CPA EXAM PRACTICE PAPER
Level: Intermediate to Exam-level
Includes: MCQs, Task-Based Simulation, Written Communication
Answers with Explanations: Provided
🧾 CPA Practice Exam – Section 1: AUD (Auditing and
Attestation)
📘 Part A: Multiple Choice Questions (MCQs)
Q1. Which of the following would most likely be considered a significant deficiency in internal
control?
A. The company’s controller is unable to prepare accurate monthly financial statements.
B. There are several material misstatements found during the audit.
C. The board of directors meets quarterly instead of monthly.
D. A bank reconciliation is performed monthly by someone with no access to cash.
Answer: A
Explanation:
A significant deficiency is a control deficiency that is less severe than a material weakness
but important enough to merit attention. The controller’s inability to prepare accurate
financials reflects inadequate financial reporting control.
Q2. An auditor most likely would apply analytical procedures in the overall review stage of an
audit to:
A. Identify the existence of related party transactions.
B. Determine whether additional audit evidence is needed.
C. Enhance the auditor's understanding of the client’s internal control.
D. Evaluate the adequacy of evidence gathered in response to unusual balances.
Answer: D
Explanation:
In the final review stage, analytical procedures help assess conclusions and ensure financial
statements are consistent with the auditor’s understanding.
Q3. Which assertion is tested when the auditor confirms accounts receivable?
A. Completeness
, B. Existence
C. Valuation
D. Rights and obligations
Answer: B
Explanation:
Confirming accounts receivable tests the existence assertion to ensure recorded
receivables are real.
🧮 Part B: Task-Based Simulation (TBS)
Scenario: You are auditing a medium-sized retail client. The company uses a perpetual
inventory system and reports $2.5 million in inventory. Your preliminary audit procedures
have identified discrepancies in inventory records and several stock-out events.
Requirements:
1. Identify two audit risks related to inventory.
2. Recommend two audit procedures to address these risks.
3. State one internal control improvement the company could implement.
Model Answer:
1. Audit Risks:
○ Overstatement of inventory due to incorrect perpetual inventory records.
○ Inventory shrinkage or loss not being captured properly in the system.
2. Audit Procedures:
○ Perform a physical inventory count and reconcile it with the system.
○ Review stock-out logs and trace them to inventory movement records.
3. Control Improvement:
○ Implement periodic cycle counts and cross-verification by independent staff to
improve inventory accuracy.
✍️ Part C: Written Communication
Prompt:
Write a memo to the audit senior summarizing the importance of maintaining professional
skepticism throughout the audit and providing two practical ways it can be demonstrated
during the evidence-gathering process.
Model Answer:
Level: Intermediate to Exam-level
Includes: MCQs, Task-Based Simulation, Written Communication
Answers with Explanations: Provided
🧾 CPA Practice Exam – Section 1: AUD (Auditing and
Attestation)
📘 Part A: Multiple Choice Questions (MCQs)
Q1. Which of the following would most likely be considered a significant deficiency in internal
control?
A. The company’s controller is unable to prepare accurate monthly financial statements.
B. There are several material misstatements found during the audit.
C. The board of directors meets quarterly instead of monthly.
D. A bank reconciliation is performed monthly by someone with no access to cash.
Answer: A
Explanation:
A significant deficiency is a control deficiency that is less severe than a material weakness
but important enough to merit attention. The controller’s inability to prepare accurate
financials reflects inadequate financial reporting control.
Q2. An auditor most likely would apply analytical procedures in the overall review stage of an
audit to:
A. Identify the existence of related party transactions.
B. Determine whether additional audit evidence is needed.
C. Enhance the auditor's understanding of the client’s internal control.
D. Evaluate the adequacy of evidence gathered in response to unusual balances.
Answer: D
Explanation:
In the final review stage, analytical procedures help assess conclusions and ensure financial
statements are consistent with the auditor’s understanding.
Q3. Which assertion is tested when the auditor confirms accounts receivable?
A. Completeness
, B. Existence
C. Valuation
D. Rights and obligations
Answer: B
Explanation:
Confirming accounts receivable tests the existence assertion to ensure recorded
receivables are real.
🧮 Part B: Task-Based Simulation (TBS)
Scenario: You are auditing a medium-sized retail client. The company uses a perpetual
inventory system and reports $2.5 million in inventory. Your preliminary audit procedures
have identified discrepancies in inventory records and several stock-out events.
Requirements:
1. Identify two audit risks related to inventory.
2. Recommend two audit procedures to address these risks.
3. State one internal control improvement the company could implement.
Model Answer:
1. Audit Risks:
○ Overstatement of inventory due to incorrect perpetual inventory records.
○ Inventory shrinkage or loss not being captured properly in the system.
2. Audit Procedures:
○ Perform a physical inventory count and reconcile it with the system.
○ Review stock-out logs and trace them to inventory movement records.
3. Control Improvement:
○ Implement periodic cycle counts and cross-verification by independent staff to
improve inventory accuracy.
✍️ Part C: Written Communication
Prompt:
Write a memo to the audit senior summarizing the importance of maintaining professional
skepticism throughout the audit and providing two practical ways it can be demonstrated
during the evidence-gathering process.
Model Answer:
