CPA AUD Practice Questions (21–30)
Question 21
An auditor found a $300 misstatement in a sample that represents 20% of the inventory. What is the projected total misstatement?
A. $360
B. $540
C. $1,500
D. $1,800
Correct Answer: C
Explanation:
Projected misstatement is calculated by extrapolating the error to the entire population.
$300 ÷ 20% = $1,500
Question 22
What is the most appropriate way to corroborate management’s response using professional skepticism?
A. Inquire of internal auditors
B. Review the general ledger
C. Obtain confirmation from a third party
D. Review internal correspondence
Correct Answer: C
Explanation:
Independent third-party confirmations provide stronger audit evidence than internal documentation or discussions.
Question 23
Which procedure best supports an auditor’s opinion on a client’s cash balances?
A. Count petty cash
B. Send a bank confirmation
C. Scan disbursements ledger
D. Vouch disbursements entries
Correct Answer: B
Explanation:
Direct confirmation from the bank provides reliable evidence of cash existence and accuracy.
Question 24
If a client's attorney refuses to respond to an inquiry about litigation, the auditor should:
A. Rely more on management's explanation
B. Check for guarantees via bank confirmation
C. Increase testing of liability accounts
D. Treat it as a scope limitation
Correct Answer: D
Explanation:
An attorney’s refusal limits the auditor’s ability to obtain sufficient evidence, potentially requiring a qualified or disclaimer opinion.
Question 25
Which condition most suggests substantial doubt about going concern?
A. Negative operating cash flows
B. Assets used as loan collateral
C. Related-party transactions
D. Delayed equipment updates
Correct Answer: A
Explanation:
Negative cash flows from operations are a key indicator of financial instability and potential going concern issues.
Question 26
In which engagement does an accountant not provide assurance?
A. Agreed-upon procedures
B. Review engagement
C. Compilation
D. Examination of projections
Correct Answer: C
Explanation:
A compilation involves presenting financial information without performing procedures to provide assurance.
Question 27
If an audit client requests the auditor to opine on all prior periods presented, the auditor should first:
A. Evaluate whether prior-period information is fairly presented
B. Request a letter from management
C. Issue a separate report
D. Add a paragraph about the request
Correct Answer: A
Explanation:
Before issuing an opinion on prior periods, the auditor must ensure the information meets applicable reporting standards.
Question 28
To assess supplementary information in a nonissuer's audit, the auditor should:
A. Evaluate appropriateness, but not completeness
B. Get verbal representations from management about assumptions
C. Get a verbal statement acknowledging responsibility
D. Ask management about purpose and criteria used
Correct Answer: D
Explanation:
Understanding management’s intent and preparation basis helps determine if supplementary info aligns with financial statements.
Question 29
Which activity is least likely to be continuous during an audit?
A. Understanding the entity
B. Assessing risk
C. Considering client continuance
D. Inquiring about control design
Correct Answer: D
Explanation:
Inquiries about control design are usually performed early in the audit process—not continually.
Question 30
A former controller joins a CPA firm as an audit manager on August 1 and fully dissociates from the client by September 1. For which engagement is independence preserved?
A. Cannot participate in any engagement
B. Audit covering Jan 1 – Dec 31 (first-time audit awarded Oct 15)
C. Audit starting Aug 1 (engagement awarded Aug 15)
D. Audit starting Nov 1 (engagement awarded Sep 15)
Correct Answer: D
Explanation:
Since the engagement begins after full disassociation and relates only to periods post-employment, independence is maintained.