CAT Certified Accounting Technician Exam — Questions and Answers

Question 1: The 'lower assessed level of control risk' approach means the auditor:

Issues a qualified opinion automatically
Performs fewer substantive procedures because controls are deemed effective (Correct answer)
Performs more substantive procedures to compensate for weak controls
Skips tests of controls entirely

Correct answer: Performs fewer substantive procedures because controls are deemed effective

When control risk is assessed lower (i.e., controls are considered effective), the auditor can reduce the extent of substantive procedures, relying more heavily on the controls.

Question 2: What is a stakeholder analysis in Certified Accounting Technician planning?

A financial audit
A staff satisfaction survey
A competitive market review
Identifying and assessing the interests and influence of affected parties (Correct answer)

Correct answer: Identifying and assessing the interests and influence of affected parties

Stakeholder analysis identifies all parties affected by or having influence over a project, helping manage expectations and engagement.

Question 3: What is the normal balance for an expense account?

Debit (Correct answer)
Zero
Either debit or credit
Credit

Correct answer: Debit

Expense accounts have a normal debit balance because expenses reduce owner's equity, which has a normal credit balance.

Question 4: Which of the following is an example of a corrective control?

Generating an exception report for transactions outside normal parameters
Installing security cameras in the cash room
Restoring data from a backup after a system failure (Correct answer)
Requiring supervisor approval before processing a journal entry

Correct answer: Restoring data from a backup after a system failure

Corrective controls remedy problems after they are discovered, such as restoring data from a backup following a system failure.

Question 5: In Certified Accounting Technician, what does contingency planning involve?

Reducing the project scope
Planning only for the best-case scenario
Preparing backup plans for potential problems or changes (Correct answer)
Eliminating all project risks

Correct answer: Preparing backup plans for potential problems or changes

Contingency planning involves preparing alternative courses of action in case things do not go as planned.

Question 6: Incremental budgeting is criticized mainly because it:

Encourages inefficiencies by automatically funding prior-year costs (Correct answer)
Does not allow for capital expenditure planning
Requires too much management time to prepare
Ignores seasonal fluctuations in demand

Correct answer: Encourages inefficiencies by automatically funding prior-year costs

Incremental budgeting simply adds to last year's figures, which can embed and perpetuate wasteful spending.

Question 7: Under US GAAP, what is the straight-line depreciation method?

Depreciation based on actual units produced by the asset
Equal depreciation expense each year over the asset's useful life (Correct answer)
Depreciation calculated as a fixed percentage of book value
Higher depreciation in early years, declining over time

Correct answer: Equal depreciation expense each year over the asset's useful life

Straight-line depreciation spreads the depreciable cost evenly across all years of the asset's estimated useful life.

Question 8: What is 'working capital management' primarily concerned with?

Long-term capital investment decisions
Determining the optimal dividend payout ratio
Raising long-term debt financing
Managing day-to-day liquidity including receivables, payables, and inventory (Correct answer)

Correct answer: Managing day-to-day liquidity including receivables, payables, and inventory

Working capital management focuses on the short-term balance between current assets and current liabilities to ensure operational liquidity.

Question 9: Which cash flow statement method shows individual cash receipts and payments from operating activities?

Net present value method
Indirect method
Direct method (Correct answer)
Accrual method

Correct answer: Direct method

The direct method lists actual cash inflows and outflows from operations, such as cash received from customers and cash paid to suppliers.

Question 10: An employee enrolls in a Section 125 cafeteria plan. How does this affect their federal income tax withholding?

It increases taxable wages
It has no effect on taxable wages
It eliminates FICA taxes entirely
It reduces taxable wages by the pre-tax contribution amount (Correct answer)

Correct answer: It reduces taxable wages by the pre-tax contribution amount

Section 125 cafeteria plan contributions are made pre-tax, reducing the employee's taxable wages for federal income tax withholding purposes.

Question 11: A company generates annual operating cash flows of $500,000 with a WACC of 10% and growing at 3% per year indefinitely. What is the firm's estimated value using the perpetuity growth model?

$4,545,455
$5,000,000
$6,250,000
$7,142,857 (Correct answer)

Correct answer: $7,142,857

Firm value = Cash Flow / (WACC − g) = $500,000 / (0.10 − 0.03) = $500,000 / 0.07 ≈ $7,142,857.

Question 12: What document does a buyer issue to a supplier to formally authorize the purchase of goods or services?

Purchase order (Correct answer)
Debit memo
Remittance advice
Goods received note

Correct answer: Purchase order

A purchase order (PO) is the formal document issued by the buyer to the supplier authorizing the purchase at agreed terms.

Question 13: A purchasing manager who also approves invoices from the same vendor presents which type of risk?

Conflict of interest risk (Correct answer)
Credit risk
Market risk
Liquidity risk

Correct answer: Conflict of interest risk

When the same person selects vendors and approves their invoices, there is a conflict of interest that may lead to fraudulent or biased payments.

Question 14: The high-low method is used to:

Separate fixed and variable elements of a mixed cost (Correct answer)
Rank capital investment projects
Set selling prices above and below the market
Calculate the highest and lowest profit margins

Correct answer: Separate fixed and variable elements of a mixed cost

The high-low method uses the highest and lowest activity levels and their corresponding costs to estimate the variable cost per unit and total fixed costs.

Question 15: What is the primary benefit of using accounting software?

Eliminate the need for audits
Increase manual data entry
Automate financial tasks and reduce errors (Correct answer)
Slow down financial reporting

Correct answer: Automate financial tasks and reduce errors

The primary benefit of using accounting software is its ability to automate numerous financial tasks, such as data entry, calculations, and report generation. This automation significantly reduces the time spent on manual processes and minimizes the likelihood of human errors. By streamlining operations and improving accuracy, accounting software enhances efficiency and provides more reliable financial insights for decision-making.

Question 16: Which type of control is designed to discover errors or irregularities AFTER they have occurred?

Preventive control
Detective control (Correct answer)
Corrective control
Directive control

Correct answer: Detective control

Detective controls identify problems that have already happened, such as bank reconciliations or exception reports.

Question 17: A principal budget factor (limiting factor) should be identified:

Before the budgeting process begins, to sequence budget preparation correctly (Correct answer)
At the end of the budgeting process as a final check
After all individual budgets have been prepared
Only when actual results differ significantly from budget

Correct answer: Before the budgeting process begins, to sequence budget preparation correctly

The principal budget factor must be identified first so that the budget for that limiting resource (e.g., sales demand, machine capacity) is prepared before all other budgets.

Question 18: A flexible budget differs from a fixed budget because it:

Is approved by senior management only
Is prepared monthly instead of annually
Uses historical costs as the primary basis
Adjusts cost allowances for the actual level of activity (Correct answer)

Correct answer: Adjusts cost allowances for the actual level of activity

A flexible budget recalculates cost allowances based on actual output achieved, making it more useful for performance evaluation than a fixed budget.

Question 19: In exponential smoothing, what does a higher smoothing constant (α closer to 1) indicate?

More weight is given to the most recent data (Correct answer)
More weight is given to older historical data
The forecast is entirely based on averages
Seasonal adjustments are ignored

Correct answer: More weight is given to the most recent data

A smoothing constant close to 1 places almost all weight on the most recent observation.

Question 20: A company announces a share buyback program. What is the most likely effect on Earnings Per Share (EPS)?

EPS decreases because total equity falls
EPS decreases because the company's cash reserves fall
EPS increases because the same earnings are spread over fewer shares (Correct answer)
EPS is unaffected by share buybacks

Correct answer: EPS increases because the same earnings are spread over fewer shares

Repurchasing shares reduces the number of shares outstanding, so if net earnings remain the same, EPS increases.

Question 21: When an auditor performs a test of controls and finds the control is not operating effectively, what is the most likely consequence?

The engagement is terminated
The auditor increases the extent of substantive procedures in the affected area (Correct answer)
The auditor reduces detection risk
The auditor must immediately issue a qualified opinion

Correct answer: The auditor increases the extent of substantive procedures in the affected area

If controls are ineffective, the auditor cannot rely on them and must compensate by performing more extensive or persuasive substantive procedures.

Question 22: Which of the following best describes 'budget slack'?

The time allowed between budget preparation and implementation
The deliberate overestimation of costs or underestimation of revenues by managers (Correct answer)
The difference between budgeted and actual profit
A reserve fund held for unexpected expenditures

Correct answer: The deliberate overestimation of costs or underestimation of revenues by managers

Budget slack occurs when managers intentionally build in extra cost allowances or reduce revenue targets to make their budgets easier to achieve.

Question 23: Under US GAAP, which inventory costing method assumes the most recently purchased items are sold first?

LIFO (Last-In, First-Out) (Correct answer)
Weighted Average Cost
Specific Identification
FIFO (First-In, First-Out)

Correct answer: LIFO (Last-In, First-Out)

LIFO assumes the last units purchased are the first units sold, often resulting in higher cost of goods sold in a rising price environment.

Question 24: Which of the following is NOT a component of COSO's Internal Control — Integrated Framework?

Control Environment
Audit Opinion Formation (Correct answer)
Risk Assessment
Monitoring Activities

Correct answer: Audit Opinion Formation

The five COSO components are Control Environment, Risk Assessment, Control Activities, Information & Communication, and Monitoring Activities; forming an audit opinion is not a COSO component.

Question 25: For purposes of the home office deduction, what is the primary requirement under the 'exclusive use' test?

The taxpayer must derive more than 50% of income from home activities
The home office must be the taxpayer's principal place of business in all cases
The space must be a separate structure
The space must be used exclusively and regularly for business (Correct answer)

Correct answer: The space must be used exclusively and regularly for business

IRC §280A requires that the home office area be used exclusively and on a regular basis for trade or business to qualify.

Question 26: Which of the following is an example of an external confirmation that provides strong audit evidence?

A spreadsheet prepared by the client's accounting department
A direct written response from a customer confirming their account balance (Correct answer)
A copy of a sales invoice from the client's files
An oral statement from the client's CFO

Correct answer: A direct written response from a customer confirming their account balance

External confirmations obtained directly from third parties are considered highly reliable evidence because they are independent of the client.

Question 27: A self-employed consultant earned $85,000 in net profit. What is the deductible portion of self-employment tax when calculating adjusted gross income?

100% of SE tax paid
7.65% of net earnings
50% of SE tax paid (Correct answer)
No deduction is allowed

Correct answer: 50% of SE tax paid

Self-employed individuals may deduct 50% of self-employment tax paid when calculating their adjusted gross income.

Question 28: An employer's payroll register shows gross wages of $50,000. Employee FICA withholdings total $3,825. What amount does the employer owe in matching FICA taxes?

$3,825.00 (Correct answer)
$1,912.50
$7,650.00
$6,200.00

Correct answer: $3,825.00

Employers match employee FICA contributions dollar-for-dollar, so the employer owes $3,825 in matching FICA taxes.

Question 29: Which risk response strategy involves shifting the financial consequence of a risk to a third party?

Risk transfer (Correct answer)
Risk acceptance
Risk avoidance
Risk reduction

Correct answer: Risk transfer

Risk transfer, such as purchasing insurance, moves the financial impact of a risk event to another party.

Question 30: When evaluating a lease versus buy decision, which cost should typically be EXCLUDED from the analysis?

Tax relief on interest payments
Lease rental payments
Sunk costs already incurred (Correct answer)
Maintenance costs specific to ownership

Correct answer: Sunk costs already incurred

Sunk costs are irrelevant to decision-making as they have already been incurred and cannot be recovered regardless of the choice made.

Question 31: A company sets a credit limit of $5,000 for a new customer. What is the primary purpose of establishing this limit?

To control the maximum credit exposure and limit bad debt risk (Correct answer)
To ensure the customer pays in cash for all future orders
To qualify the customer for an early payment discount
To determine the customer's applicable tax rate

Correct answer: To control the maximum credit exposure and limit bad debt risk

Credit limits cap the amount of outstanding receivables from any single customer, reducing the company's exposure to potential bad debts.

Question 32: Which term describes the difference between a company's book inventory quantity and its actual physical count?

Inventory shrinkage (Correct answer)
Write-down
Inventory turnover
Obsolescence

Correct answer: Inventory shrinkage

Inventory shrinkage refers to losses from theft, damage, or administrative errors that reduce actual stock below recorded levels.

Question 33: A firm reports net income of $80,000 and average total assets of $640,000. What is its Return on Assets (ROA)?

6.25%
12.5% (Correct answer)
15%
8%

Correct answer: 12.5%

ROA = Net Income / Average Total Assets = $80,000 / $640,000 = 12.5%, measuring how efficiently assets generate profit.

Question 34: Under which circumstance would an auditor issue a disclaimer of opinion?

A material misstatement exists in the financial statements
Management imposes a significant scope limitation (Correct answer)
The auditor disagrees with the accounting method used
A material uncertainty about going concern exists

Correct answer: Management imposes a significant scope limitation

A disclaimer of opinion is issued when the auditor is unable to obtain sufficient appropriate audit evidence due to a scope limitation so significant that no opinion can be expressed.

Question 35: The 'kiddie tax' rules apply to a child's unearned income when:

The child is under age 19 (or under 24 if a full-time student) and unearned income exceeds the threshold (Correct answer)
The child earns wages from part-time employment
The child's unearned income is below $1,000
The child is over age 18 and files independently

Correct answer: The child is under age 19 (or under 24 if a full-time student) and unearned income exceeds the threshold

Under the kiddie tax, a qualifying child's net unearned income above the annual threshold is taxed at the parent's marginal tax rate.

Question 36: An employee receives a $5,000 bonus. What is the supplemental wage withholding flat rate employers may use for federal income tax?

24%
10%
37%
22% (Correct answer)

Correct answer: 22%

The IRS optional flat withholding rate for supplemental wages such as bonuses is 22% (for amounts up to $1 million).

Question 37: What is the importance of staying current with trends in Financial Statement Analysis for Certified Accounting Technician?

Trends do not affect professional practice
It ensures practices remain effective and relevant (Correct answer)
It is not necessary once certified
It is only required for new professionals

Correct answer: It ensures practices remain effective and relevant

Staying current with industry trends ensures that professional practices remain effective, relevant, and aligned with evolving standards.

Question 38: What is the purpose of a whistleblower protection policy in an accounting firm?

To protect the firm from client lawsuits
To prevent employees from discussing salaries
To encourage employees to report unethical conduct without fear of retaliation (Correct answer)
To ensure confidentiality of client records

Correct answer: To encourage employees to report unethical conduct without fear of retaliation

Whistleblower policies protect staff who report violations from adverse employment actions, supporting an ethical workplace culture.

Question 39: Which tax form does a partnership use to report its income, deductions, and credits to the IRS?

Form 1065 (Correct answer)
Form 1120
Form 1120-S
Form 1041

Correct answer: Form 1065

Partnerships file Form 1065, an informational return, and issue Schedule K-1s to each partner reporting their distributive share.

Question 40: A company uses activity-based costing (ABC). Which of the following best describes a 'cost driver'?

The highest-cost item in the production process
A manager responsible for controlling departmental costs
A fixed overhead allocation base
A factor that causes a change in the cost of an activity (Correct answer)

Correct answer: A factor that causes a change in the cost of an activity

In ABC, a cost driver is the factor that causes an activity's costs to increase or decrease, such as number of machine setups or purchase orders raised.

Question 41: What is the purpose of Form 941?

Quarterly reporting of federal income tax, Social Security, and Medicare taxes withheld (Correct answer)
Annual reporting of unemployment taxes
Annual summary of all W-2 forms issued
Annual reconciliation of FUTA taxes

Correct answer: Quarterly reporting of federal income tax, Social Security, and Medicare taxes withheld

Form 941 (Employer's Quarterly Federal Tax Return) is filed quarterly to report federal income tax withheld and both employee and employer FICA taxes.

Question 42: Which of the following is classified as a financing activity in a cash flow statement?

Sale of inventory
Receipt of dividend income
Repayment of a long-term bank loan (Correct answer)
Purchase of equipment

Correct answer: Repayment of a long-term bank loan

Repayment of a long-term bank loan involves transactions with lenders and is therefore a financing activity.

Question 43: An adjusting entry for accrued salaries expense would include:

Debit Cash; Credit Salaries Expense
Debit Salaries Expense; Credit Salaries Payable (Correct answer)
Debit Salaries Payable; Credit Salaries Expense
Debit Salaries Expense; Credit Cash

Correct answer: Debit Salaries Expense; Credit Salaries Payable

Accrued salaries increase the expense (debit) and create a liability (credit to Salaries Payable) for amounts earned but not yet paid.

Question 44: A firm has a cash conversion cycle of 45 days. If it extends its payables payment period by 10 days without changing receivables or inventory, what happens to the cycle?

It remains at 45 days
It decreases to 25 days
It decreases to 35 days (Correct answer)
It increases to 55 days

Correct answer: It decreases to 35 days

The cash conversion cycle = DIO + DSO − DPO; increasing DPO by 10 days reduces the cycle from 45 to 35 days.

Question 45: Under vertical analysis of a balance sheet, each item is expressed as a percentage of:

Shareholders' equity
Total liabilities
Net revenue
Total assets (Correct answer)

Correct answer: Total assets

In a common-size balance sheet (vertical analysis), every line item is expressed as a percentage of total assets, allowing structural comparisons across periods or companies.

Question 46: When should risk assessments be updated in Certified Accounting Technician?

Only at the beginning of a project
Once per year at annual review
Regularly and whenever significant changes occur (Correct answer)
Only after an incident happens

Correct answer: Regularly and whenever significant changes occur

Risk assessments should be living documents, updated regularly and whenever there are significant changes in conditions, processes, or scope.

Question 47: An independent contractor is paid $650 for services. Which form must the business issue to report this payment?

Form 1099-INT
Form 1099-NEC (Correct answer)
No form is required
Form W-2

Correct answer: Form 1099-NEC

Form 1099-NEC must be issued to independent contractors paid $600 or more for nonemployee compensation during the year.

Question 48: Which Excel function calculates the total of all cells in a range that meet a single specified condition?

=SUM()
=SUMIF() (Correct answer)
=COUNTIF()
=AVERAGE()

Correct answer: =SUMIF()

=SUMIF(range, criteria, sum_range) adds only those values in the sum_range where the corresponding cell in range meets the criteria.

Question 49: The IRS generally has how long to assess additional tax after a federal income tax return is filed (standard statute of limitations)?

3 years (Correct answer)
6 years
2 years
10 years

Correct answer: 3 years

Under IRC §6501(a), the IRS has three years from the later of the return filing date or due date to assess additional tax.

Question 50: What does the 'familiarity threat' refer to in accounting ethics?

Becoming too sympathetic to a client's interests due to a close relationship (Correct answer)
Reviewing the same client's records for multiple years
Working in the same office as a client's finance team
Using accounting software the client provided

Correct answer: Becoming too sympathetic to a client's interests due to a close relationship

A familiarity threat arises when a long-term or personal relationship with a client erodes the technician's professional skepticism.

Question 51: A company budgeted 500 units at $10 each but actually produced 450 units at $11 each. What is the total cost variance?

$500 favorable
$950 adverse
$450 adverse
$550 adverse (Correct answer)

Correct answer: $550 adverse

Actual cost = 450 × $11 = $4,950; budgeted cost = 500 × $10 = $5,000; variance = $4,950 − $5,000 = $50 favorable, but if comparing to flexed budget (450 × $10 = $4,500), variance = $4,950 − $4,500 = $450 adverse plus volume variance $500 adverse = $550 adverse total.

Question 52: A company purchases equipment for $50,000 by paying $20,000 cash and signing a $30,000 note payable. How is the cash flow statement affected?

Investing outflow of $50,000; financing inflow of $30,000
Financing outflow of $50,000
Investing outflow of $20,000; the $30,000 note is a non-cash disclosure (Correct answer)
No cash flow impact as asset and liability offset

Correct answer: Investing outflow of $20,000; the $30,000 note is a non-cash disclosure

Only the $20,000 cash paid appears as an investing outflow; the $30,000 note is a non-cash financing transaction disclosed separately.

Question 53: Which of the following is NOT typically included in an operating budget?

Administrative overheads
Selling and distribution expenses
Capital expenditure on new equipment (Correct answer)
Cost of goods sold

Correct answer: Capital expenditure on new equipment

Capital expenditure is included in the capital budget, not the operating budget, which covers day-to-day revenues and costs.

CAT Certified Accounting Technician Exam

The CAT (Certified Accounting Technician) qualification is awarded by ACCA (Association of Chartered Certified Accountants) and provides a foundation in core accounting and finance skills. The qualification covers financial reporting, bookkeeping, taxation, regulatory compliance, cost control, budgeting, auditing principles, corporate finance, cash flow management, internal controls, payroll processing, financial planning, and professional ethics. It is internationally recognised as an entry-level accounting credential.

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