AUDITING - CPA EXAM STUDY GUIDE
2026/2027 ACCURATE QUESTIONS WITH
CORRECT DETAILED SOLUTIONS ||
100% GUARANTEED PASS
<NEWEST VERSION>
1. What is client acceptance and continuance? - ANSWER ✔ Before
accepting a new client or continuing an existing engagement, evaluate
management integrity, unusual business/audit risks, independence,
competence, industry knowledge, and applicable professional requirements.
2. What is predecessor and successor auditors? - ANSWER ✔ With client
permission, the successor auditor makes inquiries about management
integrity, disagreements with management, communications about fraud or
illegal acts, and reasons for the auditor change.
3. What is preliminary engagement activities? - ANSWER ✔ Determine
engagement-team requirements; ensure compliance with ethical and
independence requirements; establish an understanding with the entity,
ordinarily documented in an engagement letter.
4. What is management vs auditor responsibilities? - ANSWER ✔
Management is responsible for preparing and fairly presenting financial
statements and maintaining relevant internal control; the auditor plans and
performs an audit to obtain reasonable assurance that the statements are free
of material misstatement.
5. What is using internal audit work? - ANSWER ✔ Evaluate the internal
audit function's objectivity, competence, and systematic and disciplined
approach, including quality control, before using its work.
,6. What is audit planning? - ANSWER ✔ Understand the entity and its
business risks; establish materiality; consider multiple locations, specialists,
related parties, laws/regulations; develop and document overall audit
strategy and audit plan.
7. What is related-party transactions? - ANSWER ✔ Transactions with
related parties may not be at arm's length and can create heightened risk of
misstatement, improper valuation, or inadequate disclosure.
8. What is risk assessment procedures? - ANSWER ✔ Used to understand the
entity and its environment, including internal control, and identify/assess
risks of material misstatement.
9. What is tests of controls? - ANSWER ✔ Evaluate the operating
effectiveness of controls in preventing, or detecting and correcting, material
misstatements at the assertion level.
10.What is substantive procedures? - ANSWER ✔ Designed to detect material
misstatements at the assertion level; include tests of details and substantive
analytical procedures.
11.What is nature, timing, extent? - ANSWER ✔ Nature = purpose/type of
procedure; timing = when performed; extent = quantity of testing, such as
sample size.
12.What is materiality? - ANSWER ✔ Information is material if omitting or
misstating it could influence decisions users make on the basis of financial
information; evaluate quantitative and qualitative considerations.
13.What is inspection? - ANSWER ✔ Examining records/documents or
physically examining assets.
14.What is observation? - ANSWER ✔ Watching a process or procedure
performed by others.
15.What is inquiry? - ANSWER ✔ Seeking information from knowledgeable
persons inside or outside the entity.
,16.What are the functions of the audit committee? - ANSWER ✔ 1. Selects &
appoints the independent auditor and sets the audit fee.
2. Reviews the nature and details of the audit engagement.
3. Reviews the quality of the auditor's work.
4. Reviews the scope of the audit.
5. Determines that any recommendations made by the auditor are given proper
attention.
6. Maintains lines of communication between the auditor and the board of
directors.
7. Helps solve any disagreements related to the acct treatment of material items
in the F/S
8. Evaluates the I/C of the company w/ help of the independent auditor
9. Makes reports to the board of directors and stockholders when necessary
10. Assures that the auditor is independent of the company
NOTE: The audit committee has add'l. resp. under SOX
17.What should the auditor assess when considering the firm's client acceptance
and continuance policies? - ANSWER ✔ The auditor should assess:
- The firm's ability to meet reporting deadlines
- The firm's ability to staff the engagement
- Independence
- Integrity of client management
- The group engagement team's ability to obtain sufficient appropriate
audit evidence (if a group audit)
18.What is the purpose of an engagement letter? - ANSWER ✔ The
engagement letter is a written agreement between the auditor and the client.
The purpose of the agreement is to reduce the risk that either the auditor or
the client may misinterpret the needs or expectations of the other party.
19.What topics should be included in the agreement to audit engagement terms?
- ANSWER ✔ The engagement letter should include:
- Objectives and the scope of the audit
- Management's responsibilities
- The auditor's responsibilities
- The inherent limitations of the engagement
- Identification of the applicable form and content of any reports
, An engagement letter may also refer to other matters, such as timing, client
assistance, fees and billing, etc.
20.Before the auditor accepts an engagement, what communication between the
predecessor and the auditor should be made? - ANSWER ✔ Obtain client's
permission to make inquiries of the predecessor auditor regarding:
- Identified or suspected fraud
- Non compliance or suspected noncompliance with laws and
regulations
- Management integrity
- Disagreements with management
- Reasons for the change of auditors
- Communications to management and others regarding internal control
- Nature of any significant, unusual, or related party relationships and
transactions
21.Name the elements of a CPA firm's system of quality control for its auditing,
attest, and accounting and review services. - ANSWER ✔ - Firm's risk
assessment process
- Governance and leadership
- Relevant ethical requirements
- Acceptance and continuance of client relationships
- Engagement performance
- Resources (human, technological, and intellectual)
- Information and communication
- Monitoring and remediation
22.Explain the relationship between quality control standards and GAAS
standards. - ANSWER ✔ Quality management standards pertain to the
conduct of all professional activities of an entity's practice as a whole.
23.GAAS standards relate to the conduct of each individual audit engagement.
24.What are the objectives of an auditor when implementing quality control
procedures at the engagement level for a nonissuer? - ANSWER ✔ The
objectives of the auditor are to provide reasonable assurance:
- That the auditor has fulfilled their responsibilities, and that the audit
complies with professional standards and any legal or regulatory
requirements.
2026/2027 ACCURATE QUESTIONS WITH
CORRECT DETAILED SOLUTIONS ||
100% GUARANTEED PASS
<NEWEST VERSION>
1. What is client acceptance and continuance? - ANSWER ✔ Before
accepting a new client or continuing an existing engagement, evaluate
management integrity, unusual business/audit risks, independence,
competence, industry knowledge, and applicable professional requirements.
2. What is predecessor and successor auditors? - ANSWER ✔ With client
permission, the successor auditor makes inquiries about management
integrity, disagreements with management, communications about fraud or
illegal acts, and reasons for the auditor change.
3. What is preliminary engagement activities? - ANSWER ✔ Determine
engagement-team requirements; ensure compliance with ethical and
independence requirements; establish an understanding with the entity,
ordinarily documented in an engagement letter.
4. What is management vs auditor responsibilities? - ANSWER ✔
Management is responsible for preparing and fairly presenting financial
statements and maintaining relevant internal control; the auditor plans and
performs an audit to obtain reasonable assurance that the statements are free
of material misstatement.
5. What is using internal audit work? - ANSWER ✔ Evaluate the internal
audit function's objectivity, competence, and systematic and disciplined
approach, including quality control, before using its work.
,6. What is audit planning? - ANSWER ✔ Understand the entity and its
business risks; establish materiality; consider multiple locations, specialists,
related parties, laws/regulations; develop and document overall audit
strategy and audit plan.
7. What is related-party transactions? - ANSWER ✔ Transactions with
related parties may not be at arm's length and can create heightened risk of
misstatement, improper valuation, or inadequate disclosure.
8. What is risk assessment procedures? - ANSWER ✔ Used to understand the
entity and its environment, including internal control, and identify/assess
risks of material misstatement.
9. What is tests of controls? - ANSWER ✔ Evaluate the operating
effectiveness of controls in preventing, or detecting and correcting, material
misstatements at the assertion level.
10.What is substantive procedures? - ANSWER ✔ Designed to detect material
misstatements at the assertion level; include tests of details and substantive
analytical procedures.
11.What is nature, timing, extent? - ANSWER ✔ Nature = purpose/type of
procedure; timing = when performed; extent = quantity of testing, such as
sample size.
12.What is materiality? - ANSWER ✔ Information is material if omitting or
misstating it could influence decisions users make on the basis of financial
information; evaluate quantitative and qualitative considerations.
13.What is inspection? - ANSWER ✔ Examining records/documents or
physically examining assets.
14.What is observation? - ANSWER ✔ Watching a process or procedure
performed by others.
15.What is inquiry? - ANSWER ✔ Seeking information from knowledgeable
persons inside or outside the entity.
,16.What are the functions of the audit committee? - ANSWER ✔ 1. Selects &
appoints the independent auditor and sets the audit fee.
2. Reviews the nature and details of the audit engagement.
3. Reviews the quality of the auditor's work.
4. Reviews the scope of the audit.
5. Determines that any recommendations made by the auditor are given proper
attention.
6. Maintains lines of communication between the auditor and the board of
directors.
7. Helps solve any disagreements related to the acct treatment of material items
in the F/S
8. Evaluates the I/C of the company w/ help of the independent auditor
9. Makes reports to the board of directors and stockholders when necessary
10. Assures that the auditor is independent of the company
NOTE: The audit committee has add'l. resp. under SOX
17.What should the auditor assess when considering the firm's client acceptance
and continuance policies? - ANSWER ✔ The auditor should assess:
- The firm's ability to meet reporting deadlines
- The firm's ability to staff the engagement
- Independence
- Integrity of client management
- The group engagement team's ability to obtain sufficient appropriate
audit evidence (if a group audit)
18.What is the purpose of an engagement letter? - ANSWER ✔ The
engagement letter is a written agreement between the auditor and the client.
The purpose of the agreement is to reduce the risk that either the auditor or
the client may misinterpret the needs or expectations of the other party.
19.What topics should be included in the agreement to audit engagement terms?
- ANSWER ✔ The engagement letter should include:
- Objectives and the scope of the audit
- Management's responsibilities
- The auditor's responsibilities
- The inherent limitations of the engagement
- Identification of the applicable form and content of any reports
, An engagement letter may also refer to other matters, such as timing, client
assistance, fees and billing, etc.
20.Before the auditor accepts an engagement, what communication between the
predecessor and the auditor should be made? - ANSWER ✔ Obtain client's
permission to make inquiries of the predecessor auditor regarding:
- Identified or suspected fraud
- Non compliance or suspected noncompliance with laws and
regulations
- Management integrity
- Disagreements with management
- Reasons for the change of auditors
- Communications to management and others regarding internal control
- Nature of any significant, unusual, or related party relationships and
transactions
21.Name the elements of a CPA firm's system of quality control for its auditing,
attest, and accounting and review services. - ANSWER ✔ - Firm's risk
assessment process
- Governance and leadership
- Relevant ethical requirements
- Acceptance and continuance of client relationships
- Engagement performance
- Resources (human, technological, and intellectual)
- Information and communication
- Monitoring and remediation
22.Explain the relationship between quality control standards and GAAS
standards. - ANSWER ✔ Quality management standards pertain to the
conduct of all professional activities of an entity's practice as a whole.
23.GAAS standards relate to the conduct of each individual audit engagement.
24.What are the objectives of an auditor when implementing quality control
procedures at the engagement level for a nonissuer? - ANSWER ✔ The
objectives of the auditor are to provide reasonable assurance:
- That the auditor has fulfilled their responsibilities, and that the audit
complies with professional standards and any legal or regulatory
requirements.
