Auditing - CPA Exam 2026 Questions and
Answers.
Auditing Standards Board (ASB) - Answer Technical body within the AICPA that holds the authority to
set the rules for appropriate audits of organizations that do not issue securities to the public (often
referred to as privately held organizations).
Statements on Auditing Standards (SAS) - "Should" - Answer Presumptively Mandatory
Statements on Auditing Standards (SAS) - "Must" - Answer Unconditional requirement
Generally Accepted Accounting Principles (GAAP) - Answer set of accounting standards that is used
in the preparation of financial statements.
Encompasses the conventions, rules, and procedures necessary to define accepted accounting
practice at a particular time.
Who may be deemed to be "Those Charged with Governance" - Answer Corporate trustee, board of
directors, audit committee, and/or executive management?
Auditor's Responsibilities - Answer-Required to assess the risk of fraud
-Comply with relevant ethical requirements
-Plan and perform audit with professional scepticism
-Exercise professional judgment
-Obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level
Planning Phase of an Audit - Answer1. Discuss the timing of the audit procedures with the client's
management
Percentage of Coverage Rule - Low Risk - Answer20% of federal funding spent by the entity
Percentage of Coverage Rule - NOT low risk - Answer40% and above of federal funding spent by the
entity
,Generally Accepted Government Auditing Standards (GAGAS) "Yellow Book" - Answer Provides
framework for auditors of government entities, entities that receive government awards and other
go orgs.
GAGAS requirements are in ADDITION to the requirement contained in the AICPA standards
Requires irregularities or illegal acts to be reported to the counterparty to the contract
Office of Management and Budget (OMB) - Answer has the primary authority to develop
requirements for performing federal program compliance audits in Accordance with Single Audit Act
Cognizant Agency - Answer federal agency responsible for reviewing, negotiating, and approving cost
allocation plans, indirect cost rates and more. This is under OMB
Most likely assigned to audited who the fed agency provides the most funding to the audited
Single Audit - Which Guidelines to Follow? - Answer both GAAS and GAGAS guidelines are applicable
Single Audit Required When - Answer the entity spends $750,000 or more per fiscal year in federal
awards, grants, or funds
The entity spends funds from one or more than one federal program
If the entity only expends funds from one program, it "may" be eligible for a program-specific audit
versus a single audit.
Agreed-Upon Procedures - Answer practitioner is engaged to issue a report of findings based on
specific procedures performed on underlying subject matter.
CPA must be Independent!!
Practitioner’s report should include list of the procedures perform and related findings.
, Compilation Engagement - Answer-No Assurance Given
-Does not need to be Independent
-Goal is to assist management in present financial info in the form of FS
-Accountant is required to read the FS & consider if they are good
Compilation Report Requirement - Answer compilation report is only required whenever the
accountant is engaged to subject the financial statements to compilation procedures.
Review Engagement - Answer-Limited Assurance
-Must be Independent
-Collect Evidence through observations, inquiry, analytical procedures
-NOT responsible for inquires of outside parties (legal counsel)
-NOT responsible for safeguards or internal controls
Standards Review Report Should Include: - Answer1. Title that includes "independent" accountant
for a review engagement
2. Addressee
3. Identify criteria and responsible party for subject matter
4. Intro paragraph identifies who’s FS have been reviewed
5. Paragraph that review is LESS substantial than an audit and only limited assurance
6. Paragraph stating account must remain independent and meet relevant ethical requirements of
the AICPA
7. Conclusion statement of whether cap is aware (or not aware) of any material modifications
8. Signature of firm, city and state where account practices, date of review report
Answers.
Auditing Standards Board (ASB) - Answer Technical body within the AICPA that holds the authority to
set the rules for appropriate audits of organizations that do not issue securities to the public (often
referred to as privately held organizations).
Statements on Auditing Standards (SAS) - "Should" - Answer Presumptively Mandatory
Statements on Auditing Standards (SAS) - "Must" - Answer Unconditional requirement
Generally Accepted Accounting Principles (GAAP) - Answer set of accounting standards that is used
in the preparation of financial statements.
Encompasses the conventions, rules, and procedures necessary to define accepted accounting
practice at a particular time.
Who may be deemed to be "Those Charged with Governance" - Answer Corporate trustee, board of
directors, audit committee, and/or executive management?
Auditor's Responsibilities - Answer-Required to assess the risk of fraud
-Comply with relevant ethical requirements
-Plan and perform audit with professional scepticism
-Exercise professional judgment
-Obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level
Planning Phase of an Audit - Answer1. Discuss the timing of the audit procedures with the client's
management
Percentage of Coverage Rule - Low Risk - Answer20% of federal funding spent by the entity
Percentage of Coverage Rule - NOT low risk - Answer40% and above of federal funding spent by the
entity
,Generally Accepted Government Auditing Standards (GAGAS) "Yellow Book" - Answer Provides
framework for auditors of government entities, entities that receive government awards and other
go orgs.
GAGAS requirements are in ADDITION to the requirement contained in the AICPA standards
Requires irregularities or illegal acts to be reported to the counterparty to the contract
Office of Management and Budget (OMB) - Answer has the primary authority to develop
requirements for performing federal program compliance audits in Accordance with Single Audit Act
Cognizant Agency - Answer federal agency responsible for reviewing, negotiating, and approving cost
allocation plans, indirect cost rates and more. This is under OMB
Most likely assigned to audited who the fed agency provides the most funding to the audited
Single Audit - Which Guidelines to Follow? - Answer both GAAS and GAGAS guidelines are applicable
Single Audit Required When - Answer the entity spends $750,000 or more per fiscal year in federal
awards, grants, or funds
The entity spends funds from one or more than one federal program
If the entity only expends funds from one program, it "may" be eligible for a program-specific audit
versus a single audit.
Agreed-Upon Procedures - Answer practitioner is engaged to issue a report of findings based on
specific procedures performed on underlying subject matter.
CPA must be Independent!!
Practitioner’s report should include list of the procedures perform and related findings.
, Compilation Engagement - Answer-No Assurance Given
-Does not need to be Independent
-Goal is to assist management in present financial info in the form of FS
-Accountant is required to read the FS & consider if they are good
Compilation Report Requirement - Answer compilation report is only required whenever the
accountant is engaged to subject the financial statements to compilation procedures.
Review Engagement - Answer-Limited Assurance
-Must be Independent
-Collect Evidence through observations, inquiry, analytical procedures
-NOT responsible for inquires of outside parties (legal counsel)
-NOT responsible for safeguards or internal controls
Standards Review Report Should Include: - Answer1. Title that includes "independent" accountant
for a review engagement
2. Addressee
3. Identify criteria and responsible party for subject matter
4. Intro paragraph identifies who’s FS have been reviewed
5. Paragraph that review is LESS substantial than an audit and only limited assurance
6. Paragraph stating account must remain independent and meet relevant ethical requirements of
the AICPA
7. Conclusion statement of whether cap is aware (or not aware) of any material modifications
8. Signature of firm, city and state where account practices, date of review report
