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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 181
After the audit report has been issued, the auditor discovers a material fact that existed at the report date and would have affected the report. Management refuses to revise the financial statements or notify users. The auditor should:
Select an option first.
Correct answer: C — Notify regulatory agencies and any known users that the report should no longer be relied upon, after consulting legal counsel
Explanation: When the auditor discovers, AFTER issuance, a fact that existed at the report date and that would have affected the report, the auditor must ask management to make the necessary disclosures to users. If management REFUSES, the auditor should notify those charged with governance and take steps to prevent reliance on the report — including notifying regulatory agencies and known users — after consulting legal counsel. Doing nothing (option A) is not an option. Option A would compound the problem by re-issuing a report the auditor knows is wrong.
Question 182
An unmodified opinion on a non-issuer's financial statements includes a section headed 'Basis for Opinion'. This section states, among other things, that:
Select an option first.
Correct answer: A — The auditor is required to be independent of the entity and to meet other ethical responsibilities
Explanation: The BASIS FOR OPINION section states that the audit was conducted in accordance with GAAS, refers to the auditor's responsibilities section, states that the auditor is REQUIRED TO BE INDEPENDENT and to meet other ethical responsibilities, and states that the auditor believes the evidence obtained is sufficient and appropriate. Option B misstates reasonable assurance as a guarantee. Option D invents a horizon (going concern is one year from issuance). Option C would be an internal control opinion, which a financial statement audit of a non-issuer does not provide.
Question 183
Fenwick Industries changed from FIFO to weighted-average inventory costing. The change is properly accounted for, adequately disclosed and justified. The auditor should:
Select an option first.
Correct answer: B — Issue an unmodified opinion with an emphasis-of-matter paragraph describing the change
Explanation: A change in accounting principle that is properly accounted for, adequately disclosed and JUSTIFIED does not affect the opinion — it remains UNMODIFIED — but the auditor adds an EMPHASIS-OF-MATTER paragraph drawing attention to the change, because consistency between periods is fundamental to users' understanding. If the change were NOT justified or NOT properly accounted for, that would be a GAAP departure, leading to a qualified or adverse opinion. Option D omits the required paragraph.
Question 184
In a compilation engagement under SSARS, if the accountant is NOT independent, the accountant:
Select an option first.
Correct answer: A — May perform the engagement, provided the lack of independence is disclosed in the report
Explanation: In a COMPILATION (AR-C 80), a lack of independence is PERMITTED provided it is DISCLOSED in the accountant's report. The accountant may, but is not required to, state the reasons. This is possible because a compilation provides NO ASSURANCE — there is nothing for independence to protect. A REVIEW (AR-C 90), by contrast, provides limited assurance and therefore REQUIRES independence. A PREPARATION engagement (AR-C 70) requires no independence and issues no report at all.
Question 185
The auditor's responsibility with respect to Required Supplementary Information (RSI) accompanying a governmental entity's financial statements is to:
Select an option first.
Correct answer: B — Apply limited procedures, principally inquiry and comparison, and report any material departures
Explanation: REQUIRED SUPPLEMENTARY INFORMATION — such as Management's Discussion and Analysis in a governmental audit — is subject to LIMITED PROCEDURES only: inquiring of management about the methods of preparation, comparing the information for consistency with the audited statements and with the auditor's knowledge, and obtaining representations. The auditor does NOT express an opinion on RSI (option A), but neither may it be ignored (option D). Any material departure from prescribed guidelines is reported in an other-matter paragraph.
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Question 186
An auditor issues a disclaimer of opinion because of a pervasive scope limitation. The report should:
Select an option first.
Correct answer: B — Omit the reference to the audit having been conducted in accordance with GAAS in the basis section, and state that the auditor does not express an opinion
Explanation: When the auditor DISCLAIMS an opinion, the report must state that the auditor DOES NOT EXPRESS AN OPINION and must explain the reason. Because the auditor did not obtain sufficient appropriate evidence, the report does NOT assert that the audit was conducted in accordance with GAAS in the usual way, and the auditor's responsibilities section is modified accordingly. Crucially, the auditor must not include ANY language implying the statements are fairly presented (option D) — that would contradict the disclaimer itself. Option D mixes two mutually exclusive report types.
Question 187
Which statement about Key Audit Matters (KAMs) and Critical Audit Matters (CAMs) is correct?
Select an option first.
Correct answer: D — CAMs are required for US issuer audits under PCAOB standards; KAMs arise under international and AICPA standards when the auditor is engaged to communicate them
Explanation: CAMs are required in US ISSUER audit reports under PCAOB AS 3101. KAMs are the analogous concept under international standards (ISA 701) and are communicated in an AICPA engagement when the auditor is ENGAGED to do so — they are not automatic for US non-issuers. Neither CAMs nor KAMs MODIFY the opinion (option C): they inform users about the areas of greatest audit difficulty. And CAMs are reported regardless of whether the opinion is modified (option D).
Question 188
Uncorrected misstatements aggregating to $180,000 are identified. Overall materiality is $200,000. The misstatement causes the entity to narrowly meet a debt covenant it would otherwise breach. The auditor should:
Select an option first.
Correct answer: B — Consider the qualitative significance and likely conclude the misstatement is material
Explanation: Materiality has a QUALITATIVE dimension as well as a quantitative one. A misstatement that is numerically below the threshold may still be MATERIAL if it changes a trend, turns a loss into a profit, or — as here — determines compliance with a debt covenant. The purely arithmetic answer (option A) is the trap that this question is built around.
Question 189
The auditor concludes that the financial statements are fairly presented but the entity has changed auditors and the prior period was audited by another firm whose report is not reissued. The current auditor should:
Select an option first.
Correct answer: A — Include an other-matter paragraph stating that the prior period was audited by a predecessor auditor, the type of opinion issued, and the date
Explanation: When the predecessor's report is NOT reissued, the successor auditor adds an OTHER-MATTER paragraph stating that the prior period was audited by a PREDECESSOR auditor, the TYPE of opinion expressed, the DATE of that report, and (if the opinion was modified) the reasons. The successor does not re-audit the prior period merely to present comparatives.
Question 190
An auditor is asked to report on financial statements prepared using the cash basis of accounting. This is:
Select an option first.
Correct answer: B — Permitted as a special purpose framework, with an emphasis-of-matter paragraph describing the basis and its purpose
Explanation: The cash basis is a SPECIAL PURPOSE FRAMEWORK (along with tax basis, regulatory basis and contractual basis). The auditor may report on it, and MUST include an emphasis-of-matter paragraph describing the framework, stating that it is not GAAP, and referring to the note that describes it. The report may also need to be restricted as to use, depending on the framework.
Question 191
Which of the following circumstances would ordinarily NOT result in a modification of the auditor's opinion?
Select an option first.
Correct answer: C — There is substantial doubt about going concern, and it is adequately disclosed
Explanation: Going concern doubt that is ADEQUATELY DISCLOSED results in an UNMODIFIED opinion with an emphasis-of-matter paragraph — the opinion is not modified. Options D and A are GAAP departures (qualified or adverse) and option B is a scope limitation (qualified or disclaimer). Candidates routinely and wrongly believe substantial doubt forces a qualification.
Question 192
Comparative financial statements are presented. The prior-year opinion was qualified, but the underlying issue has been resolved and the prior-year statements have been restated. The auditor should:
Select an option first.
Correct answer: D — Update the prior-period opinion to unmodified and explain the reasons in an other-matter paragraph
Explanation: When the reason for a previous modification has been RESOLVED and the statements restated, the auditor UPDATES the prior-period opinion — expressing an opinion that DIFFERS from the one previously issued — and discloses the substantive reasons in an OTHER-MATTER paragraph, stating the date of the previous report, the type of opinion previously expressed, and the reason for the change.
Question 193
The 'Responsibilities of Management' section of the auditor's report on a non-issuer states that management is responsible for:
Select an option first.
Correct answer: D — The preparation and fair presentation of the financial statements, and for the design and maintenance of internal control relevant to that preparation
Explanation: Management is responsible for PREPARING and FAIRLY PRESENTING the financial statements in accordance with the applicable framework, and for the DESIGN, IMPLEMENTATION and MAINTENANCE of internal control relevant to that preparation, free from material misstatement whether due to fraud or error. The section also covers management's going concern evaluation. Audit procedures and materiality are the AUDITOR's responsibility.
Question 194
In an audit of internal control over financial reporting integrated with a financial statement audit, a material weakness results in:
Select an option first.
Correct answer: A — An ADVERSE opinion on internal control over financial reporting
Explanation: A MATERIAL WEAKNESS existing at the assessment date results in an ADVERSE opinion on ICFR — internal control is NOT effective. There is no 'qualified' ICFR opinion for a material weakness: control is either effective or it is not. Note that the financial statement opinion may still be UNMODIFIED, because the auditor can compensate with additional substantive procedures.
Question 195
An auditor's report on an issuer includes a CAM relating to goodwill impairment. The auditor's description of the CAM should NOT:
Select an option first.
Correct answer: D — Provide a separate opinion on the individual account or disclosure
Explanation: A CAM description identifies the matter, states why it was determined to be a CAM, describes how it was addressed, and refers to the relevant accounts or disclosures. It must NOT convey a SEPARATE OPINION on the individual account — that would constitute 'piecemeal' opinion reporting, which is prohibited because it undermines the single opinion on the statements as a whole.
Question 196
When financial statements contain a material departure from GAAP but the auditor concludes the departure is NOT pervasive, the auditor issues:
Select an option first.
Correct answer: B — A qualified ('except for') opinion, with a basis for qualified opinion paragraph quantifying the effects if practicable
Explanation: A material but NOT pervasive GAAP departure gives a QUALIFIED opinion. The 'Basis for Qualified Opinion' paragraph precedes the opinion paragraph and describes the departure, quantifying its effects on the financial statements where practicable. Option C is wrong because an emphasis-of-matter paragraph is never a substitute for a modification of the opinion.
Question 197
The auditor's report should be addressed to:
Select an option first.
Correct answer: C — Those for whom the report is prepared, typically the shareholders and/or those charged with governance
Explanation: The report is addressed to those for whom it is PREPARED — typically the SHAREHOLDERS and/or the board of directors or audit committee. It is NOT addressed to management (option A), because management is the party whose assertions are being audited. Addressing it to the CFO would invert the entire accountability structure the audit exists to serve.
Question 198
Bramwell Ltd's financial statements are materially misstated, and the effects are both material and pervasive. Management refuses to correct them. The auditor should issue:
Select an option first.
Correct answer: C — An adverse opinion
Explanation: Material AND pervasive MISSTATEMENT gives an ADVERSE opinion — the statements do NOT present fairly. A DISCLAIMER (option C) would be wrong: a disclaimer arises from an inability to obtain evidence (a SCOPE problem), not from a known misstatement. The auditor here has ample evidence; the problem is that the statements are wrong. Adverse = GAAP; disclaimer = scope.
Question 199
An emphasis-of-matter paragraph in the auditor's report:
Select an option first.
Correct answer: D — Refers to a matter appropriately presented or disclosed in the financial statements that is fundamental to users' understanding
Explanation: An EMPHASIS-OF-MATTER paragraph highlights a matter that IS appropriately presented or disclosed and is fundamental to users' understanding — going concern, a change in accounting principle, a major catastrophe, or an unusually significant subsequent event. It does NOT modify the opinion, it is used for more than going concern, and it is placed AFTER the opinion paragraph.
Question 200
The auditor concludes that a client's disclosure of a material loss contingency is inadequate. This is:
Select an option first.
Correct answer: A — A GAAP departure, leading to a qualified or adverse opinion
Explanation: Inadequate DISCLOSURE is a departure from the applicable financial reporting framework — a GAAP departure — because the framework requires the disclosure. It therefore leads to a QUALIFIED or (if pervasive) ADVERSE opinion. An emphasis-of-matter paragraph (option C) is only for matters that ARE appropriately disclosed, so it cannot be used to plug a disclosure gap.
Question 201
In a review engagement under SSARS, the accountant obtains limited assurance by performing:
Select an option first.
Correct answer: A — Inquiry and analytical procedures
Explanation: A REVIEW is based principally on INQUIRY and ANALYTICAL procedures. It does NOT include tests of controls, confirmations, physical observation, or the other substantive procedures that characterise an audit — which is precisely why it provides only LIMITED (negative) assurance rather than reasonable assurance and an opinion.
Question 202
An accountant performing a compilation:
Select an option first.
Correct answer: B — Is not required to verify the accuracy or completeness of the information management provides
Explanation: In a COMPILATION, the accountant assists in PRESENTING information in the form of financial statements WITHOUT undertaking to obtain or provide any assurance. The accountant reads the statements for obvious material misstatement but does NOT verify, confirm or test. Independence is not required (though a lack of it must be disclosed), and no assurance is provided.
Question 203
Which of the following must be communicated to those charged with governance?
Select an option first.
Correct answer: B — The auditor's responsibilities, planned scope and timing, significant findings, and material weaknesses
Explanation: Required communications with those charged with governance include the auditor's RESPONSIBILITIES under GAAS, the PLANNED SCOPE and TIMING, SIGNIFICANT FINDINGS (including qualitative aspects of accounting practices, significant difficulties encountered, and uncorrected misstatements), and significant deficiencies and MATERIAL WEAKNESSES. Immaterial matters that are clearly trivial need not be communicated.
Question 204
The successor auditor is REQUIRED to communicate with the predecessor auditor:
Select an option first.
Correct answer: D — Before accepting the engagement, with the client's permission
Explanation: The successor MUST attempt to communicate with the PREDECESSOR BEFORE ACCEPTING the engagement, and must obtain the CLIENT'S PERMISSION to do so. The inquiries cover management's integrity, disagreements over accounting or auditing matters, communications about fraud or noncompliance, and the predecessor's reasons for the change. If the client REFUSES permission, that refusal is itself a serious red flag warranting consideration of whether to accept at all.
Question 205
An auditor of a governmental entity subject to Government Auditing Standards (the Yellow Book) must additionally report on:
Select an option first.
Correct answer: A — Internal control over financial reporting and compliance with laws, regulations, contracts and grant agreements
Explanation: Under GOVERNMENT AUDITING STANDARDS, the auditor issues an additional report on INTERNAL CONTROL over financial reporting and on COMPLIANCE with laws, regulations, contracts and grant agreements. Note the auditor does not express an OPINION on internal control in that report — it describes the scope of the testing and reports any findings identified.
Question 206
The financial statements include an entity's first-time adoption of a new accounting standard, applied retrospectively and adequately disclosed. The auditor should:
Select an option first.
Correct answer: A — Issue an unmodified opinion with an emphasis-of-matter paragraph regarding the change
Explanation: A change in accounting principle — whether voluntary or MANDATED by a new standard — that is properly applied and adequately disclosed calls for an UNMODIFIED opinion with an EMPHASIS-OF-MATTER paragraph. Consistency between periods is fundamental to users' understanding, so the change is highlighted even though nothing is wrong and the entity had no choice.
Question 207
An auditor is engaged to examine and report on management's assertion about the effectiveness of internal control. This engagement is:
Select an option first.
Correct answer: D — An attestation engagement
Explanation: Reporting on SUBJECT MATTER OTHER THAN historical financial statements — such as management's assertion about internal control effectiveness, compliance with a contract, or the reliability of sustainability metrics — is an ATTESTATION engagement, governed by the attestation standards (SSAEs). An examination provides reasonable assurance; a review provides limited assurance; agreed-upon procedures provide findings with no assurance conclusion.
Question 208
In an agreed-upon procedures engagement, the practitioner:
Select an option first.
Correct answer: B — Reports findings without expressing an opinion or conclusion, with use of the report restricted to specified parties
Explanation: An AGREED-UPON PROCEDURES engagement reports FINDINGS — the factual results of specific procedures — WITHOUT any opinion or conclusion. The engaging party takes responsibility for the sufficiency of the procedures, and the report's use is RESTRICTED to specified parties, because only they understand what the procedures were and were not designed to accomplish.
Question 209
The auditor discovers, after the report date but BEFORE the report is released, that a material customer filed for bankruptcy, and the customer was already in financial distress at the balance sheet date. The auditor should:
Select an option first.
Correct answer: C — Request that management adjust the financial statements, as this is a Type 1 subsequent event
Explanation: The customer's financial DISTRESS EXISTED AT THE BALANCE SHEET DATE — the bankruptcy filing merely confirmed a condition already present. That makes it a TYPE 1 (recognised) subsequent event, requiring ADJUSTMENT of the allowance for doubtful accounts. Disclosure alone (option C) would be the response for a Type 2 event, where the condition arose after year-end.
Question 210
Which of the following would cause an auditor to conclude that a going concern emphasis-of-matter paragraph is NOT required?
Select an option first.
Correct answer: A — Management's mitigation plans are feasible, sufficient and are likely to alleviate the substantial doubt
Explanation: Even where conditions raise substantial doubt, the auditor evaluates MANAGEMENT'S PLANS. If those plans are FEASIBLE, SUFFICIENT and likely to ALLEVIATE the doubt (a signed financing commitment, a completed asset sale), the substantial doubt is resolved and no paragraph is required. Options B, D and C are all CONDITIONS that raise doubt — they are the trigger for the evaluation, not its conclusion.
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