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Free CPA Auditing and Attestation Practice Questions & Answers
500 exam-style Auditing and Attestation questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 301
If, after the report release date, the auditor concludes that a procedure considered necessary was OMITTED but the opinion is still supportable, the auditor should:
Select an option first.
Correct answer: D — Assess the importance of the omitted procedure; if persons are relying on the report, perform the omitted procedure (or an alternative) to determine whether the opinion remains supported
Explanation: If a NECESSARY PROCEDURE WAS OMITTED but discovered after issuance, the auditor first assesses whether the OPINION IS STILL SUPPORTED by the evidence actually obtained. If it may not be, and people are RELYING on the report, the auditor should PERFORM the omitted procedure (or a suitable alternative). If that reveals the statements were misstated, the auditor follows the subsequent-discovery-of-facts procedures.
Question 302
An auditor may issue a report expressing an unmodified opinion on financial statements that contain a departure from GAAP if:
Select an option first.
Correct answer: B — The auditor concludes, in the extremely rare circumstance, that following GAAP would make the statements MISLEADING, and the report discloses the departure and its effects
Explanation: In the EXTREMELY RARE circumstance where following the letter of GAAP would render the statements MISLEADING, the auditor may conclude that a departure is warranted (the 'Rule 203 / fair presentation' override). The report must DISCLOSE the departure, its approximate EFFECTS if practicable, and the reasons compliance would be misleading. This is a genuinely rare situation and is not a general escape from GAAP.
Question 303
A dual dating example — 'February 28, 20X5, except as to Note 15, which is as of March 20, 20X5' — communicates that:
Select an option first.
Correct answer: C — The auditor's responsibility for subsequent events after February 28 is limited to the matter described in Note 15
Explanation: DUAL DATING LIMITS the auditor's responsibility for events after the original report date (February 28) to the SPECIFIC matter identified (Note 15). The auditor need not extend the full subsequent-events review to March 20 — only to the one matter. RE-DATING the entire report to March 20 would, by contrast, extend responsibility for ALL subsequent events to that later date.
Question 304
When an entity presents supplementary information (SI) that is NOT required by a designated standard setter but accompanies the audited statements, and the auditor is engaged to report on it, the auditor:
Select an option first.
Correct answer: D — Audits it to the same standard and expresses an opinion on whether it is fairly stated, in all material respects, in relation to the financial statements as a whole
Explanation: For SUPPLEMENTARY INFORMATION the auditor is engaged to report on 'in relation to the financial statements as a whole', the auditor performs procedures and expresses an opinion on whether the SI is fairly stated, IN ALL MATERIAL RESPECTS, IN RELATION TO the financial statements taken as a whole. This differs from Required Supplementary Information (RSI), which receives only limited procedures and no opinion.
Question 305
The management representation letter must be signed by:
Select an option first.
Correct answer: B — Members of management with overall responsibility for financial and operating matters, typically the CEO and CFO
Explanation: The representation letter is signed by those MEMBERS OF MANAGEMENT with OVERALL RESPONSIBILITY for financial and operating matters — normally the CEO and CFO — because they are the ones in a position to make the representations knowledgeably. It is dated as of the date of the auditor's report and addressed to the auditor. The auditor does not sign it; it is management's assertion, not the auditor's.
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Question 306
An auditor is asked to apply agreed-upon procedures to a company's compliance with specified debt covenants and report the findings to the lender and the company. The report should:
Select an option first.
Correct answer: A — Describe the procedures performed and the findings, take no responsibility for the sufficiency of the procedures, and be restricted to the specified parties
Explanation: An AGREED-UPON PROCEDURES report DESCRIBES the procedures and reports the FINDINGS — no opinion, no assurance. The ENGAGING and specified parties take responsibility for the SUFFICIENCY of the procedures for their purposes. The report's use is RESTRICTED to those specified parties (the lender and the company), because only they understand what the agreed procedures were designed to accomplish.
Question 307
When an auditor's report on a non-issuer refers to the report of a component auditor and thereby DIVIDES responsibility, the group auditor is NOT required to:
Select an option first.
Correct answer: A — Perform the component auditor's procedures again
Explanation: When responsibility is DIVIDED, the group auditor references the component auditor, indicates the MAGNITUDE of the portion that firm audited, reads the component auditor's report, and satisfies itself as to the component auditor's INDEPENDENCE and COMPETENCE. What it need NOT do is RE-PERFORM the component auditor's procedures — dividing responsibility means relying on that firm's work, not redoing it. Re-performing would be assuming responsibility instead.
Question 308
An auditor identifies uncorrected misstatements totalling $420,000 against overall materiality of $500,000. The misstatements turn a reported loss of $50,000 into a reported profit of $370,000. The auditor should:
Select an option first.
Correct answer: A — Conclude the misstatements are MATERIAL on qualitative grounds — changing a loss into a profit is a qualitative factor that renders an otherwise sub-threshold misstatement material — and request correction
Explanation: Materiality has a QUALITATIVE dimension. A misstatement that converts a LOSS into a PROFIT is material regardless of its size relative to the quantitative threshold, because it changes the fundamental character of the results a user relies on. Other qualitative triggers: affecting compliance with a debt covenant, changing a trend, increasing management compensation, or masking a failure to meet analyst expectations.
Question 309
A client's financial statements contain TWO independent material misstatements: one that is material but not pervasive, and another that is material AND pervasive. Management refuses to correct either. The opinion should be:
Select an option first.
Correct answer: B — ADVERSE — once ANY misstatement is material and pervasive, the opinion is adverse; the presence of an additional non-pervasive misstatement does not soften that
Explanation: The opinion reflects the MOST SEVERE circumstance. A material AND pervasive misstatement mandates an ADVERSE opinion; the co-existence of a lesser misstatement cannot downgrade that to a qualification. The basis for adverse opinion paragraph describes both. Candidates sometimes attempt to 'average' the severity or issue split opinions — neither is permitted for a single set of financial statements.
Question 310
An auditor cannot obtain evidence about a material equity-method investment (pervasive scope limitation) AND has also identified a material, non-pervasive GAAP departure in inventory. The report should:
Select an option first.
Correct answer: A — Disclaim, and also describe the inventory GAAP departure in the basis for disclaimer section
Explanation: When a scope limitation is material AND PERVASIVE, the auditor DISCLAIMS — no opinion is expressed. The basis section describes the reasons, and should also describe any OTHER matters of which the auditor is aware that would have required modification (the inventory departure). Note the subtlety: a disclaimer means the auditor expresses NO opinion, so it cannot simultaneously be 'qualified' for anything (option B) — you cannot qualify an opinion you have not given.
Question 311
Under PCAOB standards, the auditor determines that a matter meets ALL THREE CAM criteria. However, the matter also caused the auditor to issue a QUALIFIED opinion. The auditor should:
Select an option first.
Correct answer: B — Report the CAM, because the CAM requirements apply regardless of whether the opinion is modified; the CAM description may refer to the basis for qualified opinion section
Explanation: CAM reporting and opinion modification are INDEPENDENT requirements. A matter can be BOTH the basis for a qualification AND a CAM, and both must be reported — the CAM description may cross-refer to the basis-for-qualified-opinion section rather than repeat it. Omitting the CAM because the matter is already disclosed (option A) misunderstands the purpose: CAMs explain the AUDIT, the opinion explains the STATEMENTS.
Question 312
An auditor's report on comparative statements: the prior year (audited by the SAME auditor) received a QUALIFIED opinion for inadequate inventory disclosure. In the current year, the client has RESTATED the prior-period statements to correct the disclosure. The current report should:
Select an option first.
Correct answer: B — UPDATE the prior-period opinion to UNMODIFIED, and include an other-matter paragraph stating the date of the previous report, the type of opinion previously expressed, the substantive reasons for the change, and that the opinion is now different
Explanation: When the reason for a prior modification has been RESOLVED (here, by restatement), the auditor UPDATES the opinion to unmodified. But the change must be EXPLAINED: an other-matter paragraph must state (1) the DATE of the previous report, (2) the TYPE of opinion previously expressed, (3) the SUBSTANTIVE REASONS for the different opinion, and (4) that the current opinion DIFFERS from the previous one. All four elements are required.
Question 313
A non-issuer's financial statements are prepared on the CASH BASIS. The statements are titled 'Balance Sheet' and 'Income Statement'. The auditor should:
Select an option first.
Correct answer: A — Conclude the titles are INAPPROPRIATE — special purpose framework statements should carry titles that do not imply GAAP (for example, 'Statement of Assets and Liabilities Arising from Cash Transactions') — and request revision
Explanation: Special purpose framework statements must NOT carry titles that imply they are GAAP-basis statements. 'Balance Sheet' and 'Income Statement' are GAAP terminology and would MISLEAD users into believing accrual accounting was applied. Appropriate titles signal the basis — 'Statement of Assets and Liabilities Arising from Cash Transactions', 'Statement of Revenue Collected and Expenses Paid'. If management refuses to revise, a GAAP-departure-style modification results.
Question 314
The auditor of Kelmscott Inc. (an issuer) concludes ICFR is EFFECTIVE, but during the financial statement audit identifies and proposes a material audit adjustment which management records. The auditor should:
Select an option first.
Correct answer: D — Reconsider the ICFR conclusion — a MATERIAL misstatement that the entity's own controls FAILED TO DETECT, and that was found only by the auditor, is a strong indicator of a MATERIAL WEAKNESS
Explanation: This is a heavily tested interaction. If the AUDITOR (not the client's controls) identified a MATERIAL misstatement, then the client's controls did NOT operate at a level of precision sufficient to detect it — which is, by definition, a strong indicator of a MATERIAL WEAKNESS. The fact that management CORRECTED the misstatement once told fixes the financial statements but says nothing about the control. The ICFR opinion should likely be adverse.
Question 315
An auditor is engaged to report on a non-issuer's compliance with the covenants of a loan agreement, in connection with an audit of the financial statements. The auditor has identified an instance of NONCOMPLIANCE. The auditor:
Select an option first.
Correct answer: C — May NOT provide negative assurance; the report must describe the identified noncompliance
Explanation: NEGATIVE ASSURANCE on compliance ('nothing came to our attention') may be given ONLY IF NO instance of noncompliance was identified. Once noncompliance IS found, the auditor must DESCRIBE it rather than provide the assurance. Note that noncompliance may also have financial statement consequences — a covenant breach can make long-term debt immediately CALLABLE, requiring reclassification to current and potentially raising going concern issues.
Question 316
The auditor's report on a non-issuer includes a going concern emphasis-of-matter paragraph. Management asks the auditor to remove the word 'substantial doubt' and replace it with 'uncertainty'. The auditor should:
Select an option first.
Correct answer: B — REFUSE — the content of the auditor's report is the auditor's responsibility alone, and the standards prescribe the terminology 'substantial doubt about the entity's ability to continue as a going concern'
Explanation: The auditor's report is the AUDITOR'S communication; management has no authority to edit it. The standards PRESCRIBE the terminology, and softening 'substantial doubt' to 'uncertainty' would mislead users about the severity of the auditor's conclusion. Yielding here would be a failure of both independence and professional scepticism. (Management CAN influence whether the paragraph is needed — by alleviating the doubt — but not by editing the words.)
Question 317
An issuer's auditor identifies an illegal act with a material effect. The auditor informs management and the audit committee, who take NO remedial action. Under SEC Section 10A, the auditor must next:
Select an option first.
Correct answer: B — Report the conclusions to the BOARD OF DIRECTORS; the board then has ONE BUSINESS DAY to notify the SEC, and if it fails to do so, the AUDITOR must furnish the report to the SEC
Explanation: Section 10A prescribes an ESCALATION LADDER, and the sequence matters. The auditor reports to MANAGEMENT and the AUDIT COMMITTEE. If they fail to take timely remedial action AND the illegal act has a material effect, the auditor reports its conclusions to the BOARD. The BOARD then has ONE BUSINESS DAY to notify the SEC. Only if the board FAILS to do so must the AUDITOR furnish the report directly to the SEC — one of the very few auditor-to-regulator reporting duties.
Question 318
A group auditor decides to ASSUME responsibility for the work of a component auditor who audited a subsidiary representing 35% of consolidated assets. To do so, the group auditor must:
Select an option first.
Correct answer: D — Be sufficiently INVOLVED in the component auditor's work — including determining the type of work, communicating requirements, evaluating the component auditor's competence and independence, and reviewing significant findings — such that the group auditor can take responsibility as if the work were its own
Explanation: ASSUMING responsibility requires SUFFICIENT INVOLVEMENT: determining the type of work, setting component materiality, communicating requirements, evaluating the component auditor's competence and independence, reviewing their documentation of significant findings, and being satisfied the work is adequate. Crucially, NO REFERENCE to the component auditor appears in the report (option D describes DIVIDED responsibility, the alternative approach).
Question 319
An auditor discovers, three months AFTER the report release date, that the client's inventory was materially overstated at year-end due to a fraud the auditor did not detect. The financial statements are being relied upon by a lender. Management refuses to revise. The auditor should:
Select an option first.
Correct answer: A — After consulting legal counsel, notify those charged with governance and take steps to prevent reliance — including notifying regulatory agencies and, if practicable, known users that the report should no longer be relied upon
Explanation: Under the subsequent-discovery-of-facts framework, when the auditor learns of a fact that existed at the report date and would have affected the report, and MANAGEMENT REFUSES to act, the auditor must take steps to PREVENT RELIANCE. That means notifying GOVERNANCE and, after consulting LEGAL COUNSEL, notifying regulators and — where practicable — known users. Silence (option A) exposes the auditor to serious liability and abandons the users the audit exists to serve.
Question 320
A non-issuer's statements are prepared under a REGULATORY basis and are intended SOLELY for filing with the regulator. The auditor should:
Select an option first.
Correct answer: C — Express an opinion on the REGULATORY basis only, include an emphasis-of-matter paragraph describing the framework, and RESTRICT the use of the report to the regulator and the entity
Explanation: Where regulatory-basis statements are intended SOLELY for the REGULATOR, the auditor opines on the REGULATORY basis, adds the special-purpose emphasis-of-matter paragraph, and RESTRICTS use. DUAL OPINIONS (option A) are required only where the regulatory-basis statements are intended for GENERAL use — in which case the auditor must ALSO opine on GAAP conformity (typically adversely). The intended USE drives the reporting model.
Question 321
In an integrated audit, the auditor's ICFR opinion is ADVERSE due to a material weakness, and the auditor also concludes the FINANCIAL STATEMENTS are fairly stated. The financial statement opinion should be:
Select an option first.
Correct answer: A — UNMODIFIED — the auditor compensated for the control weakness with additional substantive procedures and obtained sufficient evidence that the statements are fairly stated
Explanation: The two opinions are INDEPENDENT and routinely diverge. A material weakness means the CONTROL system is not effective — but the auditor can still obtain sufficient appropriate evidence about the STATEMENTS by expanding SUBSTANTIVE procedures. So: ADVERSE on ICFR, UNMODIFIED on the financial statements. This decoupling is counterintuitive and is one of the most reliably tested points in integrated auditing.
Question 322
A client changes from an accounting principle that is NOT generally accepted to one that IS generally accepted. This is treated as:
Select an option first.
Correct answer: C — A CORRECTION OF AN ERROR, requiring restatement of prior periods — because the former principle was never acceptable
Explanation: Moving FROM a non-GAAP principle TO a GAAP principle is a CORRECTION OF AN ERROR, not a change in principle — because you cannot 'change' from something that was never permitted. It requires RESTATEMENT of prior periods and an emphasis-of-matter paragraph describing the restatement. Classifying it as a mere change in principle (option A) would understate its significance and avoid the restatement the situation demands.
Question 323
An auditor is asked to issue a report on the ELEMENT 'net revenue' for a company on whose complete financial statements the auditor has issued an ADVERSE opinion. The element report would be:
Select an option first.
Correct answer: C — Permissible only if the element report is presented SEPARATELY from, and does not accompany, the adverse-opinion financial statements — otherwise it is a prohibited PIECEMEAL opinion
Explanation: A PIECEMEAL OPINION is prohibited: expressing an unmodified opinion on a component of statements on which an ADVERSE opinion or DISCLAIMER was issued would CONTRADICT and undermine the overall conclusion, and could mislead users into thinking parts of the statements are reliable. It may be permissible only if the element report is presented SEPARATELY and does not accompany the adverse-opinion statements.
Question 324
A client's financial statements omit the statement of cash flows. All other statements are fairly presented. The auditor should:
Select an option first.
Correct answer: A — Issue a QUALIFIED opinion — the omission of a required basic financial statement is a GAAP departure — and the basis paragraph should state that the statement of cash flows is omitted
Explanation: Omitting a REQUIRED basic financial statement is a DEPARTURE from GAAP. On these facts (all other statements fairly presented) the departure is material but arguably NOT pervasive, giving a QUALIFIED opinion, with the basis paragraph identifying the omission. The auditor may NOT prepare the statement (option C) — that would be performing a management function and impairing independence.
Question 325
Under SSARS, an accountant performing a REVIEW must obtain a management representation letter. If management REFUSES to provide it, the accountant should:
Select an option first.
Correct answer: B — WITHDRAW from the engagement, as the representation letter is required and its absence constitutes a scope limitation that cannot be overcome in a review
Explanation: A management representation letter is REQUIRED in a review engagement. Management's REFUSAL is a scope limitation, and a review report may NOT be modified for a scope limitation — the accountant must WITHDRAW. Note the contrast with an AUDIT, where refusal leads to a DISCLAIMER or withdrawal. Converting to a compilation (option C) is not a legitimate escape from a refusal that itself signals a problem with management's integrity.
Question 326
An auditor completes fieldwork on 20 February and obtains the signed management representation letter on 5 March. The financial statements were approved by the board on 3 March. The earliest permissible report date is:
Select an option first.
Correct answer: B — 5 March — the report may be dated no earlier than the date the auditor obtained sufficient appropriate evidence, which includes the signed representation letter and management's acceptance of responsibility
Explanation: The report is dated no earlier than the date on which the auditor obtained SUFFICIENT APPROPRIATE EVIDENCE — which necessarily includes evidence that all statements have been PREPARED and that management has ACCEPTED RESPONSIBILITY for them. The signed representation letter (5 March) is the LAST of these to arrive, so it drives the earliest permissible date. Note this also extends the subsequent events evaluation period to 5 March.
Question 327
An auditor's report on ICFR for an issuer is dated 15 February. On 20 February (before release), the auditor learns of a material weakness that EXISTED at the 31 December as-of date. The auditor should:
Select an option first.
Correct answer: D — Modify the ICFR opinion to ADVERSE, because the material weakness EXISTED at the as-of date, and re-date or dual-date the report
Explanation: ICFR is assessed AS OF the year-end date. A material weakness that EXISTED at 31 December makes the ICFR ineffective at that date, regardless of WHEN the auditor discovered it. The opinion must be ADVERSE. Because the report has not yet been RELEASED, the auditor revises it and re-dates or dual-dates accordingly. Discovery date does not change the as-of assessment.
Question 328
A predecessor auditor is asked to reissue the prior-year report. The successor's current-year audit revealed a material misstatement in the PRIOR-year statements. The predecessor should:
Select an option first.
Correct answer: C — Perform procedures on the newly discovered matter, and if the prior statements require revision, decline to reissue the original report until they are restated, then issue a report on the RESTATED statements with appropriate dual dating
Explanation: Before reissuing, the predecessor must READ the current statements, COMPARE them with the prior period, and obtain representations from BOTH management and the SUCCESSOR. If that process reveals that the prior statements are MATERIALLY MISSTATED, the predecessor cannot simply reissue the original clean report — the statements must be RESTATED, and the predecessor reports on the restated statements, dual-dating for the restatement.
Question 329
An auditor of a governmental entity determines that a MAJOR FUND is materially misstated but all other opinion units are fairly stated. Under the opinion-unit approach, the report should:
Select an option first.
Correct answer: D — Express a QUALIFIED or ADVERSE opinion on that MAJOR FUND opinion unit, and UNMODIFIED opinions on the remaining opinion units
Explanation: Governmental reporting uses OPINION UNITS — governmental activities, business-type activities, each MAJOR FUND, the aggregate discretely presented component units, and the aggregate remaining fund information — each with its OWN materiality and its OWN opinion. A modification on ONE unit does NOT contaminate the others. A single report can therefore carry an adverse opinion on one major fund alongside unmodified opinions on everything else.
Question 330
Under the Uniform Guidance, an auditee expends $2,000,000 in federal awards. The auditor identifies material noncompliance in a MAJOR PROGRAM. The auditor should:
Select an option first.
Correct answer: D — Issue a MODIFIED (qualified or adverse) opinion on COMPLIANCE for that major program, and report the finding in the schedule of findings and questioned costs
Explanation: In a SINGLE AUDIT, the auditor expresses an opinion on COMPLIANCE for each MAJOR PROGRAM — separate from the financial statement opinion. Material noncompliance in a major program produces a MODIFIED compliance opinion for that program and a reportable finding in the SCHEDULE OF FINDINGS AND QUESTIONED COSTS. The FINANCIAL STATEMENT opinion may well remain unmodified — compliance and fair presentation are different questions.
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