CALIFORNIA CERTIFIED PUBLIC ACCOUNTANT (CPA) EXAM, COVERING
TOPICS FROM AUDITING (AUD), BUSINESS ENVIRONMENT AND
CONCEPTS (BEC), FINANCIAL ACCOUNTING AND REPORTING (FAR),
AND REGULATION (REG) EXAM QUESTIONS AND CORRECT ANSWERS
(VERIFIED ANSWERS) PLUS RATIONALES 2025/2026 Q&A | INSTANT
DOWNLOAD PDF
1. Which of the following is least likely to impair an auditor’s independence?
A. Direct financial interest in the client
B. Preparing financial statements for the client
C. Providing tax advice
D. Authorizing transactions on behalf of the client
C. Providing tax advice
Providing tax advice is allowed as long as it doesn’t involve advocacy or
managerial decisions, which would impair independence.
2. Which of the following would be considered an internal control weakness?
A. Separation of duties
B. Use of pre-numbered documents
C. Lack of independent checks
D. Mandatory vacation policy
C. Lack of independent checks
Independent checks help verify the work of employees; without them, fraud or
errors may go undetected.
, 3. A CPA is most likely to refer to the COSO framework in evaluating:
A. Risk of material misstatement
B. Control environment
C. Substantive procedures
D. Going concern issues
B. Control environment
COSO is primarily used for assessing internal control structures, particularly the
control environment and risk assessment.
4. Under GAAP, a change in accounting principle is generally accounted for:
A. Retrospectively
B. Prospectively
C. Through a cumulative catch-up adjustment
D. As a correction of an error
A. Retrospectively
Changes in accounting principles require retrospective application to ensure
consistency and comparability across periods.
5. Which of the following costs should be capitalized as part of inventory?
A. Administrative salaries
B. Selling expenses
C. Freight-in
D. Advertising
C. Freight-in
Freight-in is a direct cost of acquiring inventory and should be included in the
inventory valuation.
, 6. What is the primary purpose of an engagement letter?
A. To serve as an audit program
B. To limit the auditor’s liability
C. To establish an understanding with the client
D. To document audit findings
C. To establish an understanding with the client
The engagement letter outlines the scope, objectives, and responsibilities of
both auditor and client.
7. The risk that the auditor may unknowingly fail to appropriately modify an
opinion on financial statements that are materially misstated is:
A. Inherent risk
B. Detection risk
C. Audit risk
D. Control risk
C. Audit risk
Audit risk is the risk that the auditor issues an incorrect opinion when the
financial statements are materially misstated.
8. The matching principle in accounting requires:
A. Recognition of revenue when earned
B. Recognition of expenses when incurred
C. Recognition of expenses in the same period as the revenues they help generate
D. Recognition of liabilities when obligations arise
C. Recognition of expenses in the same period as the revenues they help
generate
TOPICS FROM AUDITING (AUD), BUSINESS ENVIRONMENT AND
CONCEPTS (BEC), FINANCIAL ACCOUNTING AND REPORTING (FAR),
AND REGULATION (REG) EXAM QUESTIONS AND CORRECT ANSWERS
(VERIFIED ANSWERS) PLUS RATIONALES 2025/2026 Q&A | INSTANT
DOWNLOAD PDF
1. Which of the following is least likely to impair an auditor’s independence?
A. Direct financial interest in the client
B. Preparing financial statements for the client
C. Providing tax advice
D. Authorizing transactions on behalf of the client
C. Providing tax advice
Providing tax advice is allowed as long as it doesn’t involve advocacy or
managerial decisions, which would impair independence.
2. Which of the following would be considered an internal control weakness?
A. Separation of duties
B. Use of pre-numbered documents
C. Lack of independent checks
D. Mandatory vacation policy
C. Lack of independent checks
Independent checks help verify the work of employees; without them, fraud or
errors may go undetected.
, 3. A CPA is most likely to refer to the COSO framework in evaluating:
A. Risk of material misstatement
B. Control environment
C. Substantive procedures
D. Going concern issues
B. Control environment
COSO is primarily used for assessing internal control structures, particularly the
control environment and risk assessment.
4. Under GAAP, a change in accounting principle is generally accounted for:
A. Retrospectively
B. Prospectively
C. Through a cumulative catch-up adjustment
D. As a correction of an error
A. Retrospectively
Changes in accounting principles require retrospective application to ensure
consistency and comparability across periods.
5. Which of the following costs should be capitalized as part of inventory?
A. Administrative salaries
B. Selling expenses
C. Freight-in
D. Advertising
C. Freight-in
Freight-in is a direct cost of acquiring inventory and should be included in the
inventory valuation.
, 6. What is the primary purpose of an engagement letter?
A. To serve as an audit program
B. To limit the auditor’s liability
C. To establish an understanding with the client
D. To document audit findings
C. To establish an understanding with the client
The engagement letter outlines the scope, objectives, and responsibilities of
both auditor and client.
7. The risk that the auditor may unknowingly fail to appropriately modify an
opinion on financial statements that are materially misstated is:
A. Inherent risk
B. Detection risk
C. Audit risk
D. Control risk
C. Audit risk
Audit risk is the risk that the auditor issues an incorrect opinion when the
financial statements are materially misstated.
8. The matching principle in accounting requires:
A. Recognition of revenue when earned
B. Recognition of expenses when incurred
C. Recognition of expenses in the same period as the revenues they help generate
D. Recognition of liabilities when obligations arise
C. Recognition of expenses in the same period as the revenues they help
generate
