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CPA AUD Auditing basics, Audit Planning and Risk Assessment
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The Auditing and Attestation (AUD) section of the CPA exam focuses on the entire audit cycle, with Assessing Risk and Developing a Planned Response accounting for 25–35% of the exam content. Mastering these basics requires moving beyond rote memorization to applying professional judgment in real-world scenarios.  1. Fundamental Auditing Basics The AUD section tests your ability to perform and evaluate audit and assurance engagements. Key foundational areas include:  Professional Standards: Knowledge of GAAS (AICPA) for non-issuers and PCAOB standards for public companies. Ethics &... Show more
CPA AUD Auditing basics, Audit Planning and Risk Assessment
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25 Questions

1. Special consideration must be given to the possibility that fraud exists during which of the following phases of the audit?
I. Assessment of inherent risk
II. Assessment of control risk
III. Substantive testing,I and II only,I
2. There is an inverse relationship between detection risk and the auditor’s assessment of:
I. inherent risk
II. control risk
3. In an audit of a nonissuer, if a generally accepted auditing standard is considered an “unconditional requirement,” which of the following is correct?
4. On the basis of audit evidence gathered and evaluated, an auditor decides to increase the assessed level of control risk, and therefore the risk of material misstatement, from that originally planned. To achieve an overall audit risk level that is substantially the same as the planned audit risk level, the auditor would:
5. If management or employees have high personal debts and company layoffs are anticipated, which leg of the fraud triangle would these fraud risk factors relate to?
6. In which of the following situations regarding independence would the concept of materiality NOT apply?
I. Auditing firm owns one share of stock in a publicly traded company under audit. The share is held in a brokerage account.
II. Auditor’s spouse owns one share in a mutual fund that owns shares in a client company. The client is a publicly traded company.
7. Which of the following is a fraud risk factor?
I. Unauthorized client transaction
II. Unusual client delay
8. Which of the following risks is assessed by the auditor but the auditor’s assessment has no bearing on the actual amount of risk present?
I. Control risk
II. Inherent risk
9. A basic premise underlying the application of analytical procedures is that:
I. plausible relationships among data may reasonably be expected to exist and continue in the absence of known conditions to the contrary
II. analytical procedures can substitute for tests of certain balances and transactions
10. Which of the following is correct regarding the auditor’s preliminary judgment about materiality?
I. The auditor utilizes the results of the internal control questionnaire.
II. The auditor utilizes annualized interim financial statements.
11. Which of the following is an example of fraudulent financial reporting?
I. An employee steals inventory and the shrinkage is recorded in cost of goods sold.
II. Company management changes inventory count tags and overstates ending inventory while understating cost of goods sold.
12. Which of the following procedures would an auditor likely perform in the planning stage of a financial statement audit?
I. Obtaining a signed engagement letter from the client’s management
II. Examining documents to detect violations of laws and regulations having a material effect on the financial statements
13. If an auditor assesses both the inherent risk and the control risk for a particular account to be high:
I. the auditor must then set the acceptable level of detection risk for that account to a relatively low level
II. the auditor will perform more substantive testing in that area
14. Which of the following will cause the auditor to assess inherent risk as high?
I. Complex transactions with third parties are discovered.
II. No related-party transactions are discovered.
III. Management relies heavily on estimates in the financial statements.,I and II only,I
15. In which stage of the audit would analytical procedures NOT likely be performed?
I. Overall review stage
II. Planning stage
16. Which of the following procedures is likely to be performed in the planning stage of the audit?
I. Determining the extent of involvement of specialists and internal auditors
II. External confirmation of client accounts receivables
17. Which of the following should be viewed as fraud risk factors that point to incentives or pressure for employees to misappropriate assets?
I. Compensation levels inconsistent with expectations
II. Inadequate segregation of duties
18. In an audit under GAAS, when an auditor increases the assessed level of control risk because certain control activities were determined to be ineffective, the auditor most likely would:
19. Inquiries of the predecessor auditor prior to acceptance of the engagement should include specific questions regarding:
I. disagreements with management as to accounting principles and auditing procedures
II. the integrity of management
20. Inherent risk is:
I. not influenced by the amount of work or other testing performed by the independent auditor
II. a characteristic of the accounting system and the personnel who work in that system
21. Lara is a covered member in an audit engagement. Which of the following cannot work in any capacity for a company being audited by Lara?
I. Lara’s spouse
II. Lara’s dependent daughter
22. In a financial statement audit, inherent risk is evaluated to help an auditor assess which of the following?
23. A CPA performed the following engagements in February of Year 3. Which is considered an attestation engagement?
I. Audit of Year 2 financial statements
II. Examination of Year 4’s proposed financial information
24. A CPA should decide NOT to accept a new client for an audit engagement if:
I. the CPA lacks an understanding of the client’s industry and accounting principles prior to acceptance
II. the client’s management has unusually high turnover
25. Which of the following is a component of audit risk?
I. Detection risk
II. Inherent risk

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