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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. 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
2. In a financial statement audit, inherent risk is evaluated to help an auditor assess which of the following?
3. Which of the following is a fraud risk factor?
I. Unauthorized client transaction
II. Unusual client delay
4. 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
5. Which of the following is a component of audit risk?
I. Detection risk
II. Inherent risk
6. Which of the following statements reflects an auditor’s responsibility for detecting errors and fraud?,An auditor is responsible for detecting employee errors and fraud
7. Which of the following standards-setting bodies has authority to issue auditing standards for financial statement audits of nonissuers?
I. Auditing Standards Board
II. Public Company Accounting Oversight Board
8. 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
9. By gathering more evidence through substantive testing, an auditor can reduce:
I. detection risk
II. control risk
III. inherent risk
10. Overstating ending inventory:
I. results in an understatement of cost of goods sold
II. results in an overstatement of net income
11. 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
12. Control risk is:
I. influenced by the amount of work or other testing performed by the independent auditor
II. mitigated by good internal controls
13. Which of the following is an example of fraudulent financial reporting?
I. The treasurer stealing cash from the company
II. The recording of false sales prior to year-end to help reach company sales forecasts
14. 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:
15. Which of the following is a component of the fraud triangle?
I. Ability to rationalize fraud
II. Pressure to commit fraud
16. 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
17. A violation of the profession’s independence standards most likely would have occurred when:
I. the daughter of a covered member is employed as a parking lot attendant and makes cash tips at the client under audit
II. the CPA issued an unmodified opinion on the Year 2 financial statements when fees for the Year 1 audit were unpaid
18. 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
19. Which of the following should be considered by a CPA prior to acceptance of an audit engagement of a nonissuer?
I. The quality of the accounting records
II. The future plans for the company
20. 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
21. Which of the following would NOT heighten an auditor’s concern about the risk of intentional manipulation of financial statements?
I. Insiders recently purchased additional shares of the entity’s stock.
II. Management places substantial emphasis on meeting earnings projections.
III. Management is dominated by several top executives.
IV. Inventory is comprised mostly of small, high-dollar items.
22. Which of the following should be viewed by the auditor as a fraud risk factor?
I. The threat of bankruptcy
II. The absence of significant competition
23. There is an inverse relationship between detection risk and the auditor’s assessment of:
I. inherent risk
II. control risk
24. In an audit of a nonissuer, if a generally accepted auditing standard is considered an “unconditional requirement,” which of the following is correct?
25. 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

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