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 391
The auditor's use of the client's own data analytics tool to test 100% of journal entries:
Select an option first.
Correct answer: B — Requires the auditor to test the accuracy and completeness of the data extracted
Explanation: Whenever the auditor uses INFORMATION PRODUCED BY THE ENTITY — including the output of the client's own analytics tool — the auditor must test its ACCURACY and COMPLETENESS. An analysis of an incomplete population is worthless, however sophisticated. Testing 100% of the entries you were given proves nothing if the extract omitted a whole ledger.
Question 392
Which of the following would be an appropriate use of negative confirmations?
Select an option first.
Correct answer: D — A large number of small balances with low risk and a low expected exception rate, where recipients are likely to read them
Explanation: NEGATIVE confirmations are permitted only when ALL conditions hold: LOW assessed risk, MANY SMALL balances, a LOW expected exception rate, and a reasonable expectation that recipients will READ them. A retail bank's deposit accounts fit; a handful of large trade receivables does not. Option B describes a SCOPE LIMITATION imposed by the client, which requires its own evaluation.
Question 393
An auditor discovers that a sample item selected for testing cannot be located. The auditor should:
Select an option first.
Correct answer: D — Treat it as a deviation or misstatement unless alternative procedures provide the required evidence
Explanation: An item the auditor CANNOT EXAMINE and for which ALTERNATIVE procedures cannot provide the necessary evidence must be treated as a DEVIATION (in a test of controls) or a MISSTATEMENT (in a substantive test). Simply REPLACING it (option A) biases the sample by systematically excluding exactly the items that are hardest to support — which are often the ones that matter most.
Question 394
Which procedure provides evidence about the completeness of recorded revenue in a cash-based retail business?
Select an option first.
Correct answer: B — Reconciling cash register tape totals and bank deposits to recorded revenue, and testing for gaps in transaction sequences
Explanation: For cash retail, completeness is threatened by SKIMMING — cash taken before it is ever recorded. Reconciling INDEPENDENT sources (register tape totals, bank deposits) to recorded revenue, and testing the SEQUENCE for gaps, can reveal takings that never reached the books. Option D vouches from the records outward, testing occurrence, and could never reveal a sale that was never rung up.
Question 395
In auditing an accounting estimate, evidence obtained from events occurring AFTER the balance sheet date but BEFORE the report date:
Select an option first.
Correct answer: C — May provide strong evidence about the reasonableness of the estimate
Explanation: SUBSEQUENT EVENTS often provide the best evidence about an estimate made at year-end. If a receivable estimated as collectible was in fact collected in February, that strongly supports the year-end allowance. If a lawsuit provisioned at $1M settled for $5M, that strongly undermines it. This is one of the three recognised approaches to auditing estimates.
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 396
The auditor selects every 25th item from a numbered population after a random start. This is:
Select an option first.
Correct answer: C — Systematic selection
Explanation: SYSTEMATIC selection takes every nth item after a random start. It is efficient and acceptable, but it carries a risk: if the population has a PATTERN that coincides with the interval (for example, every 25th entry is a month-end accrual), the sample will be systematically biased. The auditor must consider whether such a pattern exists.
Question 397
An auditor should ordinarily send confirmation requests for accounts receivable UNLESS:
Select an option first.
Correct answer: A — Receivables are immaterial, confirmations would be ineffective, or the assessed RMM is low and other substantive procedures address the risk
Explanation: Confirmation of receivables is a PRESUMPTIVELY REQUIRED procedure. The presumption may be overcome only where: receivables are IMMATERIAL; confirmations would be INEFFECTIVE (a population known not to respond); or the assessed RMM is LOW and other substantive procedures address the risk. If the auditor does not confirm, the reasons must be DOCUMENTED. A client objection (option A) is a scope limitation to be evaluated, not a licence to skip.
Question 398
A client refuses to allow the auditor to confirm a material receivable from a related party. The auditor should:
Select an option first.
Correct answer: A — Evaluate the reasons for the refusal, consider the implications for risk assessment and management integrity, and perform alternative procedures
Explanation: A refusal is not automatically fatal, but it demands scrutiny. The auditor must evaluate the VALIDITY of the reasons, consider what the refusal implies about MANAGEMENT INTEGRITY and about the risk of material misstatement (including fraud), and attempt ALTERNATIVE PROCEDURES. Only if alternative procedures cannot provide sufficient evidence does a scope limitation arise. A refusal to allow confirmation of a RELATED PARTY balance is a particularly loud signal.
Question 399
The auditor's search for unrecorded liabilities typically covers the period:
Select an option first.
Correct answer: D — From year-end through the date of the auditor's report
Explanation: The search extends from YEAR-END through the DATE OF THE AUDITOR'S REPORT — the auditor examines cash disbursements, unmatched invoices and receiving reports throughout that window, because an invoice arriving in that period may well relate to goods or services received BEFORE year-end. A one-week window (option C) is far too narrow to be effective.
Question 400
Which is the strongest evidence that inventory is properly valued at the lower of cost and net realisable value?
Select an option first.
Correct answer: D — Comparison of unit costs to subsequent selling prices, less costs to complete and sell
Explanation: NRV is selling price less costs to complete and sell. Comparing carrying COST to actual SUBSEQUENT SELLING PRICES gives direct, objective evidence of whether a write-down is needed. Physical observation addresses EXISTENCE. Recalculating extensions addresses ACCURACY. And a client representation (option A) is the weakest evidence available and never sufficient alone.
Question 401
An auditor observes that the client's inventory count instructions do not address goods held on consignment from third parties. The risk is that:
Select an option first.
Correct answer: C — Inventory is overstated, because goods the client does not own may be counted as its own
Explanation: Goods held ON CONSIGNMENT FROM others belong to the CONSIGNOR, not the client. If the count instructions do not segregate and exclude them, they will be counted as the client's own — OVERSTATING inventory and understating cost of goods sold. This goes to the RIGHTS assertion: the goods exist and are on the premises, but the client does not own them.
Question 402
In a test of controls over cash disbursements, the auditor finds that 3 of 60 cheques lacked evidence of approval. The tolerable deviation rate is 5%. The auditor should:
Select an option first.
Correct answer: B — Compute the upper deviation rate and compare it to the tolerable rate before concluding
Explanation: The SAMPLE deviation rate (5%) is not the basis for the conclusion — the auditor must compute the UPPER DEVIATION RATE, which incorporates sampling risk and will be materially HIGHER than 5%. If UDR exceeds the 5% TDR, the control cannot be relied upon. Comparing the sample rate directly to the TDR (option A) ignores sampling risk entirely, and it is the intended trap. Raising the TDR after seeing the results (option D) is indefensible.
Question 403
Which of the following is an example of vouching?
Select an option first.
Correct answer: B — Selecting an entry in the sales journal and examining the supporting shipping document and invoice
Explanation: VOUCHING goes from the RECORDED ENTRY BACK to the SOURCE DOCUMENT — it tests OCCURRENCE and detects OVERSTATEMENT. TRACING (option A) goes from the SOURCE DOCUMENT FORWARD to the records — it tests COMPLETENESS and detects UNDERSTATEMENT. The two words are precise technical terms and the exam relies on candidates knowing which direction each denotes.
Question 404
The auditor recalculates the client's bank reconciliation and agrees the outstanding cheque list to the subsequent bank statement. An outstanding cheque of $48,000 has still not cleared four months later. This MOST likely indicates:
Select an option first.
Correct answer: B — A fictitious outstanding cheque, possibly concealing a cash shortage
Explanation: A cheque outstanding for FOUR MONTHS is highly abnormal — cheques normally clear within days. A fictitious outstanding cheque is a classic device for CONCEALING A CASH SHORTAGE: it makes the book balance appear reconciled to a bank balance that is actually lower. The auditor should examine the cheque itself, the payee, and whether it was ever issued at all.
Question 405
An auditor reviews the client's minutes of board meetings primarily to:
Select an option first.
Correct answer: C — Identify authorisations, commitments, contingencies and events with potential financial statement implications
Explanation: BOARD MINUTES are a rich, corroborative source: they reveal dividend declarations, borrowing authorisations, litigation, acquisitions, contracts, capital commitments and related party transactions — matters with direct financial statement implications that may not have been communicated to the auditor otherwise. Reading them is a required procedure, and the auditor must also confirm that ALL minutes have been provided.
Question 406
In the audit of a not-for-profit, the auditor should pay particular attention to:
Select an option first.
Correct answer: C — Whether contributions with donor restrictions are properly classified and used in accordance with the restrictions
Explanation: Not-for-profits do not have shareholders, earnings per share, dividends or treasury stock — so options A, A and B are irrelevant. The distinctive audit risk is the proper CLASSIFICATION of net assets (with and without donor restrictions) and COMPLIANCE with donor-imposed restrictions, since misuse of restricted funds is both a misstatement and a legal exposure.
Question 407
An auditor uses generalised audit software to recompute the aging of receivables from the underlying transaction file. This procedure is BEST described as:
Select an option first.
Correct answer: C — Reperformance of the client's aging, providing evidence about the accuracy of information produced by the entity
Explanation: Recomputing the aging from the raw transaction data is REPERFORMANCE — the auditor independently executes what the client's system did. Because the allowance depends entirely on the aging, testing the aging's ACCURACY is a prerequisite to relying on it. This is IPE testing: the aged listing is information produced by the entity, and it cannot be relied upon until verified.
Question 408
Which of the following is the LEAST persuasive evidence regarding the existence of a marketable security?
Select an option first.
Correct answer: A — The client's schedule of investments
Explanation: The CLIENT'S OWN SCHEDULE is an internal document — it is the client's assertion in list form, and it is the weakest of the four. Physical inspection (option B) and a confirmation from an independent CUSTODIAN (option A) are far stronger, as is a broker's statement received DIRECTLY by the auditor (option D), because directness preserves the evidence's independence.
Question 409
The auditor is testing whether all cash disbursements were properly authorised. The appropriate population to sample from is:
Select an option first.
Correct answer: D — The cash disbursements journal
Explanation: To test whether RECORDED disbursements were authorised, the population is the DISBURSEMENTS themselves — the cash disbursements journal (or the cheque register). Sampling from the requisition file (option C) would test whether requisitions led to payments, a completeness question. Always define the population by the assertion being tested.
Question 410
Analytical procedures used in the OVERALL REVIEW stage of the audit are intended to:
Select an option first.
Correct answer: A — Assist in forming an overall conclusion on whether the financial statements are consistent with the auditor's understanding of the entity
Explanation: FINAL analytical procedures are REQUIRED and serve a distinct purpose: standing back and asking whether the financial statements, taken as a whole, MAKE SENSE in light of everything the auditor now knows about the entity. An unexplained relationship discovered at this stage may indicate a previously unrecognised risk of material misstatement, requiring further work before the opinion is issued.
Question 411
An auditor identifies a related party transaction that management had not disclosed. The auditor should:
Select an option first.
Correct answer: D — Reconsider the risk assessment (including fraud risk), evaluate why it was not disclosed, and perform procedures to identify other undisclosed related party transactions
Explanation: An UNDISCLOSED related party transaction is a significant matter. The auditor must ask WHY it was not disclosed — was it an oversight, or a deliberate concealment? — RECONSIDER the fraud risk assessment, and search for OTHER undisclosed relationships and transactions, since the existence of one suggests there may be more. Treating it as a simple oversight (option A) is a failure of scepticism.
Question 412
In testing the existence of fixed assets, an auditor selects items from:
Select an option first.
Correct answer: A — The fixed asset register and inspects the corresponding assets
Explanation: To test EXISTENCE (overstatement), start with the RECORDS and go find the ASSET. If the register lists a machine that is not there — sold, scrapped, or never purchased — the overstatement surfaces. Starting on the floor (option A) tests COMPLETENESS, finding assets in use but not recorded. Both directions are performed, but they answer different questions.
Question 413
Which of the following would be classified as 'documentation' evidence?
Select an option first.
Correct answer: D — Examining a signed lease agreement
Explanation: INSPECTION OF DOCUMENTS (a signed lease) is documentary evidence. Option B is OBSERVATION (which proves only that the procedure was performed while you watched). Option A is INQUIRY (the weakest form). Option C is an ANALYTICAL PROCEDURE. The exam frequently asks candidates to classify a procedure into the correct evidence type.
Question 414
An auditor is auditing a construction contractor using the percentage-of-completion method. The MOST significant audit risk relates to:
Select an option first.
Correct answer: C — Management's estimate of total costs to complete, which directly drives the percentage recognised
Explanation: Under cost-to-cost, revenue = (costs incurred / TOTAL ESTIMATED COSTS) x contract price. The TOTAL ESTIMATED COST is a management ESTIMATE, and understating it INFLATES the percentage complete and therefore accelerates revenue. It is the single most manipulable input in the model, and it is where the auditor's scepticism must concentrate.
Question 415
An auditor is testing the client's revenue cut-off. Goods shipped FOB DESTINATION on 29 December and received by the customer on 3 January were recorded as December revenue. This is:
Select an option first.
Correct answer: B — A cut-off error; under FOB destination, control transfers on delivery, so the revenue belongs in January
Explanation: Under FOB DESTINATION, title and control pass when the goods REACH THE CUSTOMER. Delivery occurred on 3 January, so the revenue (and the receivable) belong in the NEXT period, and the goods should still be in year-end INVENTORY as goods in transit. Recording it in December overstates revenue and understates inventory. Under FOB SHIPPING POINT the answer would reverse — which is exactly why the auditor must read the shipping terms, not just the dates.
Question 416
In confirming accounts payable, an auditor sends BLANK (zero-balance) confirmations to vendors with SMALL or NIL recorded balances. The reason is that:
Select an option first.
Correct answer: B — The completeness risk lies precisely with vendors whose balances are understated or omitted, and a large recorded balance is less likely to be the one that is wrong
Explanation: For PAYABLES, the risk is UNDERSTATEMENT. A vendor with a large recorded balance is unlikely to be the one hiding an omission; a vendor with a zero or tiny recorded balance — with whom the client did substantial business — is exactly where an unrecorded liability lurks. Selecting by RECORDED SIZE would systematically miss the risk, which is why payable confirmations are selected by ACTIVITY, not by balance.
Question 417
Inventory held in a PUBLIC WAREHOUSE that is material to the financial statements should be:
Select an option first.
Correct answer: D — Confirmed directly with the custodian, supplemented where material by additional procedures such as observing a count or reviewing the warehouse's controls
Explanation: Confirmation from the CUSTODIAN is the starting point, but where the amounts are MATERIAL the auditor should do more: observe a physical count, obtain a report on the warehouse's internal controls, review the client's procedures for evaluating the warehouse, or confirm details of pledged receipts. A confirmation alone from a custodian who may be colluding is thin evidence for a material balance.
Question 418
Which procedure would be MOST effective in auditing long-term debt?
Select an option first.
Correct answer: D — Confirming the balance, terms, interest rate and collateral directly with the lender, and reading the loan agreement for covenants
Explanation: Confirming DIRECTLY with the LENDER establishes the balance, the rate, the maturity, the collateral and any restrictive covenants — external, independent evidence covering multiple assertions at once. Reading the AGREEMENT then identifies covenants whose breach could accelerate the debt, affecting CLASSIFICATION (current vs non-current) and potentially going concern.
Question 419
An auditor testing owners' equity would MOST likely:
Select an option first.
Correct answer: D — Confirm shares outstanding with an independent registrar or transfer agent, and read the board minutes for dividend and issuance authorisations
Explanation: Where an independent REGISTRAR or TRANSFER AGENT exists, confirming the number of shares ISSUED and OUTSTANDING gives strong external evidence. BOARD MINUTES then evidence the authorisation of issuances, dividends, buybacks and stock splits. For a small entity with no registrar, the auditor examines the stock certificate book directly.
Question 420
In auditing prepaid insurance, an effective procedure is to:
Select an option first.
Correct answer: A — Confirm the policy with the insurance broker and recalculate the unexpired portion by reference to the policy period
Explanation: Confirming the POLICY (its existence, term, premium and coverage) with the broker or insurer, then RECALCULATING the unexpired portion against the policy period, tests both EXISTENCE and VALUATION efficiently. As a by-product, reviewing the insurance register can also reveal ASSETS the client owns but has not recorded, and pledged or encumbered assets.
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.