AUD CPA Test Questions with Correct Answers Graded A+
check register - Answers A record used to track and document all transactions in a checking
account, including deposits, withdrawals, and checks, helping to maintain an accurate balance
and prevent overdrafts.
What is assertion? - Answers a claim or representation made by a company's management
about the accuracy and completeness of its financial statements
PBO (pension benefit obligation) - Answers present value of all benefits earned by employees,
both active and retired, under a defined benefit pension plan.
When auditor suspects fraud, should follow steps: - Answers 1. consider integrity of
management
2. materiality levels (may need adjustment)
3. implication for other audit areas.
4. report to higher level of management.
Vouching - Answers test existence
Tracing - Answers test completeness
Deed - Answers a doc to show transfer of ownership, doesn't include sales price/ asset cost.
Mortgage loan - Answers a doc to confirm the outstanding loan balance, but no property cost
information.
Closing statement - Answers Closing statement: records transactions details and commonly
used when purchase a property.
Long term debt/ payable - Answers describes a financial obligation with a maturity exceeding
one year, ie that is not coming due within the next twelve months.
Provision - Answers funds put aside by a company used to cover future loss
Engagement letter - Answers states clear that auditor will contact management team for any
deficiencies and material weakness identified. Then, if anything identified, auditor will
communicate with those charged with governance and management in writing.
Predecessor auditor - Answers only discuss management integrity issue/ disagreement and
won't talk about engagement specifics such as timetable in prior years.
Examining tangible goods and determine the impaired value (which assertion?) - Answers
inspection
,Inventory count and procedure performed by others (which assertion?) - Answers observation
Variables sampling - Answers test of details/ substantive testing
Attribute sampling - Answers test of controls/ reaching conclusion in terms of occurrence.
Type I Error - Answers Assessing RMM too high, this error is easy to fix
Type II error - Answers Assessing RMM too low, this error is hard to fix
Attribute sampling: - Answers does not apply to risk assessment procedures.
Sample deviation rate + allowance = upper limit - Answers
PPS (Probability proportional sampling) - Answers useful to detect Overstatement:
dollar unit sampling;
treat each dollar value as sampling unit.
PPS will result stratified sample
Not good to use if the sample has misstatement.
don't need to wait for full population to begin sample process
Classical variables sampling - Answers useful to detect understatements
standard deviation for population needed
All items have equal chance to be selected
can't begin sample process until complete population is available.
Statistical methods - Answers 1. stratified statistical
2. variables.
3. attribute (t is used to estimate how much of the population possesses a specific
characteristic.
Non-statistical - Answers 1. stratified
2.haphazard
3.block (select series of contiguous or consecutive item from a population to test.)
three factors will affect the sample size in attribute sampling. - Answers tolerable rate
expected deviation rate
, allowance for sampling risk
Precision: - Answers evaluates the sampling results by calculating the possible error in either
direction.
Tolerable misstatement increase, sample size will : - Answers sample size go down (inverse )
Tolerable deviation rate increase - Answers sample size go down (inverse )
Allowable/Acceptable level of risk increase - Answers sample size go down (inverse )
Increase in incorrect acceptance - Answers sample size go down (inverse )
Assessed level of control risk increase - Answers size go up (direct)
Expected misstatement increase - Answers size go up (direct)
Standard deviation increase - Answers size go up (direct)
Population no effect on sample size - Answers
Sample Interval Formula - Answers population book value / sample size.
Valuation and allocation assertion applies - Answers when gain on PPE exceeds its carrying
value
when old/ obsolete inventory identified
Classification - Answers when there's maintenance, there could be routine maintenance cost or
adding value to the assets. How to classify the cost as expense or capitalize it? Can be
classification issue.
Understandability - Answers disclosure on FS are clear to read and understand
Invoice register - Answers a temporary holding place within an accounting system that records
supplier invoices before they are posted to the general ledger
To test existence of inventory - Answers Confirmation is most effective, to avoid auditor travel
to see the inventory
ad hoc transformation - Answers a data modification performed to answer a specific, unplanned
question or fulfill an immediate, temporary need, rather than as part of a standard, long-term
data process.= can't provide reliable information to auditor.
Cutoff statement vs outstanding check list - Answers trace from cutoff statement to
outstanding check list will be the correct procedure.
Kitting - Answers can be identified by using interbank transfer schedule that shows all checks
check register - Answers A record used to track and document all transactions in a checking
account, including deposits, withdrawals, and checks, helping to maintain an accurate balance
and prevent overdrafts.
What is assertion? - Answers a claim or representation made by a company's management
about the accuracy and completeness of its financial statements
PBO (pension benefit obligation) - Answers present value of all benefits earned by employees,
both active and retired, under a defined benefit pension plan.
When auditor suspects fraud, should follow steps: - Answers 1. consider integrity of
management
2. materiality levels (may need adjustment)
3. implication for other audit areas.
4. report to higher level of management.
Vouching - Answers test existence
Tracing - Answers test completeness
Deed - Answers a doc to show transfer of ownership, doesn't include sales price/ asset cost.
Mortgage loan - Answers a doc to confirm the outstanding loan balance, but no property cost
information.
Closing statement - Answers Closing statement: records transactions details and commonly
used when purchase a property.
Long term debt/ payable - Answers describes a financial obligation with a maturity exceeding
one year, ie that is not coming due within the next twelve months.
Provision - Answers funds put aside by a company used to cover future loss
Engagement letter - Answers states clear that auditor will contact management team for any
deficiencies and material weakness identified. Then, if anything identified, auditor will
communicate with those charged with governance and management in writing.
Predecessor auditor - Answers only discuss management integrity issue/ disagreement and
won't talk about engagement specifics such as timetable in prior years.
Examining tangible goods and determine the impaired value (which assertion?) - Answers
inspection
,Inventory count and procedure performed by others (which assertion?) - Answers observation
Variables sampling - Answers test of details/ substantive testing
Attribute sampling - Answers test of controls/ reaching conclusion in terms of occurrence.
Type I Error - Answers Assessing RMM too high, this error is easy to fix
Type II error - Answers Assessing RMM too low, this error is hard to fix
Attribute sampling: - Answers does not apply to risk assessment procedures.
Sample deviation rate + allowance = upper limit - Answers
PPS (Probability proportional sampling) - Answers useful to detect Overstatement:
dollar unit sampling;
treat each dollar value as sampling unit.
PPS will result stratified sample
Not good to use if the sample has misstatement.
don't need to wait for full population to begin sample process
Classical variables sampling - Answers useful to detect understatements
standard deviation for population needed
All items have equal chance to be selected
can't begin sample process until complete population is available.
Statistical methods - Answers 1. stratified statistical
2. variables.
3. attribute (t is used to estimate how much of the population possesses a specific
characteristic.
Non-statistical - Answers 1. stratified
2.haphazard
3.block (select series of contiguous or consecutive item from a population to test.)
three factors will affect the sample size in attribute sampling. - Answers tolerable rate
expected deviation rate
, allowance for sampling risk
Precision: - Answers evaluates the sampling results by calculating the possible error in either
direction.
Tolerable misstatement increase, sample size will : - Answers sample size go down (inverse )
Tolerable deviation rate increase - Answers sample size go down (inverse )
Allowable/Acceptable level of risk increase - Answers sample size go down (inverse )
Increase in incorrect acceptance - Answers sample size go down (inverse )
Assessed level of control risk increase - Answers size go up (direct)
Expected misstatement increase - Answers size go up (direct)
Standard deviation increase - Answers size go up (direct)
Population no effect on sample size - Answers
Sample Interval Formula - Answers population book value / sample size.
Valuation and allocation assertion applies - Answers when gain on PPE exceeds its carrying
value
when old/ obsolete inventory identified
Classification - Answers when there's maintenance, there could be routine maintenance cost or
adding value to the assets. How to classify the cost as expense or capitalize it? Can be
classification issue.
Understandability - Answers disclosure on FS are clear to read and understand
Invoice register - Answers a temporary holding place within an accounting system that records
supplier invoices before they are posted to the general ledger
To test existence of inventory - Answers Confirmation is most effective, to avoid auditor travel
to see the inventory
ad hoc transformation - Answers a data modification performed to answer a specific, unplanned
question or fulfill an immediate, temporary need, rather than as part of a standard, long-term
data process.= can't provide reliable information to auditor.
Cutoff statement vs outstanding check list - Answers trace from cutoff statement to
outstanding check list will be the correct procedure.
Kitting - Answers can be identified by using interbank transfer schedule that shows all checks
