Certified Public Accountant (CPA) Audit 2 — Questions and Answers
Question 1: Under AU-C 315, which procedure is specifically designed to help the auditor understand the entity's internal control?
- Inquiry of management and those charged with governance (Correct answer)
- Inspection of financial statements
- Recalculation of account balances
- Reperformance of closing entries
Correct answer: Inquiry of management and those charged with governance
AU-C 315 requires inquiries of management and others to help the auditor understand internal control design and implementation.
Question 2: Which of the following best describes 'detection risk' in an audit?
- The risk that a material misstatement exists in an assertion
- The risk that controls fail to prevent or detect a misstatement
- The risk that auditor procedures fail to detect an existing material misstatement (Correct answer)
- The risk that inherent factors cause a misstatement
Correct answer: The risk that auditor procedures fail to detect an existing material misstatement
Detection risk is the risk that the auditor's own procedures will not detect a material misstatement that actually exists.
Question 3: A CPA firm is auditing a client where the audit partner's spouse owns 15% of the client's outstanding stock. This situation most likely results in:
- A qualified audit opinion
- Impaired independence requiring the firm to withdraw (Correct answer)
- Disclosure in the audit report footnotes
- A limitation on audit scope only
Correct answer: Impaired independence requiring the firm to withdraw
A direct financial interest of a covered person's immediate family member in an audit client impairs independence, requiring the firm to withdraw or divest.
Question 4: When an auditor uses the work of a specialist, the auditor should:
- Issue a separate opinion on the specialist's work
- Reference the specialist in the audit report if relying on their findings
- Evaluate the specialist's qualifications and the reasonableness of their findings (Correct answer)
- Obtain written agreement that the specialist accepts joint responsibility
Correct answer: Evaluate the specialist's qualifications and the reasonableness of their findings
The auditor must assess the specialist's competence, objectivity, and whether their findings are reasonable and consistent with audit evidence.
Question 5: Which sampling method gives every item in the population an equal chance of selection?
- Systematic sampling
- Haphazard sampling
- Judgmental sampling
- Simple random sampling (Correct answer)
Correct answer: Simple random sampling
Simple random sampling ensures every item in the population has an equal and independent probability of being selected.
Question 6: An auditor discovers that a client has recorded revenue from a bill-and-hold arrangement. What assertion is most directly at risk?
- Completeness
- Occurrence (Correct answer)
- Classification
- Cutoff
Correct answer: Occurrence
Bill-and-hold arrangements raise concerns about the occurrence assertion, questioning whether the revenue transaction actually took place and met recognition criteria.
Question 7: Under PCAOB standards, the auditor's report on internal control over financial reporting for a public company must include:
- A list of all identified control deficiencies
- The auditor's opinion on management's assessment and the effectiveness of ICFR (Correct answer)
- A description of every test of controls performed
- The number of hours spent auditing each control area
Correct answer: The auditor's opinion on management's assessment and the effectiveness of ICFR
PCAOB AS 2201 requires the auditor to express an opinion on both management's assessment of ICFR and the actual effectiveness of ICFR.
Certified Public Accountant (CPA) Audit 2
Under AU-C 315, which procedure is specifically designed to help the auditor understand the entity's internal control?