CPA Practice Exam 2024 with 100%
correct answers
When a CPA examines a client's projected financial statements, the CPA's report should: - correct
answer state that the CPA performed procedures to evaluate management's assumptions.
Davis, CPA, accepted an engagement to audit the financial statements of Tech Resources, a nonpublic
entity. Before the completion of the audit, Tech requested Davis to change the engagement to a
compilation of financial statements. Before Davis agrees to change the engagement, Davis is required to
consider the:
additional audit effort necessary to complete the audit.
reason given for Tech's request. - correct answer Both I and II
The GAO standards list several threats to independence. The threat of familiarity is defined as: - correct
answer when, due to a long or close relationship with management or other personnel, the auditor will
be too sympathetic or accepting of work.
Which of the following representations does an accountant make implicitly when issuing the standard
report for the compilation of a nonissuer's financial statements? - correct answer The accountant is
independent with respect to the entity.
Heath Co.'s current ratio is 4:1. Which of the following transactions would normally increase its current
ratio? - correct answer Selling inventory on account
According to the AICPA Code of Professional Conduct, what would a covered member most
appropriately do upon learning that another member of an attest engagement team is considering
employment with the client? - correct answer Notify an appropriate person in the firm.
Which of the following factors most likely would assist an independent auditor in assessing the
objectivity of the internal auditor? - correct answer The organizational status of the director of internal
audit
If the business environment is experiencing a recession, the auditor most likely would focus increased
attention on which of the following accounts? - correct answer Allowance for doubtful accounts
An auditor is reporting on condensed financial statements for an annual period that are derived from
the audited financial statements of an issuer. The auditor's opinion should indicate whether the
information in the condensed financial statements is fairly stated in all material respects: - correct
answer in relation to the complete financial statements.
An auditor observes the mailing of monthly statements to a client's customers and reviews evidence of
follow-up on errors reported by the customers. This test of controls most likely is performed to support
management's financial statement assertion of: - correct answer existence.
North Co., a privately held entity, asked its tax accountant, King, a CPA in public practice, to review and
generate North's interim financial statements on King's microcomputer when King prepared North's
quarterly tax return. King should not submit these financial statements to North unless, as a minimum,
King complies with the provisions of: - correct answer Statements on Standards for Accounting and
Review Services.
An auditor's report would be designated an audit of a special-purpose financial statement when it is
issued in connection with: - correct answer a basis of accounting that the entity uses to comply with an
agreement between the entity and one or more third parties other than the auditor.
An auditor most likely would not rely on controls if the payroll department supervisor is responsible for:
- correct answer authorizing payroll rate changes for all employees.
Which of the following levels would most likely address the risk of material misstatement by the
auditor's consideration of an entity's control environment? - correct answer Financial statements
Which of the following would most likely be associated with obtaining an understanding of relevant
internal factors when satisfying the obligation to understand the entity and its environment on an audit?
- correct answer Revenue recognition practices
Russell CPA is auditing contingent liabilities. What generally is the primary risk of material misstatement
related to related financial statement disclosures? - correct answer Completeness
Nile, CPA, on completing an audit, was asked by the client to provide technical assistance in integrating a
new IT system. The set of pronouncements designed to guide Nile in this engagement is the
Statement(s) on: - correct answer Standards for Consulting Services.
Investment and property schedules are presented for purposes of additional analysis in an auditorsubmitted document. The schedules are not required parts of the basic financial statements but
accompany the basic financial statements. When reporting on such additional information, the
measurement of materiality is the: - correct answer same as that used in forming an opinion on the
basic financial statements taken as a whole.
Which of the following is required of an accountant in reviewing a company's financial statements under
the Statements on Standards for Accounting and Review Services (SSARS)? - correct answer Obtain
knowledge of the client's industry
Analytical procedures are required for which of the following? - correct answer Audit planning
In planning an audit, the auditor's knowledge about the design of relevant control activities should be
used to: - correct answer identify the types of potential misstatements that could occur.
A CPA firm is completing the fieldwork for an audit of Swenson Co. for the current year ended December
31. The manager in charge of the audit is performing the final steps in the evidence accumulation phase
of the audit and notes that there have been several changes in Swenson during the year under audit.
Which of the following items would indicate there could be substantial doubt about Swenson's ability to
continue as a going concern for a reasonable period of time? - correct answer Recurring working capital
shortages
Which of the following is correct regarding a compilation of financial statements engagement in
accordance with the Statements on Standards for Accounting and Review Services (SSARS)? - correct
answer The accountant is not required to make inquiries nor perform procedures to corroborate the
information provided by the client.
Which of the following sampling methods would be used to estimate a numerical measurement of a
population, such as a dollar value? - correct answer Variables sampling
Which of the following courses of action would an auditor most likely follow in planning a sample of
cash disbursements if the auditor is aware of several unusually large cash disbursements? - correct
answer Stratify the cash disbursements population so that the unusually large disbursements are
selected
If a difference between auditor expectations and actual results in a financial statement audit test cannot
be explained, even after performing other audit procedures, which of the following is likely to be the
most appropriate initial auditor response? - correct answer Aggregate a likely misstatement
A CPA firm should establish procedures for conducting and supervising work at all organizational levels
to provide reasonable assurance that the work performed meets the firm's standards of quality. To
achieve this goal, the firm most likely would establish procedures for: - correct answer reviewing
engagement working papers and reports.
Independence is not required on which of the following types of engagements? - correct answer
Compilation
An auditor discovers that an account balance believed not to be materially misstated based on an audit
sample was materially misstated based on the total population of the account balance. This is an
example of which of the following sampling types of risks? - correct answer Incorrect acceptance
Title IV of the Sarbanes-Oxley Act of 2002 requires which of the following? - correct answer All of the
answer choices are correct.
Which of the following is a valid statement related to the relationship of internal control using
information technology and financial reporting risk? - correct answer Controls should be embedded
into both the software and hardware to preserve the integrity of data.
Which of the following tests of details most likely would help an auditor determine whether accounts
payable have been misstated? - correct answer Examining vendor statements for amounts not
reported as purchases
Part of an auditor's process of establishing whether the preconditions for an audit are present involves
obtaining management's acknowledgement of its responsibility for all of the following except: - correct
answer providing the auditor with restricted access to persons within the entity from whom the auditor
determines it necessary to obtain audit evidence.
What is the most likely source of the following statement?
"There were unreasonable delays by management in permitting the commencement of the audit and in
providing needed information." - correct answer Auditor's communication with those charged with
governance
As part of the process of observing a client's physical inventories, an auditor should be alert to: - correct
answer the inclusion of any obsolete or damaged goods.
When assessing the internal auditor's competence, the independent CPA should obtain information
about the: - correct answer educational background and professional certification of the internal
auditors.
Which of the following departments most likely would approve changes in pay rates and deductions
from employee salaries? - correct answer Personnel
Which of the following would not be considered an analytical procedure? - correct answer Projecting a
deviation rate by comparing the results of a statistical sample with the actual population characteristics
Which of the following audit procedures would an auditor most likely perform to test controls relating
to management's assertion concerning the completeness of sales transactions? - correct answer
Inspect the entity's reports of prenumbered shipping documents that have not been recorded in the
sales journal
Which of the following audit risk components may be assessed in nonquantitative terms? - correct
answer Control risk, detection risk, and inherent risk
In reporting under Government Auditing Standards, an auditor most likely would be required to
communicate management's misappropriation of assets directly to a federal inspector general when the
fraudulent activities are: - correct answer reported to the entity's governing body and the governing
body fails to make a required report to the federal inspector general.
The auditor should perform analytical procedures relating to revenue with the objective of identifying
unusual or unexpected relationships involving revenue accounts that may indicate a material
misstatement due to fraudulent financial reporting. Which of the following is not an example of an
analytical procedure? - correct answer Observation of entity activities and operations
Which type of service organization control (SOC) report will provide assurance as to whether the
controls are suitably designed to achieve specified control objectives, whether those controls have been
placed in operation, and whether they operate effectively over a period of time? - correct answer Type
2
Which of the following types of evidence would an auditor most likely examine to determine whether
internal control activities are operating as designed? - correct answer Client records documenting the
use of EDP programs
An audit client failed to maintain copies of its procedures manuals and organizational flowcharts. What
should the auditor do in an audit of financial statements? - correct answer Document the auditor's
understanding of internal controls
If an accountant is performing a review engagement for a nonissuer and considers it necessary to
communicate a matter that is not presented in the financial statements, then the accountant should
include this information in which of the following paragraphs in the review report? - correct answer
The other-matter paragraph
During an audit, an auditor discovers a fraudulent expense reimbursement for a low-level manager. The
auditor determines that this transaction is inconsequential and several similar transactions would not be
material to the financial statements in the aggregate. Which of the following statements best describes
the auditor's required response to the discovery? - correct answer The auditor should bring the
transaction to the attention of an appropriate level of management.
Although the quantity and content of audit documentation varies with each particular engagement, an
auditor's permanent files most likely include: - correct answer analyses of capital stock and other
owners' equity accounts.
For which of the following audit tests would an auditor most likely use attribute sampling? - correct
answer Inspecting employee timecards for proper approval by supervisors
Which of the following titles would be considered suitable for financial statements that are prepared on
a cash basis? - correct answer Statement of revenues collected and expenses paid
Jewel, CPA, audited Infinite Co.'s prior-year financial statements. These statements are presented with
those of the current year for comparative purposes without Jewel's auditor's report, which expressed a
qualified opinion. In drafting the current year's auditor's report, Crain, CPA, the successor auditor,
should:
not name Jewel as the predecessor auditor.
indicate the type of report issued by Jewel.
indicate the substantive reasons for Jewel's qualification. - correct answer I, II, and III
The regulatory body that has the primary authority to develop requirements for performing federal
program compliance audits in accordance with the Single Audit Act is: - correct answer the Office of
Management and Budget (OMB).
An auditor determines that the entity is presenting certain supplementary financial disclosures of
pension information that are required by the GASB. Under these circumstances, the auditor should: correct answer compare the required supplementary information for consistency with the audited
financial statements.
Which of the following matters is an auditor required to communicate to those charged with
governance? - correct answer The process used by management in formulating sensitive accounting
estimates
The auditor's overall responses to address the assessed risks of material misstatement at the financial
statement level may include all of the following except: - correct answer examining inventory counts.
In addition to the Statements on Standards for Accounting and Review Services (SSARS), which of the
other following standards must also be complied with in an annual review of the financial statements of
a nonissuer? - correct answer Code of Professional Conduct and Statements on Quality Control
Standards
Which of the following matters is covered in a typical comfort letter? - correct answer An opinion as to
whether the audited financial statements comply in form with the accounting requirements of the SEC
An auditor's program for the examination of long-term debt should include steps that require the: correct answer examination of any bond trust indenture.
Which of the following statements is false with respect to management representation letters on a
review engagement? - correct answer The accountant acknowledges his or her responsibility for the
fair presentation in the financial statements of financial position, results of operations, and cash flows.
When auditing related party transactions, an auditor places primary emphasis on: - correct answer
evaluating the disclosure of the related party transactions.
According to the PCAOB, which of the following tax services may be provided jointly with the audit of an
issuer's financial statements without impairing independence? - correct answer Reviewing a proposed
transaction and informing the client of the tax consequences
An auditor who performed analytical procedures that compared current-year financial information to
the comparable prior period noted a significant increase in net income. Given this result, which of the
following expectations of recorded amounts would be unreasonable? - correct answer A decrease in
retained earnings
Which of the following procedures would an auditor most likely perform in searching for unrecorded
liabilities? - correct answer Vouch a sample of cash disbursements recorded just after year-end to
receiving reports and vendor invoices
Which of the following procedures should an accountant perform during an engagement to review the
financial statements of a nonissuer? - correct answer Obtaining a representation letter from members
of management
Which of the following factors most likely would cause a CPA not to accept a new audit engagement? correct answer The prospective client's unwillingness to permit inquiry of its legal counsel
Which of the following is not an example of conditions and events that may indicate the existence of
risks of material misstatement? - correct answer Operating in an environment that is regulated by the
government
Which of the following services, if any, may an accountant who is not independent provide? - correct
answer Compilations, but not reviews
According to the AICPA Code of Professional Conduct, which of the following financial interests in the
client during the period of the engagement impairs a CPA's independence? - correct answer Only direct
and material indirect financial interests
In auditing computer-based systems, the integrated test facility: - correct answer is a concurrent audit
technique where a special set of dummy master files is established and test transactions are entered to
test the programs using the dummy files during regular processing runs.
If the audit objective of a test of details is to detect overstatements of sales, the auditor should vouch
transactions from the: - correct answer accounting records to the source documents.
What is the definition of fraud in an audit of financial statements? - correct answer An intentional act
that results in a material misstatement in financial statements that are the subject of an audit
In performing a financial statement audit in accordance with Government Auditing Standards, an
auditor is required to report on the entity's compliance with laws and regulations. This report should: correct answer state that compliance with laws and regulations is the responsibility of the entity's
management.
1. This was the first year in five years that TWD operated at a profit, because the municipalities received
increased federal and state funding for environmental purposes. The audit risk would: - correct answer
decrease.
2. TWD's Board of Directors is controlled by Mead, the majority stockholder, who also acts as the chief
executive officer. The audit risk would: - correct answer increase.
3. The internal auditor reports to the controller and the controller reports to Mead. The audit risk
would: - correct answer increase.
4. The accounting department has experienced a high rate of turnover of key personnel. The audit risk
would: - correct answer increase.
5. TWD's bank has a loan officer who meets regularly with TWD's CEO and controller to monitor TWD's
financial performance. The audit risk would: - correct answer decrease.
6. TWD's employees are paid biweekly. The audit risk would: - correct answer have no effect.
7. Bond has audited TWD for five years. The audit risk would: - correct answer decrease
8. During 20X1, TWD changed its method of preparing its financial statements from the cash basis to
generally accepted accounting principles. The audit risk would: - correct answer increase.
9. During 20X1, TWD sold half of its controlling interest in United Equipment Leasing (UEL) Co. TWD
retained significant interest in UEL. The audit risk would: - correct answer increase.
10. During 20X1, litigation filed against TWD five years previous alleging that TWD discharged pollutants
into state waterways was dropped by the state. Loss contingency disclosures that TWD included in prior
years' financial statements are being removed for the 20X1 financial statements. The audit risk would: correct answer decrease
11. During December 20X1, TWD signed a contract to lease disposal equipment from an entity owned by
Mead's parents. This related party transaction is not disclosed in TWD's notes to its 20X1 financial
statements. The audit risk would: - correct answer increase.
12. During December 20X1, TWD increased its casualty insurance coverage on several pieces of
sophisticated machinery from historical cost to replacement cost. The audit risk would: - correct answer
have no effect.
13. Inquiries about the substantial increase in revenue TWD recorded in the fourth quarter of 20X1
disclosed a new policy. TWD guaranteed to several municipalities that it would refund the federal and
state funding paid to TWD if any municipality fails federal or state site cleanup inspection in 20X2. The
audit risk would: - correct answer increase
14. An initial public offering of TWD's stock is planned for late 20X2. The audit risk would: - correct
answer increase.
Passwords and biometric devices - correct answer General
Edit checks - correct answer Application
Procedures for system documentation - correct answer General
Firewalls - correct answer General
Automatic printed reports when errors are discovered by the system - correct answer Application
Existence is one of the general assertions regarding a client's inventory balance. Which of the following
is not a substantive auditing procedure related to this assertion? - correct answer Test the clerical
accuracy of inventory listings.
Completeness is one of the general assertions regarding a client's inventory balance. Which of the
following is not a substantive auditing procedure related to this assertion? - correct answer Examine an
analysis of inventory turnover.
Rights and obligations is one of the general assertions regarding a client's inventory balance. Which of
the following is not a substantive auditing procedure related to this assertion? - correct answer Tour
the plant.
Valuation and allocation is one of the general assertions regarding a client's inventory balance. Which of
the following is not a substantive auditing procedure related to this assertion? - correct answer Review
drafts of the financial statements.
Management makes assertions about the presentation and disclosure of inventory in the financial
statements. Which of the following is not a substantive auditing procedure related to these assertions? correct answer Review industry experience and trends.
Which of the following substantive audit procedures would not satisfy the valuation and allocation
assertion related to a client's inventory balance? - correct answer Use the work of specialists to
corroborate the nature of specialized products.
1. The _______ requires a member to be honest and candid within the constraints of client
confidentiality. - correct answer integrity principle
2. The _______ requires a member to discharge professional responsibilities with competence and
diligence. - correct answer due care principle
3. The _______ imposes the obligation to be impartial, intellectually honest, and free of conflicts of
interest and precludes relationships that may appear to impair a member's objectivity in rendering
attestation services. - correct answer objectivity and independence principle
4. The _______ includes both the underlying basic principles and the official pronouncements issued. correct answer None of the principles listed
5. The _______ requires that services be consistent with acceptable professional behavior for members.
- correct answer scope and nature of services principle
6. The _______ requires that members accept the obligation to act in a way that will serve the clients,
credit grantors, or employers; honor the clients, credit grantors, or employers; and demonstrate
professionalism. - correct answer public interest principle
7. The _______ requires members to exercise sensitive professional and moral judgments in all their
activities. - correct answer responsibilities principle