You’re on a roll
Create a free account to save your CPA progress, track your accuracy by topic, and pick up right where you left off.
Free Questions › CPA › Auditing and Attestation
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 361
In confirming accounts receivable, a customer replies that they have paid the balance in full. The auditor should:
Select an option first.
Correct answer: D — Investigate the timing of the payment and trace it to the client's cash receipts records
Explanation: A reply of 'already paid' is a TIMING DIFFERENCE, not necessarily an exception. The auditor traces the payment to the client's cash receipts records to see whether it was received after the confirmation date (in which case the receivable was validly outstanding) or received earlier and not recorded (which would be a genuine misstatement, and possibly lapping). The reply is a starting point for investigation, not a conclusion.
Question 362
Lapping of accounts receivable is BEST detected by:
Select an option first.
Correct answer: A — Comparing the details of cash receipts entries with the details of corresponding bank deposit slips
Explanation: LAPPING conceals a stolen receipt by applying a later customer's payment to the earlier customer's account. Because the total keeps rolling, the aged listing may look normal and confirmations may be answered by a customer whose account now shows the (misapplied) payment. Comparing the DETAIL of receipts entries (who paid, when, how much) against the DETAIL of the deposit slips exposes the mismatch between who actually paid and whose account was credited.
Question 363
The auditor's observation of the client's physical inventory count primarily provides evidence about:
Select an option first.
Correct answer: C — Existence and, to some extent, completeness and condition
Explanation: Observing the count and performing TEST COUNTS in both directions provides evidence about EXISTENCE (from the records to the floor) and COMPLETENESS (from the floor to the records). The auditor also observes CONDITION, which informs obsolescence. It does NOT establish VALUATION (option A) — the cost per unit must be tested separately — nor legal title, which goes to rights and obligations.
Question 364
Which procedure would MOST likely detect an overstatement of inventory quantities?
Select an option first.
Correct answer: C — Selecting items from the client's inventory listing and counting them on the warehouse floor
Explanation: To find OVERSTATEMENT, start with the RECORDS and go to the ASSET: if the listing says 500 units and only 300 are there, the overstatement surfaces. Option A starts with the floor and moves to the records, which detects UNDERSTATEMENT (goods on hand but not recorded). This is the direction-of-testing principle applied to a physical count, and both directions are performed in practice.
Question 365
An auditor examines the client's bank cut-off statement primarily to:
Select an option first.
Correct answer: C — Verify the reasonableness of the year-end bank reconciliation, particularly outstanding cheques and deposits in transit
Explanation: A BANK CUT-OFF STATEMENT covers a short period (typically 7-10 days) after year-end and is sent DIRECTLY to the auditor. It lets the auditor verify that outstanding cheques listed on the reconciliation actually cleared afterwards, and that deposits in transit actually reached the bank — testing for both kite-flying and manufactured reconciling items.
Get the full CPA question bank — free
Drop your email and we'll send you fresh CPA practice questions, fully worked solutions and exam-deadline reminders. No spam — unsubscribe in one click.
Want to save your score and take a full mock exam? Create a free account →
Question 366
Kiting is BEST detected by:
Select an option first.
Correct answer: C — Preparing a schedule of interbank transfers around the year-end date
Explanation: KITING overstates cash by recording a transfer as a DEPOSIT in the receiving account before year-end while not recording the DISBURSEMENT from the sending account until after — so the same money is counted twice. An INTERBANK TRANSFER SCHEDULE lists each transfer with the dates it was recorded in the books and the dates it cleared each bank, exposing any transfer whose deposit and disbursement fall on opposite sides of year-end.
Question 367
An auditor is testing cut-off for sales. The MOST effective procedure is to:
Select an option first.
Correct answer: A — Examine shipping documents for several days before and after year-end and compare to the sales journal dates
Explanation: Cut-off is about whether a transaction was recorded in the RIGHT PERIOD. Examining shipping documents on BOTH SIDES of year-end and agreeing them to the recording date tests both directions — sales recorded before the goods shipped (overstatement) and shipments not yet recorded (understatement). Note the shipping terms (FOB shipping point vs destination) determine when control transfers.
Question 368
Under a PPS sample, the sampling interval is calculated as:
Select an option first.
Correct answer: A — Population book value divided by the sample size
Explanation: The SAMPLING INTERVAL = population book value / sample size. Every item equal to or larger than the interval is CERTAIN to be selected (a 'top stratum' item). This is what gives PPS its dollar-weighted character: large balances are selected with certainty, and small ones with probability proportional to size.
Question 369
The auditor's independent recalculation of the client's depreciation expense is an example of:
Select an option first.
Correct answer: D — Reperformance
Explanation: REPERFORMANCE is the auditor's independent execution of a procedure or control that the client originally performed. Because it is the auditor's own direct knowledge, it is among the most reliable forms of evidence. OBSERVATION involves watching a process as it happens (and only proves it happened while you watched). INQUIRY is the weakest form of evidence and is never sufficient alone.
Question 370
Which of the following would provide the LEAST reliable audit evidence?
Select an option first.
Correct answer: C — An internally prepared spreadsheet supporting a management estimate, with no external corroboration
Explanation: An INTERNALLY generated document with no external corroboration, supporting a SUBJECTIVE estimate, sits near the bottom of the reliability hierarchy — it is the client's own assertion in spreadsheet form. External confirmations (option A) and the auditor's direct observation (option D) are near the top. A vendor invoice is externally generated, even though the client holds it, which makes it more reliable than a purely internal document.
Question 371
An auditor uses a client-prepared schedule as audit evidence. Before relying on it, the auditor must:
Select an option first.
Correct answer: B — Test the accuracy and completeness of the information produced by the entity
Explanation: When using INFORMATION PRODUCED BY THE ENTITY (IPE) — an aged receivables listing, a system-generated report, a supporting schedule — the auditor must test its ACCURACY and COMPLETENESS, typically by agreeing it to source data and checking that the report parameters captured the whole population. Relying on an unverified client report simply relocates the client's assertion into the auditor's file.
Question 372
Which of the following is a substantive analytical procedure rather than a test of details?
Select an option first.
Correct answer: B — Estimating interest expense by applying the average interest rate to the average debt balance and comparing to the recorded amount
Explanation: A SUBSTANTIVE ANALYTICAL procedure develops an independent EXPECTATION of a balance from plausible relationships and compares it to the recorded amount. Interest expense is a classic candidate, because it is highly predictable from principal and rate. Options C, D and A all examine individual items or documents, making them tests of details.
Question 373
The precision of a substantive analytical procedure improves when:
Select an option first.
Correct answer: B — The relationship used is stable and predictable, and the data is disaggregated
Explanation: Precision improves with STABLE, PREDICTABLE relationships and with DISAGGREGATED data (monthly rather than annual, by product line rather than in total), because aggregation lets offsetting misstatements hide. If management supplies the expectation (option C), the procedure is worthless — the expectation must be developed independently. A high tolerable difference (option D) reduces precision, letting larger misstatements pass.
Question 374
An auditor wishes to test whether all shipments were invoiced. The auditor should select a sample from:
Select an option first.
Correct answer: C — The shipping document file
Explanation: To test COMPLETENESS of invoicing, start with the population of shipments (the SHIPPING DOCUMENT file) and trace forward to see that each one produced an invoice. Starting with the sales journal (option A) tests OCCURRENCE — it can only confirm that recorded sales were real, never reveal a shipment that was never billed at all.
Question 375
Which of the following is TRUE regarding audit documentation?
Select an option first.
Correct answer: A — It should enable an experienced auditor with no previous connection to the audit to understand the nature, timing, extent and results of the procedures performed
Explanation: The standard is the EXPERIENCED AUDITOR test: documentation must be sufficient for an experienced auditor with no previous connection to the engagement to understand what was done, by whom, when, what evidence was obtained, and what conclusions were reached. Working papers are the property of the AUDITOR, not the client. Changes after the documentation completion date must be documented as such, with the reason.
Question 376
An auditor discovers a misstatement of $12,000 in a sample of receivables drawn from a population with a book value of $2,400,000. The sample book value was $240,000. Using ratio projection, the projected misstatement is:
Select an option first.
Correct answer: D — $120,000
Explanation: Ratio projection scales the sample misstatement to the population by the ratio of population book value to sample book value: $12,000 x ($2,400,000 / $240,000) = $12,000 x 10 = $120,000. Reporting only the $12,000 actually found (option A) understates the likely misstatement tenfold — the point of sampling is that the sample REPRESENTS the population.
Question 377
Which procedure best addresses the completeness assertion for revenue in a subscription business?
Select an option first.
Correct answer: A — Reconciling the number of active subscribers per the operational system to the number billed in the revenue system
Explanation: To test COMPLETENESS, compare an INDEPENDENT population (the operational system's count of active subscribers, who are receiving the service) to what was actually BILLED and recorded. A subscriber receiving service but not billed is revenue that is missing from the records — and no procedure starting in the revenue system could ever find them.
Question 378
The auditor's specialist is used to value a mineral reserve. The auditor should:
Select an option first.
Correct answer: B — Evaluate the specialist's competence, capabilities and objectivity, and evaluate the appropriateness of the assumptions, methods and source data used
Explanation: For the AUDITOR'S OWN specialist, the auditor must evaluate competence, capabilities and objectivity AND the appropriateness of the specialist's ASSUMPTIONS, METHODS and SOURCE DATA. The auditor cannot outsource professional judgement. The specialist is never referred to in an unmodified report and certainly never signs it — the auditor's responsibility is undivided.
Question 379
External confirmations are generally MOST effective for which assertion regarding accounts receivable?
Select an option first.
Correct answer: C — Existence
Explanation: Confirmations are strongest for EXISTENCE — a customer's acknowledgement that they owe the balance is powerful evidence that the receivable is real. They are WEAK for VALUATION (the customer confirms the amount owed, not their ability to pay it) and WEAK for COMPLETENESS (you can only confirm balances already in the ledger; an omitted customer receives no letter).
Question 380
In testing the client's accounts payable, the auditor examines vendor statements rather than relying solely on confirmations because:
Select an option first.
Correct answer: D — Vendor statements may reveal invoices the client has not recorded, addressing completeness
Explanation: For payables, the risk is UNDERSTATEMENT (omitted liabilities), and confirmations only go to vendors ALREADY in the ledger. A VENDOR STATEMENT shows everything the VENDOR believes is owed — including invoices the client never recorded. That external, independent view is precisely what makes it effective for completeness.
Question 381
The auditor identifies an unusual, significant transaction with a related party near year-end. The auditor should:
Select an option first.
Correct answer: C — Evaluate the business rationale for the transaction and whether it suggests fraudulent financial reporting or asset misappropriation
Explanation: Significant UNUSUAL transactions, particularly with related parties and particularly near period-end, require the auditor to evaluate the BUSINESS RATIONALE — asking whether the transaction appears overly complex, whether management discussed it with governance, whether the terms are arm's length, and whether it lacks any apparent business purpose. A transaction without a credible rationale is a fraud indicator.
Question 382
Which of the following would an auditor most likely examine to test the RIGHTS assertion for inventory?
Select an option first.
Correct answer: D — Consignment agreements and public warehouse receipts
Explanation: RIGHTS asks whether the entity actually OWNS the goods. Inventory held on CONSIGNMENT belongs to someone else, and goods stored in a public warehouse may be pledged as collateral. Reviewing consignment agreements and warehouse receipts goes directly to title. Count sheets prove EXISTENCE — the goods are there — but existence does not establish ownership.
Question 383
A management representation letter should be:
Select an option first.
Correct answer: B — Dated as of the date of the auditor's report
Explanation: The representation letter is dated AS OF THE DATE OF THE AUDITOR'S REPORT, and covers all periods referred to in the report — because it must speak to everything the auditor knows at the moment of issuing the opinion, including subsequent events. It is signed by those with overall responsibility, typically the CEO and CFO, and not by the internal auditor.
Question 384
An auditor performing a walkthrough of the sales process would:
Select an option first.
Correct answer: D — Trace a single transaction from initiation through recording in the general ledger, observing the controls applied along the way
Explanation: A WALKTHROUGH follows ONE transaction (or a very small number) through the ENTIRE process from initiation to reporting, confirming the auditor's understanding of the flow and identifying where misstatements could occur and which controls address them. It is a risk assessment and control-understanding procedure — its purpose is understanding, not statistical projection.
Question 385
In evaluating the results of a substantive sample, the auditor should:
Select an option first.
Correct answer: D — Project the misstatement to the population and consider it together with other uncorrected misstatements and qualitative factors
Explanation: The auditor must PROJECT the sample misstatement to the population, add it to other uncorrected misstatements (including projections from other samples and known misstatements), and compare the AGGREGATE against materiality — while also weighing QUALITATIVE factors, such as whether a small misstatement turns a loss into a profit or triggers a debt covenant. Evaluating in isolation is the trap.
Question 386
An auditor confirms a note receivable directly with the maker. This provides evidence primarily about:
Select an option first.
Correct answer: B — Existence and, to a degree, the terms and amount owed
Explanation: A confirmation from the MAKER establishes that the obligation EXISTS and corroborates its principal amount, rate and terms. It does NOT establish COLLECTABILITY (option B) — a debtor can readily acknowledge a debt they have no capacity to pay, which is why valuation requires separate evidence about the maker's financial condition.
Question 387
Which procedure would MOST effectively test the valuation of accounts receivable?
Select an option first.
Correct answer: B — Reviewing the aging schedule, testing subsequent cash receipts, and evaluating the adequacy of the allowance
Explanation: VALUATION for receivables means: will they be COLLECTED? The evidence comes from the AGING (older balances are less collectible), from SUBSEQUENT CASH RECEIPTS (the best evidence of all — the money actually arrived), and from evaluating the ALLOWANCE. Confirmations (option A) address existence, not collectability. Tracing (option C) addresses completeness.
Question 388
An auditor examines the client's purchase cut-off. Goods received on 30 December but not invoiced until 5 January should be:
Select an option first.
Correct answer: C — Included in inventory and accrued as a payable at year-end
Explanation: If the goods were RECEIVED before year-end (and title passed), they belong in year-end INVENTORY and a corresponding LIABILITY must be ACCRUED — regardless of when the invoice arrives. Recording only on invoice receipt (option C) is precisely the practice that produces unrecorded liabilities and overstates income. The receiving report, not the invoice, drives the accrual.
Question 389
Which of the following is the BEST evidence that a recorded fixed asset addition actually exists?
Select an option first.
Correct answer: A — Physical inspection of the asset
Explanation: PHYSICAL INSPECTION of the asset is the auditor's own direct knowledge and is the strongest evidence of EXISTENCE. A purchase order shows an INTENTION to buy; an invoice shows a BILL was received; board minutes show APPROVAL — none of the three proves the asset was delivered and is on the premises. Documents can support fictitious additions; the asset itself cannot.
Question 390
An auditor tests the client's payroll by comparing the number of employees on the payroll register to personnel files. This tests primarily for:
Select an option first.
Correct answer: C — Ghost employees (occurrence/existence)
Explanation: Agreeing the payroll register to PERSONNEL FILES tests whether the people being paid actually EXIST and are genuinely employed — the classic test for GHOST EMPLOYEES, a form of misappropriation. Testing pay RATES (option B) would require agreeing the rate to an authorised rate schedule, a different procedure addressing accuracy.
More free CPA topics
Ten questions in
- The ones you miss are saved as a drill you can repeat
- Your place is kept, on this device and any other
- A streak, if that is the thing that gets you back tomorrow
Every question on this page stays free and open either way.