AUD Section 1 - Ethics, Professional
Responsibilities, and General
Principles fully solved 2025/2026
1A1 - correct answer ✔✔
GAAS - correct answer ✔✔1. Generally Accepted Auditing Standards 2. Issued by the Auditing
Standards Board (ASB) in the form of Statements on Auditing Standards (SAS's) and codified into
AU-C sections
Format of Auditing Standards - Each standard is organized into these sections - correct answer
✔✔a. Introduction: Covers the purpose and scope of the standard
b. Objective: Clarifies the standard setters' intentions
c. Definitions: Explains key terms
Format of Auditing Standards - Requirements - correct answer ✔✔a. Defines what the auditor is
required to do to achieve the standard's objective
b. Requirements are expressed using the words "must" and "should"
Format of Auditing Standards - Application and other explanatory materials - correct answer
✔✔- Provide additional elaboration and guidance necessary to understand and implement the
standard
Purpose of an Audit - correct answer ✔✔Provide financial statement users with an opinion by
the auditor on whether the financial statements are prepared, in all material respects, in
accordance with the applicable financial reporting framework
,Purpose of an Audit Opinion - correct answer ✔✔The opinion enhances the degree of
confidence that intended users can place in the financial statement, and the audit was
performed in accordance with professional and relevant ethical requirements
Preconditions for an Audit—Use of an Appropriate Framework - correct answer ✔✔1. Auditor
should determine that framework is acceptable in view of the nature of the entity and the
financial statement objectives
2. Framework may be required by law or regulation
Preconditions for an Audit—Management Agreement - correct answer ✔✔Agreement by
management to acknowledge certain responsibilities as premise on which an audit is conducted
1. For preparing financial statements
2. For internal control - design, implementation, maintenance
3. For providing auditor with access to all information and unrestricted access to persons within
the entity
Scope Limitation—Preclusion of Engagement Acceptance - correct answer ✔✔1. If management
or those charged with governance impose a scope limitation that will result in a disclaimer prior
to auditor acceptance, the auditor should not accept the engagement
2. Unless entity is required by law or regulation to have an audit, may accept the engagement if
disclaimer of opinion acceptable under law or regulation (e.g., employee benefit plan audit)
Scope Limitation—No Preclusion of Engagement Acceptance - correct answer ✔✔Examples that
would not preclude engagement acceptance: restriction will likely result in qualified opinion,
restriction beyond control of management (subsidiary in war torn area - can't check inventory)
General Auditor Responsibilities - correct answer ✔✔1. Comply with relevant ethical
requirements
2. Plan and perform audit with professional skepticism (i.e., attitude that includes a questioning
mind, being alert to conditions that may indicate possible misstatement due to fraud or error,
and a critical assessment of audit evidence)
,3. Exercise professional judgment
4. Obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level
Audit Risk - correct answer ✔✔Risk that auditor expresses an inappropriate opinion when
financial statements are materially misstated
Defining Professional Responsibilities - correct answer ✔✔1. Unconditional—"must"
2. Presumptively mandatory—"should"
a. Comply in all cases when relevant
b. Except in rare circumstances when procedure is ineffective in the circumstances and alternate
procedures achieve the requirement's intent
3. Consider interpretive publications issued by the Auditing Standards Board (ASB) on the
application of GAAS in specific circumstances
Performance Principle - correct answer ✔✔Reasonable assurance must be obtained about
whether the financial statements as a whole are
free of material misstatement, whether due to error or fraud
1. Reasonable assurance = high, but not absolute, assurance
2. Persuasive, rather than conclusive, conclusions
Inherent Limitations of Audit - correct answer ✔✔Conditions that create inability to provide
absolute assurance
1. Nature of financial reporting
2. Nature of audit procedures
3. Need for audit to be conducted in a reasonable period of time, with a balance between
benefit and cost
, Reporting Principle - correct answer ✔✔Based upon the sufficient appropriate evidence
obtained
1. The auditor should issue a written report expressing an opinion, or
2. Make a statement that an opinion cannot be expressed
-disclaimer of opinion
1A3 - correct answer ✔✔
SSARS No. 21 Section 70 Preparation of Financial Statements - correct answer ✔✔1. Applies
when public accountant is engaged to prepare financial statements
2. Nonattest service: Does not require evaluation of independence
3. Effective for periods ending on or after December 15, 2015 (Early implementation permitted)
Preparation of Financial Statements—When AR-C Section 70 Applies - correct answer ✔✔1.
Preparation of Financial Statements
a. Prior to audit or review by another accountant
b. To be presented alongside tax return
c. To be presented alongside financial plan
2. Preparation of single financial statement with substantially all disclosures omitted
3. Using information in the general ledger to prepare financial statements outside of an
accounting software system
Accountant's Judgment Applies - correct answer ✔✔Merely assisting in preparing financial
statements is a bookkeeping service not subject to AR-C Section 70; ultimately, it is a matter of
professional judgment
Preparation of Financial Statements—When Section 70 Does NOT Apply - correct answer ✔✔1.
Preparing financial statements when engaged to perform attest services on those financial
statements
Responsibilities, and General
Principles fully solved 2025/2026
1A1 - correct answer ✔✔
GAAS - correct answer ✔✔1. Generally Accepted Auditing Standards 2. Issued by the Auditing
Standards Board (ASB) in the form of Statements on Auditing Standards (SAS's) and codified into
AU-C sections
Format of Auditing Standards - Each standard is organized into these sections - correct answer
✔✔a. Introduction: Covers the purpose and scope of the standard
b. Objective: Clarifies the standard setters' intentions
c. Definitions: Explains key terms
Format of Auditing Standards - Requirements - correct answer ✔✔a. Defines what the auditor is
required to do to achieve the standard's objective
b. Requirements are expressed using the words "must" and "should"
Format of Auditing Standards - Application and other explanatory materials - correct answer
✔✔- Provide additional elaboration and guidance necessary to understand and implement the
standard
Purpose of an Audit - correct answer ✔✔Provide financial statement users with an opinion by
the auditor on whether the financial statements are prepared, in all material respects, in
accordance with the applicable financial reporting framework
,Purpose of an Audit Opinion - correct answer ✔✔The opinion enhances the degree of
confidence that intended users can place in the financial statement, and the audit was
performed in accordance with professional and relevant ethical requirements
Preconditions for an Audit—Use of an Appropriate Framework - correct answer ✔✔1. Auditor
should determine that framework is acceptable in view of the nature of the entity and the
financial statement objectives
2. Framework may be required by law or regulation
Preconditions for an Audit—Management Agreement - correct answer ✔✔Agreement by
management to acknowledge certain responsibilities as premise on which an audit is conducted
1. For preparing financial statements
2. For internal control - design, implementation, maintenance
3. For providing auditor with access to all information and unrestricted access to persons within
the entity
Scope Limitation—Preclusion of Engagement Acceptance - correct answer ✔✔1. If management
or those charged with governance impose a scope limitation that will result in a disclaimer prior
to auditor acceptance, the auditor should not accept the engagement
2. Unless entity is required by law or regulation to have an audit, may accept the engagement if
disclaimer of opinion acceptable under law or regulation (e.g., employee benefit plan audit)
Scope Limitation—No Preclusion of Engagement Acceptance - correct answer ✔✔Examples that
would not preclude engagement acceptance: restriction will likely result in qualified opinion,
restriction beyond control of management (subsidiary in war torn area - can't check inventory)
General Auditor Responsibilities - correct answer ✔✔1. Comply with relevant ethical
requirements
2. Plan and perform audit with professional skepticism (i.e., attitude that includes a questioning
mind, being alert to conditions that may indicate possible misstatement due to fraud or error,
and a critical assessment of audit evidence)
,3. Exercise professional judgment
4. Obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level
Audit Risk - correct answer ✔✔Risk that auditor expresses an inappropriate opinion when
financial statements are materially misstated
Defining Professional Responsibilities - correct answer ✔✔1. Unconditional—"must"
2. Presumptively mandatory—"should"
a. Comply in all cases when relevant
b. Except in rare circumstances when procedure is ineffective in the circumstances and alternate
procedures achieve the requirement's intent
3. Consider interpretive publications issued by the Auditing Standards Board (ASB) on the
application of GAAS in specific circumstances
Performance Principle - correct answer ✔✔Reasonable assurance must be obtained about
whether the financial statements as a whole are
free of material misstatement, whether due to error or fraud
1. Reasonable assurance = high, but not absolute, assurance
2. Persuasive, rather than conclusive, conclusions
Inherent Limitations of Audit - correct answer ✔✔Conditions that create inability to provide
absolute assurance
1. Nature of financial reporting
2. Nature of audit procedures
3. Need for audit to be conducted in a reasonable period of time, with a balance between
benefit and cost
, Reporting Principle - correct answer ✔✔Based upon the sufficient appropriate evidence
obtained
1. The auditor should issue a written report expressing an opinion, or
2. Make a statement that an opinion cannot be expressed
-disclaimer of opinion
1A3 - correct answer ✔✔
SSARS No. 21 Section 70 Preparation of Financial Statements - correct answer ✔✔1. Applies
when public accountant is engaged to prepare financial statements
2. Nonattest service: Does not require evaluation of independence
3. Effective for periods ending on or after December 15, 2015 (Early implementation permitted)
Preparation of Financial Statements—When AR-C Section 70 Applies - correct answer ✔✔1.
Preparation of Financial Statements
a. Prior to audit or review by another accountant
b. To be presented alongside tax return
c. To be presented alongside financial plan
2. Preparation of single financial statement with substantially all disclosures omitted
3. Using information in the general ledger to prepare financial statements outside of an
accounting software system
Accountant's Judgment Applies - correct answer ✔✔Merely assisting in preparing financial
statements is a bookkeeping service not subject to AR-C Section 70; ultimately, it is a matter of
professional judgment
Preparation of Financial Statements—When Section 70 Does NOT Apply - correct answer ✔✔1.
Preparing financial statements when engaged to perform attest services on those financial
statements
