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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 241
A client asks the auditor to issue a report expressing an opinion on only ONE financial statement (for example, the balance sheet alone). The auditor:
Select an option first.
Correct answer: B — May do so; an opinion on a single statement is permitted, provided the auditor has access to information underlying the statements and performs sufficient procedures
Explanation: An opinion on a SINGLE FINANCIAL STATEMENT (or on a specific element, account or item) is expressly PERMITTED, and it is a distinct engagement — not a prohibited 'piecemeal opinion'. What IS prohibited is expressing a piecemeal opinion on particular items WITHIN statements on which the auditor has issued an adverse opinion or a disclaimer, because that would undermine the overall conclusion.
Question 242
Which of the following circumstances would MOST likely require the auditor to add an emphasis-of-matter paragraph?
Select an option first.
Correct answer: C — A subsequent event that is disclosed and has a material effect on the financial statements
Explanation: An emphasis-of-matter paragraph highlights a matter FUNDAMENTAL to users' understanding that IS properly disclosed — a significant subsequent event, a going concern uncertainty, a change in accounting principle, or a major catastrophe. A change in ESTIMATE (option A) is prospective and does NOT affect consistency, so it does not warrant emphasis. Immaterial matters (option C) never do.
Question 243
The audit documentation completion date for a non-issuer is:
Select an option first.
Correct answer: C — 60 days from the report release date
Explanation: For a NON-ISSUER (AICPA), the documentation completion date is 60 DAYS from the report release date, and documentation must be RETAINED for at least 5 YEARS. For an ISSUER (PCAOB), it is 45 DAYS and 7 YEARS. The pattern is that the PCAOB is stricter on both dimensions — a useful way to hold the four numbers together.
Question 244
If the auditor concludes that the financial statements are materially misstated but management corrects them before issuance, the auditor should:
Select an option first.
Correct answer: D — Issue an unmodified opinion on the corrected statements
Explanation: If the misstatement is CORRECTED, the statements are no longer misstated, and an UNMODIFIED opinion is appropriate. The auditor does, however, communicate the corrected misstatements to those charged with governance and considers what they imply about the effectiveness of internal control — a material misstatement that the client's own controls failed to catch may itself indicate a material weakness.
Question 245
The concept of 'pervasive' in the context of modified opinions refers to effects that:
Select an option first.
Correct answer: A — Are not confined to specific elements, or if confined, represent a substantial proportion of the statements, or relate to disclosures fundamental to users' understanding
Explanation: PERVASIVE effects are those that (a) are NOT CONFINED to specific elements, accounts or items; (b) if so confined, represent or could represent a SUBSTANTIAL PROPORTION of the statements; or (c) in relation to DISCLOSURES, are FUNDAMENTAL to users' understanding. It is a matter of judgement, not merely of size — which is why a single misstatement can be pervasive if the disclosure is fundamental.
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Question 246
An auditor who is unable to obtain audited financial statements of a material equity method investee should:
Select an option first.
Correct answer: D — Consider the effect on the opinion; if unable to obtain sufficient evidence about the investment, modify the opinion for a scope limitation
Explanation: Inability to obtain sufficient appropriate evidence about a MATERIAL equity method investment is a SCOPE LIMITATION. The auditor must consider whether alternative procedures can provide the evidence; if not, the opinion is QUALIFIED (material, not pervasive) or DISCLAIMED (material and pervasive). An adverse opinion (option C) would be wrong, since nothing is known to be misstated — the problem is the absence of evidence.
Question 247
Which statement about the auditor's report date and the management representation letter is correct?
Select an option first.
Correct answer: A — The representation letter must be dated as of the date of the auditor's report, and the auditor cannot issue the report before receiving it
Explanation: The representation letter must be dated AS OF THE DATE OF THE AUDITOR'S REPORT — no earlier — because it must speak to everything known as of the moment the opinion is issued, including subsequent events. Receiving it is a PRECONDITION for issuing the report: without it, the auditor has not obtained sufficient appropriate evidence, and management's refusal to provide it leads to a disclaimer or withdrawal.
Question 248
A COMFORT LETTER issued to an underwriter in connection with a securities offering:
Select an option first.
Correct answer: B — Provides NEGATIVE assurance on unaudited interim information and specified procedures on other data, and is restricted to the underwriter and specified parties
Explanation: A COMFORT LETTER assists underwriters in establishing a 'due diligence' defence. It provides POSITIVE assurance that the audited statements comply with SEC requirements, NEGATIVE assurance on unaudited interim information, and reports FINDINGS from agreed procedures on other financial data. It is RESTRICTED to the underwriter and named parties, and it guarantees nothing.
Question 249
In a review of an ISSUER's interim financial information, the accountant:
Select an option first.
Correct answer: A — Performs primarily inquiry and analytical procedures and provides LIMITED assurance, stating whether they are aware of any material modifications needed
Explanation: An INTERIM REVIEW (of quarterly information for an issuer) is based principally on INQUIRY and ANALYTICAL procedures and provides LIMITED (negative) assurance. It is substantially less in scope than an audit and provides no opinion. It is REQUIRED for issuers before filing Form 10-Q, and the reviewer must have (or obtain) an understanding of the entity's internal control.
Question 250
A FORECAST differs from a PROJECTION in that a forecast:
Select an option first.
Correct answer: B — Presents expected results based on conditions the responsible party EXPECTS to exist and the course of action it EXPECTS to take
Explanation: A FORECAST reflects what the responsible party EXPECTS — it is a best estimate of the most likely outcome, and it may be for GENERAL use. A PROJECTION is based on one or more HYPOTHETICAL assumptions ('what if we opened 50 new stores?'), answering a what-if question, and its use is therefore RESTRICTED to parties negotiating directly with the responsible party who understand the hypothesis.
Question 251
A practitioner may NOT accept an engagement to examine prospective financial statements if:
Select an option first.
Correct answer: A — The prospective statements OMIT the summary of significant assumptions
Explanation: The SUMMARY OF SIGNIFICANT ASSUMPTIONS is ESSENTIAL to a user's ability to understand prospective financial information — without it, the numbers are meaningless and potentially misleading. A practitioner may NOT examine, compile or apply agreed-upon procedures to prospective statements that omit it. This is one of the few outright prohibitions in the attestation standards.
Question 252
Reporting on PRO FORMA financial information involves:
Select an option first.
Correct answer: A — Reporting on whether management's assumptions provide a reasonable basis, the pro forma adjustments give appropriate effect to those assumptions, and the pro forma amounts reflect the proper application of those adjustments
Explanation: PRO FORMA information shows what the historical results would have looked like had a transaction (an acquisition, a disposal) occurred earlier. The practitioner reports on three things: whether MANAGEMENT'S ASSUMPTIONS provide a reasonable basis, whether the ADJUSTMENTS give appropriate effect to those assumptions, and whether the pro forma AMOUNTS properly apply those adjustments to the historical statements.
Question 253
In an audit of a governmental entity, the auditor issues an ADVERSE opinion on one major fund but the remaining opinion units are fairly stated. The auditor should:
Select an option first.
Correct answer: D — Issue an adverse opinion on that opinion unit and unmodified opinions on the others
Explanation: Governmental reporting uses OPINION UNITS, each with its own materiality, and the auditor expresses a SEPARATE opinion on each. A modification affecting ONE opinion unit does NOT contaminate the others — the report can carry an adverse opinion on a single major fund alongside unmodified opinions on governmental activities, business-type activities and the remaining fund information.
Question 254
The auditor may report on an entity's compliance with contractual provisions in connection with an audit ONLY if:
Select an option first.
Correct answer: C — The auditor has audited the financial statements to which the provisions relate, and has not identified any instance of noncompliance
Explanation: NEGATIVE assurance on compliance with contractual provisions may be given only in connection with an AUDIT of the financial statements to which those provisions relate, and only if the auditor has NOT identified any instance of noncompliance. If noncompliance IS found, the auditor must describe it rather than give negative assurance. The report is also restricted in use.
Question 255
A SOC 1 report is issued by the SERVICE auditor. The service auditor's opinion covers:
Select an option first.
Correct answer: B — The fairness of the description of the service organisation's system, the suitability of the design of the controls, and (for Type 2) their operating effectiveness
Explanation: The SERVICE auditor opines on: (1) whether management's DESCRIPTION of the system is fairly presented; (2) whether the CONTROLS were suitably DESIGNED to achieve the stated control objectives; and, for a TYPE 2, (3) whether they OPERATED EFFECTIVELY throughout the period. The service auditor expresses no opinion on any user entity's financial statements.
Question 256
If the auditor is unable to determine whether a client has complied with laws that have a MATERIAL indirect effect, and management refuses to provide information, the auditor should:
Select an option first.
Correct answer: A — Consider it a scope limitation, which may result in a qualified opinion or disclaimer, and consider withdrawal
Explanation: Management's refusal to provide information about possible noncompliance is a SCOPE LIMITATION. The auditor considers the effect on the opinion (qualified or disclaimer), considers the implications for MANAGEMENT INTEGRITY and the reliability of other representations, and may need to WITHDRAW. Direct reporting to a regulator (option C) is constrained by confidentiality, though a duty to report may exist in specific circumstances such as under Government Auditing Standards.
Question 257
Which statement about the auditor's duty to report identified or suspected fraud to parties OUTSIDE the entity is correct?
Select an option first.
Correct answer: B — The auditor's professional duty of confidentiality ordinarily precludes external reporting, but a legal or regulatory duty may override it in specific circumstances
Explanation: CONFIDENTIALITY ordinarily prevents the auditor from reporting fraud outside the entity. Recognised exceptions include: responding to a successor auditor's inquiries (with client permission), complying with a subpoena or court order, responding to a regulator with legal authority, and specific statutory duties (for example, under Government Auditing Standards or SEC Section 10A). When in doubt, the auditor consults legal counsel.
Question 258
SEC Section 10A requires an auditor who detects a likely illegal act to:
Select an option first.
Correct answer: C — Inform management and the audit committee; if they fail to take appropriate remedial action and the effect is material, report to the board, which must notify the SEC — and if it does not, the auditor must
Explanation: Section 10A establishes an ESCALATION LADDER. The auditor informs 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. If the board fails to do so, the AUDITOR must furnish the report to the SEC directly — one of the very few circumstances requiring auditor-to-regulator reporting.
Question 259
In an integrated audit, the auditor's opinion on ICFR is expressed AS OF:
Select an option first.
Correct answer: B — A POINT IN TIME — normally the entity's fiscal year-end
Explanation: ICFR effectiveness is assessed AS OF A POINT IN TIME, normally the fiscal YEAR-END. This contrasts with the FINANCIAL STATEMENT opinion, which covers the entire PERIOD. Consequently, a material weakness that existed during the year but was fully REMEDIATED and tested before year-end need not produce an adverse ICFR opinion.
Question 260
Management's report on ICFR under Section 404(a) must:
Select an option first.
Correct answer: A — State management's responsibility, identify the framework used (typically COSO), and provide management's assessment of effectiveness, disclosing any material weakness
Explanation: Section 404(a) requires MANAGEMENT to state its responsibility for establishing and maintaining ICFR, identify the FRAMEWORK used to evaluate it (COSO in practice), and provide its ASSESSMENT of effectiveness, disclosing any MATERIAL WEAKNESS. Section 404(b) requires the AUDITOR to attest to that — but 404(b) is scaled: non-accelerated filers and emerging growth companies are exempt.
Question 261
The auditor's report on an issuer identifies the engagement partner:
Select an option first.
Correct answer: D — On PCAOB Form AP, filed with the PCAOB
Explanation: The ENGAGEMENT PARTNER'S NAME, along with information about other accounting firms participating in the audit, is disclosed on PCAOB FORM AP — a filing made with the PCAOB and publicly searchable. It does NOT appear on the face of the audit report itself in the US model (unlike some international regimes, where the partner signs personally).
Question 262
When an auditor is engaged to audit financial statements prepared in accordance with a financial reporting framework GENERALLY ACCEPTED IN ANOTHER COUNTRY, and the statements will be used only OUTSIDE the US, the auditor may:
Select an option first.
Correct answer: B — Use the report form of the other country, or the US form modified to refer to that country's framework
Explanation: Where statements prepared under ANOTHER country's framework are for use ONLY OUTSIDE the US, the auditor may use EITHER that country's report form (provided the auditor complies with that country's standards) OR the US form modified to refer to the other framework. If the statements will also be used in the US, additional requirements apply.
Question 263
An auditor who has issued an unmodified opinion learns that the previously issued financial statements should be restated. The auditor's FIRST step is to:
Select an option first.
Correct answer: A — Discuss the matter with management and, where appropriate, those charged with governance, and determine whether the statements need revision
Explanation: The FIRST step is to DISCUSS with MANAGEMENT (and governance where appropriate) and determine whether revision is needed. Only if management refuses to take appropriate action does the auditor escalate — notifying governance, and then taking steps to prevent reliance on the report, after consulting legal counsel. The auditor does not begin with a public announcement.
Question 264
Vaughan Trust asks its auditor to report on the fairness of the allocation of expenses between two beneficiary classes under the trust deed. Materiality for this engagement is applied to:
Select an option first.
Correct answer: C — The specific element being reported on — the expense allocation — rather than to the financial statements as a whole
Explanation: When reporting on a SPECIFIC ELEMENT, ACCOUNT OR ITEM, materiality is applied to THAT ELEMENT, not to the financial statements as a whole. Because the element is smaller than the statements, the effective materiality threshold is far LOWER — which means the procedures must be correspondingly MORE extensive relative to the item's size than they would be in a full audit. Candidates routinely assume financial-statement materiality carries over; it does not.
Question 265
A 'dual-dated' auditor's report indicates that the auditor's responsibility for subsequent events:
Select an option first.
Correct answer: A — Is limited, for the period after the original report date, to the specific event described
Explanation: DUAL DATING ('March 15, 20X4, except for Note 12, as to which the date is April 2, 20X4') LIMITS the auditor's responsibility for the later period to the ONE SPECIFIC EVENT described. RE-DATING the whole report would extend responsibility to ALL events through the new date — a much heavier commitment, requiring the auditor to extend all subsequent event procedures.
Question 266
An auditor concludes that an entity's disclosure of a significant risk concentration (a single customer representing 70% of revenue) is omitted. This is:
Select an option first.
Correct answer: B — A GAAP departure requiring a qualified or adverse opinion
Explanation: Disclosure of significant CONCENTRATIONS — of customers, suppliers, products, or geographic regions — is REQUIRED by the framework. Omitting it is therefore a DEPARTURE from GAAP, giving a qualified or (if pervasive) adverse opinion. An emphasis-of-matter paragraph (option A) is available only for matters that ARE properly disclosed and cannot substitute for a missing disclosure.
Question 267
The auditor's report should be dated no earlier than the date on which the auditor:
Select an option first.
Correct answer: A — Obtained sufficient appropriate audit evidence, including evidence that all statements comprising the financial statements have been prepared and management has taken responsibility for them
Explanation: The report is dated no earlier than the date the auditor obtained SUFFICIENT APPROPRIATE EVIDENCE — which necessarily includes: all the statements and notes being PREPARED, and management having ACCEPTED RESPONSIBILITY for them (evidenced by the signed representation letter). Dating the report earlier would assert a conclusion the auditor was not yet entitled to reach.
Question 268
Which of the following is NOT ordinarily communicated to those charged with governance?
Select an option first.
Correct answer: B — The detailed audit sampling methodology and individual sample items selected
Explanation: The auditor communicates significant DIFFICULTIES, DISAGREEMENTS with management, UNCORRECTED MISSTATEMENTS, significant findings, material weaknesses, and the auditor's views on qualitative accounting practices. The granular MECHANICS of the audit — the sampling methodology and the specific items selected — are not communicated, and disclosing the sample items in advance would actively undermine the audit's unpredictability.
Question 269
An auditor's report on a non-issuer includes the phrase 'in our opinion, the financial statements referred to above present fairly, in all material respects...'. The phrase 'in all material respects' signifies that:
Select an option first.
Correct answer: C — The statements may contain immaterial misstatements without affecting the opinion
Explanation: 'IN ALL MATERIAL RESPECTS' is the auditor's acknowledgement that the statements may contain IMMATERIAL misstatements — perfection is not the standard, and an audit does not (and could not economically) test every transaction. It ties directly to the concept of materiality and to the reasonable-rather-than-absolute assurance an audit provides.
Question 270
If the auditor identifies that supplementary information required by GAAP is OMITTED, the auditor should:
Select an option first.
Correct answer: D — Refer to the omission in an other-matter paragraph, but the omission does not affect the opinion on the basic financial statements
Explanation: Omitted REQUIRED SUPPLEMENTARY INFORMATION (RSI) is reported in an OTHER-MATTER paragraph, but it does NOT affect the OPINION on the BASIC financial statements — because RSI is not part of them. The auditor may not prepare it (option D), since that would be a management function.
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