CPA PRACTICE EXAM | QUESTIONS AND ANSWERS |
2026 UPDATE | WITH COMPLETE SOLUTION
When a CPA examines a client's projected financial statements, the CPA's
report should: Answer - state that the CPA performed procedures to evaluate
management's assumptions.
Davis, CPA, accepted an engagement to audit the financial statements of Tech
Resources, a nonpublic entity. Before the completion of the audit, Tech
requested Davis to change the engagement to a compilation of financial
statements. Before Davis agrees to change the engagement, Davis is required
to consider the:
additional audit effort necessary to complete the audit.
reason given for Tech's request. Answer - Both I and II
The GAO standards list several threats to independence. The threat of
familiarity is defined as: Answer - when, due to a long or close relationship
with management or other personnel, the auditor will be too sympathetic or
accepting of work.
Which of the following representations does an accountant make implicitly
when issuing the standard report for the compilation of a nonissuer's financial
statements? Answer - The accountant is independent with respect to the
entity.
,Heath Co.'s current ratio is 4:1. Which of the following transactions would
normally increase its current ratio? Answer - Selling inventory on account
According to the AICPA Code of Professional Conduct, what would a covered
member most appropriately do upon learning that another member of an
attest engagement team is considering employment with the client? Answer -
Notify an appropriate person in the firm.
Which of the following factors most likely would assist an independent auditor
in assessing the objectivity of the internal auditor? Answer - The organizational
status of the director of internal audit
If the business environment is experiencing a recession, the auditor most likely
would focus increased attention on which of the following accounts? Answer -
Allowance for doubtful accounts
An auditor is reporting on condensed financial statements for an annual period
that are derived from the audited financial statements of an issuer. The
auditor's opinion should indicate whether the information in the condensed
financial statements is fairly stated in all material respects: Answer - in relation
to the complete financial statements.
An auditor observes the mailing of monthly statements to a client's customers
and reviews evidence of follow-up on errors reported by the customers. This
test of controls most likely is performed to support management's financial
statement assertion of: Answer - existence.
North Co., a privately held entity, asked its tax accountant, King, a CPA in public
practice, to review and generate North's interim financial statements on King's
microcomputer when King prepared North's quarterly tax return. King should
not submit these financial statements to North unless, as a minimum, King
, complies with the provisions of: Answer - Statements on Standards for
Accounting and Review Services.
An auditor's report would be designated an audit of a special-purpose financial
statement when it is issued in connection with: Answer - a basis of accounting
that the entity uses to comply with an agreement between the entity and one
or more third parties other than the auditor.
An auditor most likely would not rely on controls if the payroll department
supervisor is responsible for: Answer - authorizing payroll rate changes for all
employees.
Which of the following levels would most likely address the risk of material
misstatement by the auditor's consideration of an entity's control
environment? Answer - Financial statements
Which of the following would most likely be associated with obtaining an
understanding of relevant internal factors when satisfying the obligation to
understand the entity and its environment on an audit? Answer - Revenue
recognition practices
Russell CPA is auditing contingent liabilities. What generally is the primary risk
of material misstatement related to related financial statement disclosures?
Answer - Completeness
Nile, CPA, on completing an audit, was asked by the client to provide technical
assistance in integrating a new IT system. The set of pronouncements designed
to guide Nile in this engagement is the Statement(s) on: Answer - Standards
for Consulting Services.
2026 UPDATE | WITH COMPLETE SOLUTION
When a CPA examines a client's projected financial statements, the CPA's
report should: Answer - state that the CPA performed procedures to evaluate
management's assumptions.
Davis, CPA, accepted an engagement to audit the financial statements of Tech
Resources, a nonpublic entity. Before the completion of the audit, Tech
requested Davis to change the engagement to a compilation of financial
statements. Before Davis agrees to change the engagement, Davis is required
to consider the:
additional audit effort necessary to complete the audit.
reason given for Tech's request. Answer - Both I and II
The GAO standards list several threats to independence. The threat of
familiarity is defined as: Answer - when, due to a long or close relationship
with management or other personnel, the auditor will be too sympathetic or
accepting of work.
Which of the following representations does an accountant make implicitly
when issuing the standard report for the compilation of a nonissuer's financial
statements? Answer - The accountant is independent with respect to the
entity.
,Heath Co.'s current ratio is 4:1. Which of the following transactions would
normally increase its current ratio? Answer - Selling inventory on account
According to the AICPA Code of Professional Conduct, what would a covered
member most appropriately do upon learning that another member of an
attest engagement team is considering employment with the client? Answer -
Notify an appropriate person in the firm.
Which of the following factors most likely would assist an independent auditor
in assessing the objectivity of the internal auditor? Answer - The organizational
status of the director of internal audit
If the business environment is experiencing a recession, the auditor most likely
would focus increased attention on which of the following accounts? Answer -
Allowance for doubtful accounts
An auditor is reporting on condensed financial statements for an annual period
that are derived from the audited financial statements of an issuer. The
auditor's opinion should indicate whether the information in the condensed
financial statements is fairly stated in all material respects: Answer - in relation
to the complete financial statements.
An auditor observes the mailing of monthly statements to a client's customers
and reviews evidence of follow-up on errors reported by the customers. This
test of controls most likely is performed to support management's financial
statement assertion of: Answer - existence.
North Co., a privately held entity, asked its tax accountant, King, a CPA in public
practice, to review and generate North's interim financial statements on King's
microcomputer when King prepared North's quarterly tax return. King should
not submit these financial statements to North unless, as a minimum, King
, complies with the provisions of: Answer - Statements on Standards for
Accounting and Review Services.
An auditor's report would be designated an audit of a special-purpose financial
statement when it is issued in connection with: Answer - a basis of accounting
that the entity uses to comply with an agreement between the entity and one
or more third parties other than the auditor.
An auditor most likely would not rely on controls if the payroll department
supervisor is responsible for: Answer - authorizing payroll rate changes for all
employees.
Which of the following levels would most likely address the risk of material
misstatement by the auditor's consideration of an entity's control
environment? Answer - Financial statements
Which of the following would most likely be associated with obtaining an
understanding of relevant internal factors when satisfying the obligation to
understand the entity and its environment on an audit? Answer - Revenue
recognition practices
Russell CPA is auditing contingent liabilities. What generally is the primary risk
of material misstatement related to related financial statement disclosures?
Answer - Completeness
Nile, CPA, on completing an audit, was asked by the client to provide technical
assistance in integrating a new IT system. The set of pronouncements designed
to guide Nile in this engagement is the Statement(s) on: Answer - Standards
for Consulting Services.
