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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 331
An auditor concludes that the client's disclosure of a subsequent event is ADEQUATE, but the event is so significant that users' understanding depends on it. The auditor should:
Select an option first.
Correct answer: A — Issue an unmodified opinion with an EMPHASIS-OF-MATTER paragraph drawing attention to the disclosure
Explanation: When a matter is APPROPRIATELY DISCLOSED but is FUNDAMENTAL to users' understanding, the auditor issues an UNMODIFIED opinion with an EMPHASIS-OF-MATTER paragraph. The opinion is not modified because nothing is WRONG — the paragraph simply directs attention. The trigger for a MODIFIED opinion would be INADEQUATE disclosure, which is a GAAP departure.
Question 332
The auditor of a non-issuer identifies that management has not included one of the required components in its going concern DISCLOSURE: management's PLANS to mitigate the conditions. The conditions themselves are disclosed. The auditor should:
Select an option first.
Correct answer: D — Conclude the disclosure is INADEQUATE (management's plans are a required element) and issue a QUALIFIED or ADVERSE opinion for the GAAP departure
Explanation: Going concern disclosure has REQUIRED ELEMENTS: the principal conditions and events, management's EVALUATION of their significance, and management's PLANS (and, where substantial doubt is not alleviated, an explicit statement to that effect). Omitting management's PLANS makes the disclosure INCOMPLETE and therefore INADEQUATE — a GAAP departure requiring a qualified or adverse opinion, NOT merely an emphasis-of-matter paragraph.
Question 333
An auditor's report contains BOTH an emphasis-of-matter paragraph (going concern) AND an other-matter paragraph (prior period audited by a predecessor). The correct presentation is:
Select an option first.
Correct answer: C — BOTH may appear; each is placed after the opinion section, with appropriate headings, and neither modifies the opinion
Explanation: There is no limit of one. A report may contain BOTH emphasis-of-matter and other-matter paragraphs — they address different things (a matter IN the statements versus a matter NOT in them). Each is placed AFTER the opinion section with its own heading, and NEITHER modifies the opinion. Combining them (option C) would blur the distinction the two paragraph types exist to preserve.
Question 334
An auditor selects a sample to test a control with a tolerable deviation rate of 6% and an expected population deviation rate of 2%. Holding confidence constant, if the auditor LOWERS the tolerable deviation rate to 4%, the required sample size will:
Select an option first.
Correct answer: C — Increase
Explanation: Sample size in attribute sampling is n = R / (TDR - EPER). Lowering the TDR from 6% to 4% narrows the denominator from 4 percentage points to 2, which DOUBLES the required sample size (holding R constant). The relationship is inverse and it is intuitive: if you will tolerate less deviation, you must examine more items to be confident the true rate is below your threshold. Sample size also rises if EPER increases, because that likewise narrows the gap.
Question 335
An auditor tested 60 items and found 2 deviations. The reliability factor for 2 deviations at the desired confidence level is 6.30. The upper deviation rate is approximately:
Select an option first.
Correct answer: B — 10.5%
Explanation: UDR = R (at the number of deviations actually found) / n = 6.30 / 60 = 0.105, or 10.5%. If the tolerable deviation rate were, say, 8%, the auditor could NOT rely on the control, because the statistical upper bound (10.5%) exceeds it — even though the SAMPLE deviation rate is only 2/60 = 3.3%. Comparing the sample rate (option A) to the TDR instead of the UPPER rate is the classic error, and it leads auditors to place reliance they have not earned.
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Question 336
Which sampling method tests for OVERSTATEMENT only and cannot detect an entirely omitted item?
Select an option first.
Correct answer: D — Probability-proportional-to-size (PPS) sampling
Explanation: PPS sampling selects items with probability proportional to their recorded dollar amount. An item recorded at ZERO — or omitted entirely — has ZERO probability of selection, so PPS is structurally blind to understatement. It is therefore an overstatement-only technique, well suited to testing assets such as receivables and inventory. When the auditor is hunting UNDERSTATEMENT (for example, unrecorded liabilities), CLASSICAL VARIABLES sampling is the appropriate tool, because it tests in both directions.
Question 337
Rank the following from MOST to LEAST reliable as audit evidence: (i) a bank confirmation received directly by the auditor; (ii) the auditor's own recalculation of depreciation; (iii) an oral inquiry of the controller; (iv) an internally generated sales invoice from a client with strong controls.
Select an option first.
Correct answer: A — (ii), (i), (iv), (iii)
Explanation: The reliability hierarchy runs: the auditor's DIRECT personal knowledge (recalculation, observation) is most reliable; then EXTERNAL INDEPENDENT sources (bank confirmations, attorney letters); then internal documents corroborated externally; then internal documents under strong controls; then internal documents under weak controls; and INQUIRY ALONE is least reliable of all. So recalculation (ii) outranks the bank confirmation (i), which outranks the internal invoice (iv), which outranks oral inquiry (iii). Note the recurring rule: inquiry alone is NEVER sufficient audit evidence.
Question 338
Negative confirmations are LEAST appropriate when:
Select an option first.
Correct answer: C — The population consists of a few large balances with a high assessed risk
Explanation: NEGATIVE confirmations (reply only if you disagree) are appropriate ONLY when ALL of the following hold: risk is LOW, the population consists of MANY SMALL balances, the expected exception rate is LOW, and the auditor believes recipients will actually read them. A population of a FEW LARGE balances carrying HIGH risk fails on two counts, and demands POSITIVE confirmations, which require a reply either way. The fundamental weakness of a negative confirmation is that silence is ambiguous — a non-reply may mean agreement, or it may mean the letter went straight to the bin.
Question 339
An auditor performs a substantive analytical procedure on interest expense by multiplying the average loan balance by the average interest rate. The recorded interest expense differs from the auditor's expectation by 15%, which exceeds the tolerable difference. The auditor should:
Select an option first.
Correct answer: A — Investigate the difference and corroborate management's explanation with other evidence
Explanation: When a substantive analytical procedure produces a difference exceeding the tolerable threshold, the auditor must INVESTIGATE and CORROBORATE any explanation with OTHER audit evidence. Accepting management's explanation without corroboration is not sufficient. Option D describes the most insidious failure of all — adjusting the expectation to fit the recorded number, which converts an analytical procedure into an exercise in confirmation bias. The expectation must be developed INDEPENDENTLY and BEFORE looking at the recorded balance.
Question 340
Which of the following procedures would be MOST effective in detecting unrecorded liabilities?
Select an option first.
Correct answer: D — Examining cash disbursements made in the period AFTER the balance sheet date
Explanation: Searching for unrecorded liabilities means hunting for something that is NOT in the records — so any procedure that STARTS with the records is structurally incapable of finding it. Examining SUBSEQUENT CASH DISBURSEMENTS starts outside the ledger: if the client paid a supplier in January for goods received in December, the liability should have been recorded at year-end. Option B only confirms vendors ALREADY in the ledger. Option C vouches from the records outward, testing existence rather than completeness. This is the direction-of-testing principle applied to liabilities.
Question 341
An auditor discovers that a client's subsidiary was destroyed by a fire on 20 January, two weeks after the 31 December year-end. The financial statements have not yet been issued. This is:
Select an option first.
Correct answer: D — A Type 2 subsequent event requiring disclosure only
Explanation: The condition (the fire) AROSE AFTER the balance sheet date — it did not exist at 31 December. That makes it a TYPE 2 (nonrecognised) subsequent event, requiring DISCLOSURE but NOT adjustment. Adjusting would misstate the position as it actually stood at year-end. Contrast this with a customer who was already insolvent at year-end and files for bankruptcy in January: that condition EXISTED at the balance sheet date, making it a TYPE 1 event requiring ADJUSTMENT of the allowance. The test is always: did the condition exist at the balance sheet date?
Question 342
An auditor 'dual dates' the audit report. The effect is that the auditor's responsibility for subsequent events:
Select an option first.
Correct answer: D — Is limited to the specific event identified, with responsibility for all other events ending at the original report date
Explanation: DUAL DATING limits the auditor's responsibility for the later period to the ONE SPECIFIC EVENT identified — responsibility for everything else ends at the ORIGINAL report date. The alternative is to RE-DATE the entire report to the later date, which extends responsibility to ALL events through that new date. Dual dating is therefore the narrower and safer choice for the auditor, and the difference between the two options is exactly what the exam tests.
Question 343
Which procedure provides the MOST reliable evidence about the EXISTENCE of inventory?
Select an option first.
Correct answer: C — Observing the physical inventory count and performing test counts
Explanation: OBSERVATION of the physical count with the auditor's OWN TEST COUNTS is direct personal knowledge, the highest tier of the evidence hierarchy, and it directly addresses EXISTENCE — the inventory is really there. Option D tests only clerical accuracy of a listing that could describe goods that do not exist. Option B is inquiry alone, the weakest evidence there is. Option A traces purchases INTO the records, which tests COMPLETENESS (understatement) rather than existence (overstatement).
Question 344
An integrated test facility (ITF) is best described as:
Select an option first.
Correct answer: A — A dummy entity established within the client's live system, through which the auditor processes fictitious transactions
Explanation: An INTEGRATED TEST FACILITY establishes a fictitious entity (a dummy department, branch or customer) within the client's LIVE production system, and the auditor processes test transactions through it to verify that processing controls operate correctly under real conditions. Because the transactions are fictitious but the system is live, they must be REVERSED afterwards so they do not contaminate the client's records. Option B describes PARALLEL SIMULATION, which approaches the same objective from the opposite direction — real data through the auditor's program, rather than fake data through the client's.
Question 345
An auditor sends positive confirmations for accounts receivable and receives no reply from a material customer after two requests. The auditor should:
Select an option first.
Correct answer: D — Perform alternative procedures, such as examining subsequent cash receipts and shipping documentation
Explanation: A non-response to a POSITIVE confirmation is NOT evidence of agreement — it is simply an absence of evidence. The auditor must perform ALTERNATIVE PROCEDURES: examining subsequent cash receipts (the strongest evidence that the receivable was genuine), inspecting shipping documents and sales invoices, and reviewing the customer's correspondence. Only if alternative procedures cannot be performed and the amount is material would a scope limitation arise. Treating silence as agreement is the fundamental error that makes NEGATIVE confirmations such weak evidence.
Question 346
An auditor uses generalised audit software to extract all journal entries posted on weekends, entries posted by users outside the accounting department, and entries with round-dollar amounts above $100,000. This procedure is MOST directly responsive to:
Select an option first.
Correct answer: C — The risk of management override of controls
Explanation: These are classic journal entry tests aimed at MANAGEMENT OVERRIDE — the required procedure in every audit. Entries posted at unusual times, by unusual users, or in suspiciously round amounts are the fingerprints of manual intervention outside the normal process. Data analytics make it feasible to examine the ENTIRE population of entries rather than a sample. Note that this is a fraud-focused procedure, which is why the standards mandate it regardless of the assessed level of risk.
Question 347
Which of the following provides the STRONGEST evidence regarding the rights and obligations assertion for a warehouse recorded as owned by the client?
Select an option first.
Correct answer: A — Inspection of the deed and a search of public property records
Explanation: RIGHTS AND OBLIGATIONS asks whether the entity actually OWNS the asset. Inspecting the deed and searching public records goes directly to legal title. Physical observation (option A) proves the building EXISTS — but a building the client leases, or one owned by a related party, also exists. Recalculation (option C) tests valuation. Inquiry (option D) is the weakest evidence available. Each assertion demands a procedure aimed at it; existence and rights are frequently confused, and this is exactly that trap.
Question 348
An auditor is testing the completeness of recorded accounts payable at year-end. The MOST effective procedure is to:
Select an option first.
Correct answer: A — Examine unmatched receiving reports and vendor statements for goods received but not recorded
Explanation: Completeness means finding what is MISSING — so the procedure cannot start with the records. Examining UNMATCHED RECEIVING REPORTS (goods received but never invoiced or accrued) and comparing VENDOR STATEMENTS to recorded balances starts outside the ledger and can therefore detect omissions. Option C confirms only vendors ALREADY recorded — and vendors with a zero or missing balance are precisely the ones you are hunting. Option B vouches outward from the records, testing existence. Option D checks arithmetic on what is already there.
Question 349
In a PPS sample, an item with a recorded amount of $80,000 is audited at $72,000. The sampling interval is $50,000. The projected misstatement for this item is:
Select an option first.
Correct answer: C — $8,000
Explanation: When a sampled item's recorded amount EQUALS OR EXCEEDS the sampling interval, the item is treated as individually selected (it was certain to be picked), so the projected misstatement is simply the ACTUAL misstatement: $80,000 - $72,000 = $8,000. No projection factor is applied. Projection using the tainting factor (misstatement / recorded amount, multiplied by the interval) applies only to items SMALLER than the sampling interval. Applying the tainting formula here — 8,000/80,000 x 50,000 = $5,000 (option B) — is the intended trap, and it would understate the misstatement.
Question 350
An auditor's use of an external specialist to value a complex derivative portfolio means that:
Select an option first.
Correct answer: C — The auditor's responsibility for the opinion is undivided, and the specialist may not be referred to in an unmodified report
Explanation: The auditor's responsibility for the opinion is UNDIVIDED. Engaging a specialist does not reduce it, and the auditor may NOT refer to the specialist in an UNMODIFIED report — doing so would imply a division of responsibility that does not exist. (A reference IS permitted where the specialist's work leads to a MODIFIED opinion, and then only to explain the modification.) For the auditor's OWN specialist, the auditor must additionally evaluate the SCOPE and ADEQUACY of the assumptions, methods and data used, making option D plainly wrong.
Question 351
Which of the following is an appropriate use of audit data analytics?
Select an option first.
Correct answer: D — Testing 100% of a population to identify anomalies and outliers for further investigation
Explanation: Audit data analytics allow the auditor to examine ENTIRE POPULATIONS rather than samples, flagging anomalies and outliers for follow-up. Critically, an anomaly is NOT a misstatement — it is a signal indicating where to look. ADA SUPPLEMENTS traditional procedures; it does not replace them, does not remove the need for sufficient appropriate evidence, and certainly does not displace professional scepticism or risk assessment. Options C, B and A each overstate what the technology accomplishes.
Question 352
An auditor examines a sales invoice, the related shipping document and the customer's purchase order, and agrees them to the recorded sales entry. This procedure primarily tests:
Select an option first.
Correct answer: A — Occurrence of sales
Explanation: Starting with the RECORDED entry and working back to supporting documents is VOUCHING, which tests OCCURRENCE — did this recorded sale actually happen? It detects OVERSTATEMENT, including fictitious sales. To test COMPLETENESS (option A) the auditor would work in the opposite direction, TRACING from shipping documents forward into the sales journal to find sales that were never recorded. Direction of testing determines which error you are capable of detecting, and it is the single highest-yield idea in the evidence area.
Question 353
Bexley Systems recognises revenue on long-term contracts using an input method based on costs incurred. The auditor should be MOST alert to the risk that:
Select an option first.
Correct answer: D — Costs incurred to date are overstated, thereby accelerating revenue recognition
Explanation: Under a cost-to-cost input method, revenue is recognised in proportion to COSTS INCURRED over TOTAL ESTIMATED COSTS. Overstating costs incurred, or understating total estimated costs, ACCELERATES revenue — a direct and easily manipulated lever on reported earnings. This is precisely why the auditor must test the cost accumulation and evaluate the reasonableness of the total estimate. Options A, B and C describe real but far less pointed risks; none of them creates the same direct incentive-driven distortion of the revenue figure.
Question 354
An auditor concludes that a client's estimate of the allowance for doubtful accounts falls at the very favourable end of a range of reasonable outcomes in each of the last three years. This pattern MOST likely indicates:
Select an option first.
Correct answer: B — Possible management bias, which the auditor should evaluate in aggregate
Explanation: An individual estimate may sit anywhere within a reasonable range without being wrong. But a PATTERN of estimates consistently landing at the favourable end is an INDICATOR OF MANAGEMENT BIAS, and the auditor must evaluate the estimates IN AGGREGATE — not just one at a time — to assess whether that bias has a material effect on the financial statements as a whole. Individually defensible choices can, in aggregate, amount to earnings management. This aggregate evaluation is an explicit requirement and a favourite exam point.
Question 355
The primary purpose of obtaining a legal letter (attorney's letter) is to:
Select an option first.
Correct answer: C — Corroborate management's representations about litigation, claims and assessments
Explanation: The legal letter CORROBORATES management's representations about pending and threatened litigation, claims and assessments — it is external, independent evidence supporting the completeness and valuation of loss contingencies. Note that MANAGEMENT sends the request, not the auditor, and the attorney replies to the auditor. A refusal by the attorney to respond is a SCOPE LIMITATION. The attorney does not opine on the financial statements (option A) — that is the auditor's job.
Question 356
An auditor selects 50 items from a population of 10,000 sales invoices using a random number generator. This is:
Select an option first.
Correct answer: B — Statistical sampling using random selection
Explanation: RANDOM selection gives every item an equal, known chance of selection, which is the prerequisite for STATISTICAL sampling and for statistically valid extrapolation. HAPHAZARD selection (option D) has no conscious bias but is not random and cannot support statistical inference. BLOCK selection takes contiguous items and is generally inappropriate, as it can miss whole segments of the period.
Question 357
The tolerable deviation rate in attribute sampling represents:
Select an option first.
Correct answer: B — The maximum deviation rate the auditor will accept and still rely on the control
Explanation: TDR is the auditor's threshold — the maximum rate of deviation the auditor is willing to accept while still concluding the control is effective. It is set BEFORE testing, based on the planned reliance. Option A is the EXPECTED population deviation rate (EPER). Option C is the UPPER deviation rate (UDR), which is computed AFTER testing and compared against the TDR.
Question 358
If the upper deviation rate exceeds the tolerable deviation rate, the auditor should:
Select an option first.
Correct answer: B — Conclude the control cannot be relied upon and increase substantive testing
Explanation: When UDR > TDR, the auditor cannot statistically support the planned reliance, so control risk is higher than assessed. The response is to LOWER detection risk by increasing substantive procedures. Option C confuses a control conclusion with a financial statement opinion — a control that fails does not by itself mean the statements are misstated.
Question 359
Which of the following procedures is a TEST OF CONTROLS rather than a substantive procedure?
Select an option first.
Correct answer: C — Inspecting a sample of purchase orders for evidence of authorisation
Explanation: Inspecting documents for evidence that a CONTROL operated (an approval signature) tests OPERATING EFFECTIVENESS — it says nothing directly about whether the balance is correct. Options A, B and D all obtain evidence about the AMOUNT in the financial statements, making them substantive. The same physical document can support either type of test; the auditor's OBJECTIVE determines which it is.
Question 360
A dual-purpose test:
Select an option first.
Correct answer: C — Simultaneously tests a control and obtains substantive evidence about the underlying transaction
Explanation: A DUAL-PURPOSE test examines the same sample for two objectives at once: whether the control operated (was the invoice approved?) AND whether the transaction is correctly recorded (is the amount, date and account right?). It is efficient, but the auditor must consider both objectives when determining sample size — typically taking the LARGER of the two required samples.
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