to consider an allowance for
uncollectibility. He insists that Computer Credit eventually will be profitable and be able to
repay the advance. Mr. McRae proposes the following note to
Lectronic's statements:
Note to Financial Statements-
At December 31, the Company had advanced $500,000 to Computer Credit Corp - Answer d.
Unmodified because the issue of collectibility is now settled.
Under which of the following circumstances might an auditor disclaim an opinion?
a. There has been a material change between periods in the method of application of
accounting principles.
b. A group auditor decides to refer to the report of a component auditor who audited a
subsidiary.
c. There are significant uncertainties affecting the financial statements for which the auditor is
unable to obtain sufficient evidence to support management's assertions.
d. The financial statements contain a departure from generally accepted accounting principles,
the effect of which is material. - Answer c. There are significant uncertainties affecting the
financial statements for which the auditor is unable to obtain sufficient evidence to support
management's assertions.
An emphasis-of-matter paragraph is used in the auditor's report to draw users' attention to
a. A material misstatement.
b. A matter appropriately presented or disclosed in the financial statements.
,c. A matter that is not presented or disclosed in the financial statements that is relevant to
users' understanding of the audit.
d. A matter that management wishes to highlight. - Answer b. A matter appropriately
presented or disclosed in the financial statements.
Under which of the following circumstances might an auditor disclaim an opinion?
a. The auditor is unable to obtain sufficient appropriate evidence to support management's
assertions concerning an uncertainty.
b. The financial statements contain a material misstatement.
c. Material related party transactions are disclosed in the financial statements.
d. There has been a material change between periods in the method of application of
accounting principles. - Answer a. The auditor is unable to obtain sufficient appropriate
evidence to support management's assertions concerning an uncertainty.
Auditor A was engaged to audit the financial statements for the most recent year of Company Y,
a nonissuer. At the end of the audit, the auditor determines that either a qualified opinion or a
disclaimer of opinion will be expressed. The most likely reason is that
a. The auditor identified misstatements that are material and pervasive.
b. The auditor was unable to obtain sufficient appropriate evidence to conclude the statements
are presented fairly.
c. Management refused to provide to the auditor material information about revenue
recognition.
d. The auditor did not observe beginning inventory but performed alternative procedures. -
Answer b. The auditor was unable to obtain sufficient appropriate evidence to conclude the
statements are presented fairly.
Adequate disclosure means that sufficient information is presented so that financial statements
are not misleading. The decisions about adequate disclosure should reflect the needs of
a. All readers of the financial statements.
, b. Users with a reasonable knowledge of business.
c. Experts in accounting and finance.
d. Governmental regulatory agencies. - Answer b. Users with a reasonable knowledge of
business.
The auditor's report in an audit of an issuer may be addressed to
a. The board of directors and shareholders.
b. The chief financial officer.
c. The chief operating officer.
d. Whom it may concern. - Answer a. The board of directors and shareholders.
An auditor expresses an adverse opinion if
a. The company's ability to continue as a going concern is subject to substantial doubt.
b. A qualified opinion cannot be expressed because the auditor lacks independence.
c. A misstatement is material and pervasive.
d. A severe scope limitation has been imposed by management. - Answer c. A misstatement is
material and pervasive.
Which of the following statements best describes the distinction between the auditor's
responsibilities and management's responsibilities?
a. Management has responsibility for maintaining and adopting sound accounting policies, and
the auditor has responsibility for the system of internal control.
