[CPA AUDITING AND ATTESTATION (AUD) EXAM] – EXAM-STYLE QUESTIONS
AND ANSWERS | VERIFIED AND WELL DETAILED ANSWERS | PLUS RATIONALES |
GUARANTEED PASS | 2026/27 LATEST UPDATE | EXAM PREP | STUDY GUIDE |
PRACTICE TEST
1. An auditor is performing an attestation engagement on an entity's internal
control over financial reporting. Which of the following is the most appropriate
approach to obtain evidence about the operating effectiveness of controls?
A. Inquire of entity personnel and observe the application of specific controls.
B. Reperform the control activities for a sample of transactions.
C. Inspect documentation related to the design of the control.
D. Perform a combination of inquiry, observation, inspection, and reperformance.
Correct Answer: D. Perform a combination of inquiry, observation, inspection,
and reperformance.
Rationale: The most reliable evidence regarding operating effectiveness is obtained
through a combination of procedures. While inquiry, observation, inspection, and
reperformance are all valid tests of controls, using a mix is the most appropriate
and robust approach. This aligns with AU-C 315 and AU-C 330, which emphasize
the importance of combining procedures to gather sufficient appropriate evidence.
Relying on a single procedure (A, B, or C) provides less persuasive evidence than a
comprehensive approach.**
2. In planning a financial statement audit, which of the following factors most
likely would cause the auditor to assess inherent risk at a higher level?
A. The entity is a new client with no prior audit history.
B. The entity's industry is experiencing significant technological changes.
,C. The entity has a strong internal audit function.
D. The entity has a history of consistently meeting earnings expectations.
Correct Answer: B. The entity's industry is experiencing significant technological
changes.
Rationale: Inherent risk is the susceptibility of an assertion to a material
misstatement, assuming no related controls. A rapidly changing industry, especially
with technological shifts, increases the likelihood that assets (e.g., inventory) may
become obsolete or that revenue recognition practices could be complex, leading to
a higher inherent risk. A new client with no audit history (A) relates more to
engagement risk and planning, not directly to inherent risk. A strong internal audit
function (C) reduces control risk, not inherent risk. A history of meeting expectations
(D) may indicate management bias, but is less directly related to inherent risk than
external industry pressures.**
3. Which of the following presumptions is most accurate regarding the
auditor's responsibility for detecting material misstatements due to fraud?
A. The auditor is responsible for detecting all fraud, regardless of materiality.
B. The auditor is not responsible for designing procedures to detect fraud.
C. The auditor must design procedures to detect material misstatements due to
fraud.
D. The responsibility for detecting fraud rests solely with the entity's
management.
Correct Answer: C. The auditor must design procedures to detect material
misstatements due to fraud.
,Rationale: Under AU-C 240, the auditor has a responsibility to plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether caused by error or fraud. The auditor is
not responsible for detecting all fraud (A) but must be alert for material
misstatements. The auditor is required to design procedures (C), and while
management has the primary responsibility for prevention (D), the auditor has a
distinct professional responsibility.**
4. An auditor is evaluating the results of a statistical sample used to test a
control. The upper deviation rate exceeds the tolerable deviation rate. What is
the most appropriate conclusion?
A. The control is operating effectively.
B. The control is not operating effectively.
C. The sample size was too small.
D. The auditor should increase substantive testing of the related account balance.
Correct Answer: B. The control is not operating effectively.
Rationale: When the upper deviation rate exceeds the tolerable deviation rate, the
auditor cannot conclude that the control is operating effectively. This indicates that
the actual deviation rate in the population is likely too high. A small sample size (C)
is a design issue that would have been addressed before testing. The primary
conclusion is about the control's operating effectiveness, which informs substantive
testing. While increasing substantive testing (D) is a likely subsequent action, the
conclusion is that the control is not effective.**
5. In performing an audit, the auditor discovers that the entity has not
recorded a material liability. What is the auditor's primary responsibility?
, A. To issue a qualified opinion due to the misstatement.
B. To communicate the matter to the audit committee.
C. To require the entity to correct the misstatement.
D. To include the misstatement in the management representation letter.
Correct Answer: C. To require the entity to correct the misstatement.
Rationale: The auditor's primary responsibility upon discovering a material
misstatement, whether in the current period or prior periods, is to request that
management correct the misstatement. This is a fundamental step to ensure the
financial statements are fairly presented. While communication to the audit
committee (B) may be necessary for uncorrected misstatements, the immediate and
primary action is to seek correction. An opinion (A) is only considered after
management refuses to correct the material misstatement.**
6. Which of the following procedures is primarily designed to provide evidence
about the completeness of recorded liabilities?
A. Vouching a sample of cash disbursements to purchase orders.
B. Confirming accounts payable balances with vendors.
C. Reviewing the subsequent period's cash disbursements for payments of
liabilities that existed at the balance sheet date.
D. Testing the mathematical accuracy of the accounts payable listing.
Correct Answer: C. Reviewing the subsequent period's cash disbursements for
payments of liabilities that existed at the balance sheet date.
Rationale: Completeness concerns unrecorded liabilities. A search for unrecorded
liabilities involves reviewing transactions after the balance sheet date to identify
payments for goods or services that were received before year-end but not recorded.
AND ANSWERS | VERIFIED AND WELL DETAILED ANSWERS | PLUS RATIONALES |
GUARANTEED PASS | 2026/27 LATEST UPDATE | EXAM PREP | STUDY GUIDE |
PRACTICE TEST
1. An auditor is performing an attestation engagement on an entity's internal
control over financial reporting. Which of the following is the most appropriate
approach to obtain evidence about the operating effectiveness of controls?
A. Inquire of entity personnel and observe the application of specific controls.
B. Reperform the control activities for a sample of transactions.
C. Inspect documentation related to the design of the control.
D. Perform a combination of inquiry, observation, inspection, and reperformance.
Correct Answer: D. Perform a combination of inquiry, observation, inspection,
and reperformance.
Rationale: The most reliable evidence regarding operating effectiveness is obtained
through a combination of procedures. While inquiry, observation, inspection, and
reperformance are all valid tests of controls, using a mix is the most appropriate
and robust approach. This aligns with AU-C 315 and AU-C 330, which emphasize
the importance of combining procedures to gather sufficient appropriate evidence.
Relying on a single procedure (A, B, or C) provides less persuasive evidence than a
comprehensive approach.**
2. In planning a financial statement audit, which of the following factors most
likely would cause the auditor to assess inherent risk at a higher level?
A. The entity is a new client with no prior audit history.
B. The entity's industry is experiencing significant technological changes.
,C. The entity has a strong internal audit function.
D. The entity has a history of consistently meeting earnings expectations.
Correct Answer: B. The entity's industry is experiencing significant technological
changes.
Rationale: Inherent risk is the susceptibility of an assertion to a material
misstatement, assuming no related controls. A rapidly changing industry, especially
with technological shifts, increases the likelihood that assets (e.g., inventory) may
become obsolete or that revenue recognition practices could be complex, leading to
a higher inherent risk. A new client with no audit history (A) relates more to
engagement risk and planning, not directly to inherent risk. A strong internal audit
function (C) reduces control risk, not inherent risk. A history of meeting expectations
(D) may indicate management bias, but is less directly related to inherent risk than
external industry pressures.**
3. Which of the following presumptions is most accurate regarding the
auditor's responsibility for detecting material misstatements due to fraud?
A. The auditor is responsible for detecting all fraud, regardless of materiality.
B. The auditor is not responsible for designing procedures to detect fraud.
C. The auditor must design procedures to detect material misstatements due to
fraud.
D. The responsibility for detecting fraud rests solely with the entity's
management.
Correct Answer: C. The auditor must design procedures to detect material
misstatements due to fraud.
,Rationale: Under AU-C 240, the auditor has a responsibility to plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether caused by error or fraud. The auditor is
not responsible for detecting all fraud (A) but must be alert for material
misstatements. The auditor is required to design procedures (C), and while
management has the primary responsibility for prevention (D), the auditor has a
distinct professional responsibility.**
4. An auditor is evaluating the results of a statistical sample used to test a
control. The upper deviation rate exceeds the tolerable deviation rate. What is
the most appropriate conclusion?
A. The control is operating effectively.
B. The control is not operating effectively.
C. The sample size was too small.
D. The auditor should increase substantive testing of the related account balance.
Correct Answer: B. The control is not operating effectively.
Rationale: When the upper deviation rate exceeds the tolerable deviation rate, the
auditor cannot conclude that the control is operating effectively. This indicates that
the actual deviation rate in the population is likely too high. A small sample size (C)
is a design issue that would have been addressed before testing. The primary
conclusion is about the control's operating effectiveness, which informs substantive
testing. While increasing substantive testing (D) is a likely subsequent action, the
conclusion is that the control is not effective.**
5. In performing an audit, the auditor discovers that the entity has not
recorded a material liability. What is the auditor's primary responsibility?
, A. To issue a qualified opinion due to the misstatement.
B. To communicate the matter to the audit committee.
C. To require the entity to correct the misstatement.
D. To include the misstatement in the management representation letter.
Correct Answer: C. To require the entity to correct the misstatement.
Rationale: The auditor's primary responsibility upon discovering a material
misstatement, whether in the current period or prior periods, is to request that
management correct the misstatement. This is a fundamental step to ensure the
financial statements are fairly presented. While communication to the audit
committee (B) may be necessary for uncorrected misstatements, the immediate and
primary action is to seek correction. An opinion (A) is only considered after
management refuses to correct the material misstatement.**
6. Which of the following procedures is primarily designed to provide evidence
about the completeness of recorded liabilities?
A. Vouching a sample of cash disbursements to purchase orders.
B. Confirming accounts payable balances with vendors.
C. Reviewing the subsequent period's cash disbursements for payments of
liabilities that existed at the balance sheet date.
D. Testing the mathematical accuracy of the accounts payable listing.
Correct Answer: C. Reviewing the subsequent period's cash disbursements for
payments of liabilities that existed at the balance sheet date.
Rationale: Completeness concerns unrecorded liabilities. A search for unrecorded
liabilities involves reviewing transactions after the balance sheet date to identify
payments for goods or services that were received before year-end but not recorded.
