OHIO CERTIFIED PUBLIC ACCOUNTANT LICENSURE
(CPA) EXAM PRACTICE TEST QUESTIONS AND
CORRECT ANSWERS (VERIFIED ANSWERS) PLUS
RATIONALES | INSTANT DOWNLOAD PDF
2025/2026
1. What is the primary purpose of an audit of financial statements?
A. To detect all fraud
B. To express an opinion on the fairness of financial statements
C. To prepare the company’s tax return
D. To ensure all internal controls are working perfectly
Correct Answer: B — An audit’s main goal is to provide an independent opinion on whether the
financial statements are presented fairly in accordance with GAAP.
2. Under GAAP, which basis of accounting is most commonly used by for-profit entities?
A. Cash basis
B. Modified accrual basis
C. Accrual basis
D. Tax basis
Correct Answer: C — Accrual accounting recognizes revenues when earned and expenses when
incurred, aligning with GAAP principles.
3. Which of the following organizations issues auditing standards for nonpublic companies?
A. PCAOB
B. FASB
,C. AICPA (ASB)
D. SEC
Correct Answer: C — The AICPA’s Auditing Standards Board (ASB) sets standards for audits of
nonpublic entities.
4. Deferred tax liabilities arise when:
A. Taxable income is greater than accounting income in the current year
B. Accounting income exceeds taxable income in the current year
C. Permanent differences exist
D. Tax credits are carried forward
Correct Answer: B — When accounting income exceeds taxable income, taxes are deferred to
future periods, creating a deferred tax liability.
5. Which report is most likely issued when an auditor finds material misstatements that are
not pervasive?
A. Unmodified opinion
B. Qualified opinion
C. Adverse opinion
D. Disclaimer of opinion
Correct Answer: B — A qualified opinion is issued when misstatements are material but not
pervasive to the overall financial statements.
6. Which organization has the authority to establish accounting principles for state and local
governments?
A. FASB
B. GASB
C. PCAOB
D. AICPA
Correct Answer: B — The Governmental Accounting Standards Board (GASB) sets standards for
state and local government accounting.
7. What is the purpose of internal control?
, A. To eliminate all fraud
B. To ensure accurate financial reporting and safeguard assets
C. To replace external audits
D. To manage marketing functions
Correct Answer: B — Internal controls are designed to promote reliable reporting and asset
protection.
8. In financial reporting, materiality depends on:
A. The dollar amount only
B. The auditor’s judgment and surrounding circumstances
C. Legal standards only
D. GAAP thresholds
Correct Answer: B — Materiality is a matter of professional judgment based on the significance
of an item to users of financial statements.
9. The fundamental qualitative characteristics of useful financial information are:
A. Relevance and comparability
B. Relevance and faithful representation
C. Verifiability and timeliness
D. Understandability and completeness
Correct Answer: B — Relevance and faithful representation are the two key qualitative
characteristics defined by the FASB.
10. Which type of risk cannot be reduced by an auditor’s procedures?
A. Detection risk
B. Control risk
C. Inherent risk
D. Audit risk
Correct Answer: C — Inherent risk exists due to the nature of business operations and cannot be
eliminated by audit procedures.
11. Which financial statement shows a company’s financial position at a specific date?
(CPA) EXAM PRACTICE TEST QUESTIONS AND
CORRECT ANSWERS (VERIFIED ANSWERS) PLUS
RATIONALES | INSTANT DOWNLOAD PDF
2025/2026
1. What is the primary purpose of an audit of financial statements?
A. To detect all fraud
B. To express an opinion on the fairness of financial statements
C. To prepare the company’s tax return
D. To ensure all internal controls are working perfectly
Correct Answer: B — An audit’s main goal is to provide an independent opinion on whether the
financial statements are presented fairly in accordance with GAAP.
2. Under GAAP, which basis of accounting is most commonly used by for-profit entities?
A. Cash basis
B. Modified accrual basis
C. Accrual basis
D. Tax basis
Correct Answer: C — Accrual accounting recognizes revenues when earned and expenses when
incurred, aligning with GAAP principles.
3. Which of the following organizations issues auditing standards for nonpublic companies?
A. PCAOB
B. FASB
,C. AICPA (ASB)
D. SEC
Correct Answer: C — The AICPA’s Auditing Standards Board (ASB) sets standards for audits of
nonpublic entities.
4. Deferred tax liabilities arise when:
A. Taxable income is greater than accounting income in the current year
B. Accounting income exceeds taxable income in the current year
C. Permanent differences exist
D. Tax credits are carried forward
Correct Answer: B — When accounting income exceeds taxable income, taxes are deferred to
future periods, creating a deferred tax liability.
5. Which report is most likely issued when an auditor finds material misstatements that are
not pervasive?
A. Unmodified opinion
B. Qualified opinion
C. Adverse opinion
D. Disclaimer of opinion
Correct Answer: B — A qualified opinion is issued when misstatements are material but not
pervasive to the overall financial statements.
6. Which organization has the authority to establish accounting principles for state and local
governments?
A. FASB
B. GASB
C. PCAOB
D. AICPA
Correct Answer: B — The Governmental Accounting Standards Board (GASB) sets standards for
state and local government accounting.
7. What is the purpose of internal control?
, A. To eliminate all fraud
B. To ensure accurate financial reporting and safeguard assets
C. To replace external audits
D. To manage marketing functions
Correct Answer: B — Internal controls are designed to promote reliable reporting and asset
protection.
8. In financial reporting, materiality depends on:
A. The dollar amount only
B. The auditor’s judgment and surrounding circumstances
C. Legal standards only
D. GAAP thresholds
Correct Answer: B — Materiality is a matter of professional judgment based on the significance
of an item to users of financial statements.
9. The fundamental qualitative characteristics of useful financial information are:
A. Relevance and comparability
B. Relevance and faithful representation
C. Verifiability and timeliness
D. Understandability and completeness
Correct Answer: B — Relevance and faithful representation are the two key qualitative
characteristics defined by the FASB.
10. Which type of risk cannot be reduced by an auditor’s procedures?
A. Detection risk
B. Control risk
C. Inherent risk
D. Audit risk
Correct Answer: C — Inherent risk exists due to the nature of business operations and cannot be
eliminated by audit procedures.
11. Which financial statement shows a company’s financial position at a specific date?
