Free CPA-Auditing Practice Test Questions and Answers (2026) | Cert Empire Practice Questions

Choice "c" is correct. Equipment acquisitions that are misclassified as maintenance expense most

likely would be detected by internal control procedures that provide for investigation of variances

within a formal budgeting system.

Choice "a" is incorrect. Segregation of duties of employees in the accounts payable department

would not prevent the misclassification of equipment acquisitions as maintenance expense.

Choice "b" is incorrect. Verifying invoices for disbursements already recorded as equipment

acquisitions would not include examining invoices for disbursements recorded as maintenance

expense.

Choice "d" is incorrect. Since the authorization by the board of directors occurs before the

disbursement is recorded, this control would not prevent any misclassification.

Choice "c" is correct. The auditor would most likely use the entity's financial statements of the prior

year in the preliminary determination of materiality. The prior year financial statements would be a

good starting point in estimating the current year's expected results, especially for a continuing

client.

Choice "a" is incorrect. The assessment of control risk affects the design of audit procedures but is

not relevant in determining materiality.

Choice "b" is incorrect. The anticipated sample size for planned substantive tests is set after the

preliminary materiality level is determined.

Choice "d" is incorrect. Management assertions embodied in the financial statements have little

relationship to materiality.

Choice "a" is correct. GAAP allows a company to use different methods for costing different

inventories as long as the methods are disclosed. Thus, the audit report would be unqualified; there

is no departure from GAAP.

Choice "b" is incorrect. The consistency standard refers to changes in application of accounting

practices between periods, affecting the comparability of financial statements. There is no indication

Digit made any change in methods.

Choice "c" is incorrect. Use of different methods for costing inventory is permissible under GAAP, and

would not result in a qualification of the auditor's report.

Choice "d" is incorrect. Use of different methods for costing inventory is permissible under GAAP, and

would not result in an adverse report.

Choice "b" is correct. When a qualified opinion is issued due to a lack of sufficient audit evidence, the

lack of evidence should be disclosed in an explanatory paragraph before the opinion paragraph.

Since insufficient evidence is a scope limitation, the scope paragraph should also be modified to refer

to the limitation and to the explanatory paragraph that discusses it.

Choices "a" and "c" are incorrect. Management (and not the auditor) prepares the notes to the

financial statements. The auditor therefore would not refer to this (or any other) situation in the

notes to the financial statements.

Choice "d" is incorrect. The auditor does refer to the situation in the scope paragraph.

Choice "a" is correct. When performing procedures regarding subsequent events, the auditor

generally will compare the latest available interim financial statements with the financial statements

being audited to determine if any significant subsequent event occurred that would need to be

reflected in the statements being audited.

Choice "b" is incorrect. Sending second requests to the client's customers who failed to respond to

initial A/R confirmation requests is a substantive procedure that provides evidence about receivables

existing at year end, not about subsequent events.

Choice "c" is incorrect. Internal control weaknesses should be communicated to those charged with

governance, but this communication provides no evidence about subsequent events.

Choice "d" is incorrect. Bank cut-off statements generally are reviewed for only a week to ten days

subsequent to year-end. Reviewing them for a longer period such as "several months" would provide

little additional audit evidence regarding the YE FS and thus would not be a cost beneficial procedure.

Choice "c" is correct. The auditor considers any of management's plans that might serve to mitigate

the adverse effects of particular conditions and events. Typically, plans to increase ownership equity,

to borrow money, to restructure debt, to sell assets, and/or to reduce or delay expenditures might all

be considered mitigating factors.

Choices "a", "b", and "d" are incorrect. Increasing dividend distributions, reducing lines of credit, and

purchasing assets would not improve a weak cash flow situation.

Choice "a" is correct. When rendering an opinion on the application of accounting principles to a specific transaction, the reporting CPA should consult with the continuing CPA to obtain information relevant to the transaction. Choice "b" is incorrect. The reporting CPA has no obligation to report the engagement's findings to the continuing CPA. Generally, the report would be addressed to the requesting party (e.g., management, the board of directors, etc.). Choice "c" is incorrect. There is no disclaimer in the report; however, the CPA does state that the preparers of the financial statements are responsible for proper accounting treatment. Choice "d" is incorrect. Use of the report is restricted to specified parties.

Choice "a" is correct. The auditors should address their report to the entity that engaged them. In

this case, Monday Corp. engaged the auditor to perform an acquisition audit and the report should

be addressed to Monday.

Choice "b" is incorrect. Wall Corp. did not engage the auditors and thus the report should not be

addressed to them.

Choices "c" and "d" are incorrect. Even though the bank will be relying on the audited financial

statements in determining whether to make the loan, the bank did not directly engage the auditing

firm and accordingly, the report should not be addressed to them.

Choice "b" is correct. Before accepting an engagement, the auditor should make specific inquiries of

the predecessor auditor in order to assist the auditor in deciding whether or not to accept the

engagement.

Inquiry should include the predecessor's understanding of the reasons for the change in auditors.

Choice "a" is incorrect. The predecessor generally does not provide an opinion on events occurring

subsequent to the issuance of the audit report.

Choice "c" is incorrect. The successor (and not the predecessor) evaluates the consistency in the

application of GAAP. This evaluation occurs after acceptance.

Choice "d" is incorrect. The predecessor generally allows the successor to review audit

documentation related to matters of continuing accounting significance, but this occurs subsequent

to acceptance.

Choice "c" is correct. If an accounting change has no material effect on the comparability of the

financial statements, the auditor does not need to recognize the change in the current year's audit

report.

Choice "a" is incorrect. The change would only be referred to in an explanatory paragraph if the

effect were material.

Choice "b" is incorrect. The auditor does not explicitly concur with the change in the report.

Choice "d" is incorrect. Even if the change had a material effect, the opinion paragraph would not be

affected. The explanatory paragraph would follow the opinion paragraph.

Choice "d" is correct. When a qualified opinion results from a limitation of scope, it should be

described in an explanatory paragraph preceding the opinion paragraph and referred to in both the

scope and opinion paragraphs of the auditor's report.

Choices "a", "b", and "c" are incorrect, as they do not comply with the rule above.

Choice "d" is correct. In a typical comfort letter, the accountants express an opinion (i.e., positive

assurance) concerning the financial statements' compliance (as to form) with the pertinent

accounting requirements of the SEC.

Choice "a" is incorrect. No assurance is generally provided in a comfort letter regarding the operation

of an entity's internal control.

Choice "b" is incorrect. A typical comfort letter is addressed to the underwriters of the securities.

Government Auditing Standards and the Single Audit Act are not applicable to a comfort letter

related to the issuance of securities.

Choice "c" is incorrect. Negative assurance (not positive) is typically provided regarding unaudited

condensed financial information.

Choice "d" is correct. The objective of a review of interim financial information of a public entity is to

provide the accountant with a basis for reporting whether material modifications should be made to

conform with GAAP.

Choice "a" is incorrect. Prospective financial information (concerning future events) is not part of the

interim financial information filed by a public company.

Choice "b" is incorrect. No form of opinion is expressed based on a review; however, limited

assurance is provided regarding the financial statements.

Choice "c" is incorrect. The objective of an interim review is not to provide guidance regarding the

timing of audit procedures.

Choice "b" is correct. A WebTrust engagement is an attestation engagement in which the CPA

determines whether the client's web site meets defined criteria relating to transaction integrity,

information protection, and disclosure of business practices. Attestation engagements should be

performed in accordance with Statements on Standards for Attestation Engagements (SSAEs).

Choice "a" is incorrect. Statements on Assurance Standards is a distracter.

Choice "c" is incorrect. Consulting services provided by CPAs range from advice on accounting-

related matters to a wide range of services involving diverse technical disciplines. Consulting services

performed by CPAs should be performed in accordance with Statements on Standards for Consulting

Services (SSCSs).

Choice "d" is incorrect. Audits (generally of financial statements) performed by CPAs should be

performed in accordance with Statements on Auditing Standards (SASs).

Choice "c" is correct. If an auditor chooses to report on information accompanying the basic financial

statements in a client-prepared document, the report should include a description of both the

character of the audit work performed and the degree of responsibility assumed.

Choice "a" is incorrect. There is no requirement that the auditor be specifically engaged to report on

such information. If auditing procedures have been applied to the information, the auditor is

permitted to report thereon.

Choice "b" is incorrect. The auditor is permitted but not required to report on such information.

Choice "d" is incorrect. If an auditor chooses to report on information accompanying the basic

financial statements in a client-prepared document, the report should include an opinion on the

information and a description of both the character of the audit work performed and the degree of

responsibility assumed.

Choice "c" is correct. Both the basis of accounting used by an entity to file its income tax return and the cash receipts and disbursements basis of accounting are comprehensive bases of accounting other than GAAP. OCBOAs also include: * A basis prescribed by a regulatory agency * A definite set of criteria having substantial support (e.g., price-level basis)

Choice "c" is correct. The auditor's standard audit report includes a statement that "An audit includes

assessing...significant estimates made by management..."

Choice "a" is incorrect. The standard audit report does not state that disclosures provide reasonable

assurance that the financial statements are free of material misstatement. The correct statement is:

"...standards require that we plan and perform the audit to obtain reasonable assurance that the

financial statements are free of material misstatement."

Choice "b" is incorrect. The standard audit report does not state that the auditor evaluated the

overall internal control. The correct statement is "An audit includes...evaluating the overall financial

statement presentation." Internal control is not mentioned in the standard audit report.

Choice "d" is incorrect. The standard audit report does not state "The financial statements are

consistent with those of the prior period." According to the second standard of reporting, consistency

is implicitly reported. Only if there is an inconsistency is an explicit statement included.

Choice "b" is correct. A "disclaimer of opinion" must be issued when a CPA is "associated" with FS of

a publicly held entity, but has not audited or (interim) reviewed such FS.

Choice "a" is incorrect. A "compilation report" refers to a report related to a non-public entity.

Choice "c" is incorrect. There is no such thing as an "unaudited association report."

Choice "d" is incorrect. The auditor did not audit the FS, so he/she cannot issue an opinion on them.

Choice "B" is the correct opinion. In a going concern situation that is properly disclosed, an unqualified opinion should be issued.

Choice "b" is correct. The objective of a review is to provide the accountant with a reasonable basis

for expressing limited assurance that there are no material modifications that should be made to the

accompanying financial statements for them to be in conformity with generally accepted accounting

principles.

Choice "a" is incorrect. When performing a review, the accountant does not gather enough evidence

to update an audit opinion.

Choice "c" is incorrect. There are no "standards of interim reporting."

Choice "d" is incorrect. Expressing an opinion as to whether the financial statements are presented

fairly in accordance with GAAP is the result of an audit, not a review.