AUD Exam Practice Multiple Choice Questions
I. Engagement Acceptance and Understanding the Assignment
1. The nature and scope of an engagement is based on three factors and they are all of these except?
a) Complexity of the services offered.
b) Experience of the auditing firm with client’s business or industry.
c) The detail of the audit procedures needed to be performed to achieve audit objectives.
d) How large or entailing clients business is.
2. Which of the following is a significant deficiency that could cause an increase in the risk of a material
misstatement occurring without detection?
a) Material weakness
b) Significant deficiency
c) Material failure
d) Significant engagement deficiencies
3. Which one of the following is not one of the four significant engagement deficiencies?
a) Failure to find sufficient evidence.
b) Did not reach a correct conclusion.
c) How large or entailing clients business is.
d) There was a lack of independence.
4. The successor auditor is required to contact the previous auditor (with client’s permission) before accepting the
engagement to do all of the following except?
a) Contact the client’s attorneys and creditors.
b) Understanding of the reason for the change of auditors.
c) Review their financial statements to gain an understanding but it can be gained after the acceptance of the
audit.
d) Review of predecessor’s working papers for possible contingencies and to look at the previous balance sheet
accounts.
5. The engagement letter has three characteristics, which of the following is not one of them?
a) Must be in writing.
b) Limits auditor’s responsibility.
c) Can discuss fees.
d) Helps to coordinate the timing of the different audit procedures.
6. Which is a document outlining auditor activities that reduces audit risk to an acceptably low level?
a) Audit Program
b) Audit plan
c) Engagement Letter
d) Analytical Procedures
7. Where auditor can perform their duties to provide reasonable assurance but not absolute assurance because it
would cost too much (cost benefit analysis) and because of possible management override.
a) Inherent Limitations
b) Quality control policies
c) Audit plan
d) Audit Program
8. Which of the following is not included in the audit plan?
a) The nature, timing, and extent of the risk assessment procedures to be performed.
b) Any test of controls or substantive tests to be performed.
c) Any other audit procedures that might need to be performed in the future.
d) Assess Level of assurance needed.
9. Quality control policies and procedures accomplish all except?
a) Ensures firms provide professional services that conform to professional standards.
b) Ensures the firm does not associate itself with a client whose management lacks integrity or is considered too
risky.
c) Requires each assistants audit work be reviewed to make sure it supports the conclusions of the audit report.
d) Used to compare amounts stated by client in their financial statement records to amounts the auditor expects
should occur.
10. Expert with no interest or connection to client who may assist in engagement.
a) External auditors
b) Internal auditors
c) Specialist
d) Auditor
11. Which of the following is not one of the three general standards of GAAS?
a) Training
b) Consistency
c) Due Professional Care
d) Independence
12. Which of the following is not one of the three standards of fieldwork of GAAS?
a) Planning and Supervision
b) Consistency
c) Internal Control
d) Evidence
13. Which of the following is a standard of reporting of GAAS?
a) Disclosure
b) Planning and Supervision
c) Internal Control
d) Independence
14. Management is not responsible for?
a) Litigation, claims, and assessments.
b) Providing the auditor with any information needed.
c) All information provided conforms to all applicable laws.
d) Must provide any information that is not consistent with the other information.
15. The management representation letter includes all except?
a) Dated the same date as the auditor’s report.
b) CEO and CFO signature.
c) Requests conformation that information is correct that is supplied by management regarding any litigation,
claims, and assessments
d) States any limitations resulting from violations or potential violations
16. Audit must include audit tests that would detect the following and provide the results to management except.
a) Related party transactions.
b) Any illegal acts.
c) Segregation of Duties.
d) Going concern doubts.
17. External auditors do all of the following except?
a) Provide assurance to the general public that the company is not operating fraudulently.
b) May provide direct assistance in performance of the audit.
c) The financials presented do not contain misleading and inaccurate numbers.
d) Must report to appropriate authorities so that if their work is used it will be sufficient and at a competent level.
18. Which type of engagement and level of assurance they provide is incorrect?
a) Audit – High level of assurance
b) Review – Low level of assurance
c) Compilation – no assurance
d) Audit – Low level of assurance
II. Understanding the Entity and Its Environment
19. May be due to inaccurate values (Quantitative) or nonmonetary values (Qualitative).
a) Materiality
b) Misstatements
c) Compensating control
d) Separate Engagements
20. Can be material either individually or collectively and are considered in terms of the smallest amount that
could occur without affecting the financial statements in a material way.
a) Separate Engagements
b) Materiality
c) Misstatements
d) Compensating control
21. The three basic classifications of factors that can influence risk levels are all of the below except?
a) Incentives/Pressures
b) Opportunity
c) Attitudes/Rationalizations
d) Planning
22. Who must report in writing any material misstatements or significant deficiencies.
a) Management
b) Internal auditor
c) External auditor
d) CEO and CFO
23. Chance a material misstatement occurs and is included in the audit report with the auditor stating whether the
financial statements are free of material misstatements or whether they include them is what type of risk?
a) Audit Risk
b) Control Risk
c) Inherent Risk
d) Detection Risk
24. Which type of risk is beyond the control of the auditor and usually beyond control of the client?
a) Audit Risk
b) Control Risk
c) Inherent Risk
d) Detection Risk
25. What type of risk applies directly to the auditor and within their control?
a) Audit Risk
b) Control Risk
c) Inherent Risk
d) Detection Risk
26. Which functions does not have to be properly segregated?
a) Control
b) Authorization
c) Recording
d) Custody
27. Internal control’s three objectives provide reasonable assurance to all below except
a) Reliability of the company’s financial statements.
b) Compliance with all laws.
c) Effectiveness and efficiency of the company’s operations.
d) Gaining knowledge of the design of controls.
28. Control environment factors/components for a general organization include all except?
a) Commitment to competence.
b) Top management and their philosophy/operating style.
c) The process management uses to identify, analyze, and respond to internal or external risks.
d) Delegation of authority/responsibility.
29. Which of the below is not one of the three types of internal controls?
a) Preventive
b) Protective
c) Detective
d) Corrective
30. Steps of the Internal Control Process does not include?
a) Gather an understanding
b) Documenting the understanding
c) Focus on significant accounts and disclosures
d) Perform a Walkthrough
31. Anyone or any financial vehicle which could be influenced by family members being employees of the other
party or having a direct financial interest in the other party is the definition of?
a) Related Parties
b) Subsequent events
c) Control activities
d) Transaction cycles
III. Performing Audit Procedures and Evaluating Evidence
32. Client provided data that either supports or discredits management’s assertions is what?
a) Competency
b) Sufficiency
c) Evidential Matter
d) Test of controls
33. Are used to evaluate design of internal controls to obtain an understanding and to evaluate effectiveness of
internal control to potentially help reduce the assessed level of control risk?
a) Test of transactions
b) Test of Balances
c) Test of Details
d) Test of controls
34. Used to test the financial statement balances and will result in an answer of either matching or not matching
with the financial statement balances.
a) Test of controls
b) Test of Details
c) Test of Balances
d) Test of transactions
35. The definition of the effectiveness of the audit is?
a) The chance a chosen sample may not represent the population.
b) The likelihood of assessing control risk too low and risk of incorrect acceptance.
c) The likelihood of assessing control risk too high and risk of incorrect rejection.
d) The normal (expected) rate of departure from the usual controls.
36. The definition of sample risk is?
a) The chance a chosen sample may not represent the population.
b) The likelihood of assessing control risk too low and risk of incorrect acceptance.
c) The likelihood of assessing control risk too high and risk of incorrect rejection.
d) The normal (expected) rate of departure from the usual controls.
37. Which of the following is not a type of substantive test (or procedure)?
a) Comparisons
b) Inquires
c) Test of Details
d) Confirmations
38. Which of the below is not one of the steps of test of transactions?
a) Confirm the beginning account balance.
b) Test transactions occurring during current period.
c) Verify the selections.
d) Check anything else not already confirmed.
39. The choosing of less than 100% of the data population that would still be representative of the whole
population and then evaluating them to reach their audit conclusions is the definition of?
a) Audit sampling
b) Sampling
c) Attribute Sampling
d) Variables Sampling
40. The evaluation of the entire population of a subject is?
a) Audit sampling
b) Sampling
c) Attribute Sampling
d) Variables Sampling
IV. Evaluating Audit Findings, Communications, and Reporting
41. Going Concern Doubts definition is?
a) Misstated financial statements result from a departure from GAAP.
b) The inability to obtain sufficient appropriate audit evidence equals a scope limitation.
c) Express an opinion of whether it is reasonable that material weaknesses either exist or do not because of the
internal control policies implemented by the client.
d) Where auditor doubts that the client can continue to perform its business operations at the current level.
42. What type of opinion is issued when auditor determines financial statements are prepared according to
standards but they do contain some form of scope limitation or departure from standards?
a) Qualified Opinion
b) Adverse Opinion
c) Disclaimer of Opinion
d) Unqualified Opinion
43. What type of opinion are issued when auditor cannot determine if financials statements are prepared
according to standards?
a) Qualified Opinion
b) Adverse Opinion
c) Disclaimer of Opinion
d) Unqualified Opinion
44. Which of the following is not contained on a standard Audit Reports for non-public and public issuers?
a) Title containing the word Independent.
b) Report addressed to the client.
c) Auditors opinion on financial statements conformity to GAAS standards.
d) Date report as of the audit completion date.
45. Standard or Unqualified (also called an unmodified opinion) auditor’s report includes al of the listed paragraphs
except?
a) Intro Paragraph
b) Scope Paragraph
c) Explanatory paragraph
d) Opinion Paragraph
46. Three restrictions on auditor’s report that result in only specific parties being able to view and use information
and require a separate paragraph that states who the report is intended for is?
a) Contractual agreements
b) Laws
c) Regulations
d) Agreed-upon procedures
47. Which of the following is not a type of audit report?
a) Consistency
b) Division of Responsibility
c) Justified Departure from GAAS
d) Emphasis of a Matter
48. Which of the following is not a type of audit report?
a) Departure from GAAS
b) Going-Concern Uncertainty
c) Lack of Independence
d) Scope Limitation
49. Characteristics of accounting estimates does not include?
a) Auditors are responsible for these and their reasonableness.
b) Auditors not responsible for what may happen in the future compared to the estimates they provide.
c) Should be derived by using current market prices, possible inflation costs, and/or appraisals from qualified
individuals.
d) Contain information that could have potential for long term effect on an audit in the present and future.
V. Accounting and Review Services Engagements
50. Compilations involve all of the following except?
a) The accountant must be independent.
b) Do not require auditor to obtain sufficient understanding of internal control or internal control deficiency risks.
c) Should state the basis for accounting used in the footnotes.
d) Should also state it is presented according to the SSARS issued by the AICPA.
51. Reviews involve all of the following except?
a) The accountant must be independent.
b) Do not require auditor to obtain sufficient understanding of internal control or internal control deficiency risks.
c) Requires a report to include where the historical information came from.
d) Important to gain a signed management letter
52. Which of the following is available for general use?
a) Prospective financial statements
b) Pro forma financial statements
c) Projections
d) Forecasts
53. Projections are?
a) What should occur given one or more assumptions in a future period or date.
b) What should occur under normal conditions in a future period or date.
c) The restating of what might happen in the future based on what has happened in the past.
d) Provide a client’s financial position resulting from operations and any changes that may occur in the future.
54. Special Reports includes all of the following except?
a) Specific elements or items.
b) Compliance issues.
c) Financial statements prepared according to a comprehensive basis of accounting other than GAAP.
d) Financial presentations for compilations
55. Which of the following is not one of the three types of attestation engagements?
a) Compilations
b) Audits
c) Reviews
d) Agreed upon procedures
56. Standards for interim reviews of a client’s financial statements is?
a) Statements on Auditing Standards
b) Statements on Standards for Attestation Engagements (SSAE)
c) Statements on Standards for Accounting and Review Services (SSARS)
d) Accounting and Review Service Committee (ARSC)
57. Provides assurance about the reliability of financial statements and the information retrieved from other
parties.
a) Agreed Upon Procedures
b) Comfort letters
c) Statements on Auditing Standards
d) Attestation engagements
58. Governmental Auditing is done by one of three methods, which is not one of those methods?
a) Generally Accepted Auditing Standards (GAAS)
b) Government Auditing Standards (GAS)
c) Generally Accepted Accounting Principle (GAAP)
d) The Single Audit Act (SAA)
VI. Professional Responsibilities
59. A covered member is all of the following except?
a) Anyone that can influence the outcome of the attest engagement.
b) Any regular staff member who works on the attest engagement team.
c) Any partner or other individual who provides 100 hours or more of non-attest service to the client.
d) Any member of the firm who is located within the office where the engagement is primarily performed.
60. Independence of the auditor is not impaired if any of the following occurs.
a) Auditor does not have a financial interest in the client.
b) Had an interest in a jointly held investment.
c) Had a loan with the client, an officer or director of the client, or anyone who owned more than 10% of client’s
capital.
d) Was a trustee or executor of an estate that had a financial interest in the client of over 10%.
61. CPA’s in public practice can?
a) State one fee for a certain service knowing the fee at the end of the engagement will be higher.
b) Accept a contingent fee
c) Disclose any confidential client information without consent
d) Sign the return
62. CPA’s must do the following or face possibility of incurring penalties except?
a) Must provide client with copy of return.
b) Must state pros and cons of joint versus separate returns.
c) Must answer all applicable questions
d) Must not provide client with copy of return
63. Working Papers are not?
a) Are documentation of work performed by audit team
b) The work was conducted according to guidelines
c) The clients accounting records reconcile with the financial statements.
d) The amount of education, experience, ability to supervise coworkers, and conduct research an auditor has.
64. The Public Company Accounting Oversight Board (PCAOB) has certain powers like the below listed examples
except?
a) Responsible for establishing auditing standards.
b) Requires engagement quality review by a competent reviewer who was not a member of the audit team.
c) Can require all nonpublic companies to register with them.
d) Can inspect the audit practices.
65. Who is responsible for maintaining the protection of investors of public companies from being misled and to
maintain fairness within the markets.
a) Financial Accounting Standards Board (FASB)
b) International Auditing and Assurance Standards Board (IAASB)
c) International Auditing Standards Board (IASB)
d) Securities and Exchange Commission (SEC)
66. The Financial Accounting Standards Board (FASB) does what?
a) Establishment of international auditing standards.
b) Responsible for establishing accounting standards.
c) Established the international financial reporting standards (IFRS).
d) Responsible for maintaining the protection of investors of public companies from being misled and to maintain
fairness within the markets.
67. The Securities and Exchange Commission (SEC) does all except?
a) Requires public company’s internal control over financial statements to be audited.
b) Requires audit and non-audit fees to not have to be disclosed by companies.
c) Requires that all bookkeeping services performed will impair the CPA’s independence.
d) Private companies do not have to be audited but if they are then the auditor must follow AICPA auditing
standards.
68. The Sarbanes-Oxley Act does not require?
a) Retention of audit work papers for 17 years.
b) Any firms with less than 100 audits per year are reviewed every 3 years.
c) Audit partner in charge rotated after every 5 years.
d) Board conducts peer review every year for firms with more than 100 audits per year.
69. Section 404 of the Sarbanes-Oxley Act does not require?
a) Management to asses it internal control process within the entity.
b) Management to be responsible if the internal control process within the entity is not acceptable.
c) Management must receive a CPA’s attestation to the acceptability of the entity’s internal control.
d) Management' methods for deriving at their accounting estimates as well as any uncorrected misstatements.
70. The auditor reports three things but they are not?
a) Any major accounting principle changes.
b) Any adjustments the audit found to be needed.
c) Any association with the clients’ management or providing financial assistance like underwriting or as a
promoter.
d) Any material weaknesses or misstatement in writing to the next highest level of management of the involved
parties.
71. The Audit Committee must have all of the following except?
a) At least one financial or accounting expert within its members.
b) Oversees the appointment of external auditor
c) The work performed by the internal auditor.
d) Determines the amount of compensation of the external auditor.
72. CPA’s can do all except?
a) Provide consulting services but must remain independent.
b) Advertise or solicit business but it must be accurate, not mislead, coerce, or harass potential clients into
choosing to use their services.
c) Immediately expelled from the AICPA if convicted of a felony.
d) Immediately expelled from the AICPA if they knowingly file a fraudulent tax return for a client.
AUD Exam Answer Key
I. Engagement Acceptance and Understanding the Assignment
1. (c)
2. (a)
3. (c)
4. (d)
5. (d)
6. (b)
7. (a)
8. (d)
9. (d)
10. (c)
11. (b)
12. (b)
13. (a)
14. (d)
15. (c)
16. (c)
17. (b)
18. (d)
II. Understanding the Entity and Its Environment
19. (a)
20. (c)
21. (d)
22. (c)
23. (a)
24. (c)
25. (d)
26. (a)
27. (d)
28. (c)
29. (b)
30. (c)
31. (a)
III. Performing Audit Procedures and Evaluating Evidence
32. (c)
33. (d)
34. (b)
35. (b)
36. (a)
37. (c)
38. (c)
39. (a)
40. (d)
IV. Evaluating Audit Findings, Communications, and Reporting
41. (d)
42. (a)
43. (c)
44. (c)
45. (c)
46. (b)
47. (c)
48. (a)
49. (d)
V. Accounting and Review Services Engagements
50. (a)
51. (b)
52. (d)
53. (a)
54. (d)
55. (a)
56. (a)
57. (d)
58. (c)
VI. Professional Responsibilities
59. (c)
60. (a)
61. (d)
62. (d)
63. (d)
64. (c)
65. (d)
66. (b)
67. (b)
68. (a)
69. (d)
70. (c)
71. (c)
72. (a)
Conclusion
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