Preparing for the CPA Exam AUD (Auditing & Attestation)? This batch of 50 carefully crafted CPA AUD MCQs with detailed explanations will help you strengthen your concepts in ethics, audit risk, internal controls, and reporting. These practice questions mirror the real exam style so you can test your knowledge, identify weak areas, a)0 nd boost your confidence.
CPA AUD Question Batch 1 (1- 50)
Q1. Which of the following best describes the primary purpose of an audit?
A) To detect all fraud within the organization
B) To provide absolute assurance about financial statements
C) To provide reasonable assurance that financial statements are free of material misstatement
D) To prepare the financial statements for management
✅ Answer: C
Explanation: The purpose of an audit is to provide reasonable assurance that the financial statements are free of material misstatement. Auditors do not provide absolute assurance, nor do they prepare statements.
Q2. Which of the following factors increases audit risk?
A) Strong internal controls
B) Management integrity
C) Complex related-party transactions
D) Effective audit committee oversight
✅ Answer: C
Explanation: Related-party transactions are inherently risky because they may not be conducted at arm’s length, increasing audit risk.
Q3. Independence in auditing primarily refers to:
A) Auditor’s objectivity and freedom from bias
B) The ability to prepare client financial statements
C) Compliance with GAAP in all respects
D) Use of generally accepted auditing standards (GAAS)
✅ Answer: A
Explanation: Independence means the auditor remains objective and unbiased throughout the audit engagement.
Q4. Which type of audit opinion is issued when financial statements are materially misstated but not pervasive?
A) Qualified opinion
B) Disclaimer of opinion
C) Adverse opinion
D) Unmodified opinion
✅ Answer: A
Explanation: A qualified opinion is issued when misstatements are material but not pervasive. An adverse opinion is given when misstatements are both material and pervasive.
Q5. Which of the following is considered a limitation of internal control?
A) Segregation of duties
B) Human error and collusion
C) Proper authorization procedures
D) Use of IT-based controls
✅ Answer: B
Explanation: Internal controls cannot eliminate risks from human error or collusion, which are inherent limitations.
Q6. Audit sampling is primarily used because:
A) It reduces audit risk to zero
B) It saves time and cost while still providing reasonable assurance
C) It guarantees detection of fraud
D) It is required by GAAP
✅ Answer: B
Explanation: Sampling allows auditors to examine a representative portion of transactions instead of all, balancing efficiency with assurance.
Q7. Which of the following is a management assertion related to account balances?
A) Rights and obligations
B) Occurrence
C) Cutoff
D) Presentation and disclosure
✅ Answer: A
Explanation: Rights and obligations is a management assertion related to balances, while occurrence and cutoff relate to transactions.
Q8. An auditor’s responsibility for detecting fraud includes:
A) Providing absolute assurance that no fraud exists
B) Providing reasonable assurance that material fraud is detected
C) Detecting all immaterial fraud
D) Reporting all fraud to law enforcement
✅ Answer: B
Explanation: Auditors provide reasonable assurance regarding detection of material fraud, not absolute assurance.
Q9. Which document is typically obtained to confirm accounts receivable balances?
A) Engagement letter
B) Bank confirmation
C) Customer confirmation
D) Audit report
✅ Answer: C
Explanation: Customer confirmations are the standard audit evidence to verify accounts receivable balances.
Q10. Which of the following is most likely to be considered a significant risk in an audit?
A) Routine payroll expenses
B) Revenue recognition in a complex sales contract
C) Utility expenses
D) Depreciation of fixed assets
✅ Answer: B
Explanation: Revenue recognition in complex arrangements is a high-risk area due to potential misstatement.
Q11. The engagement letter primarily serves to:
A) Provide evidence for audit planning
B) Confirm the auditor’s independence
C) Define the scope, responsibilities, and terms of the audit
D) Replace the need for a management representation letter
✅ Answer: C
Explanation: The engagement letter outlines the scope of services, responsibilities of management and auditor, and terms of the engagement.
Q12. Which of the following procedures provides the strongest evidence about cash existence?
A) Analytical procedures on cash balances
B) Confirmation with the bank
C) Review of prior year audit workpapers
D) Examination of petty cash vouchers
✅ Answer: B
Explanation: Bank confirmations are direct evidence from an external party and provide the strongest audit assurance.
Q13. A significant deficiency in internal control is:
A) Less severe than a material weakness but still important
B) A deficiency with no effect on audit opinion
C) Equivalent to fraud
D) A routine finding that doesn’t require reporting
✅ Answer: A
Explanation: Significant deficiencies are important enough to merit attention but are less severe than material weaknesses.
Q14. Which of the following is a substantive procedure?
A) Walkthrough of internal controls
B) Reperformance of a bank reconciliation
C) Testing segregation of duties
D) Observation of inventory procedures
✅ Answer: B
Explanation: Substantive procedures directly test balances and transactions. Reperformance of reconciliation provides direct audit evidence.
Q15. In which audit stage is audit risk assessed?
A) Planning
B) Fieldwork
C) Completion
D) Reporting
✅ Answer: A
Explanation: Audit risk assessment is a key part of audit planning and helps determine the nature, timing, and extent of procedures.
Q16. When an auditor cannot obtain sufficient evidence due to management-imposed scope limitation, the likely opinion is:
A) Qualified or disclaimer
B) Adverse
C) Unmodified
D) Emphasis of matter
✅ Answer: A
Explanation: A scope limitation may result in a qualified opinion or disclaimer depending on severity.
Q17. Which of the following is a component of audit risk?
A) Analytical risk
B) Detection risk
C) Confirmation risk
D) Control efficiency risk
✅ Answer: B
Explanation: Audit risk = Inherent risk × Control risk × Detection risk.
Q18. Which of the following is NOT part of GAAS (Generally Accepted Auditing Standards)?
A) Standards of Field Work
B) Standards of Reporting
C) Standards of Ethics
D) General Standards
✅ Answer: C
Explanation: GAAS includes General, Fieldwork, and Reporting standards, but not a separate “Ethics” category (though ethics apply via AICPA Code).
Q19. Which of the following best describes materiality?
A) An absolute value of misstatements
B) Professional judgment about what would influence users’ decisions
C) Always 5% of net income
D) Only applicable to fraud, not errors
✅ Answer: B
Explanation: Materiality is based on professional judgment about what could influence economic decisions.
Q20. Which report is issued when financial statements are fairly presented but additional emphasis is needed?
A) Qualified opinion
B) Adverse opinion
C) Unmodified with emphasis-of-matter paragraph
D) Disclaimer of opinion
✅ Answer: C
Explanation: Emphasis-of-matter highlights an issue without modifying the opinion.
Q21. Which audit evidence is least reliable?
A) Bank confirmation
B) Client’s oral explanation
C) Auditor’s observation
D) External specialist report
✅ Answer: B
Explanation: Oral explanations are the least reliable form of audit evidence.
Q22. Which of the following is an example of detection risk?
A) Failing to confirm receivables when needed
B) Management override of controls
C) Complex estimates difficult to audit
D) Lack of segregation of duties
✅ Answer: A
Explanation: Detection risk arises when auditor procedures fail to detect a material misstatement.
Q23. Which type of sampling is most commonly used in audits?
A) Random sampling
B) Haphazard sampling
C) Judgmental sampling
D) Cluster sampling
✅ Answer: A
Explanation: Random sampling ensures every item has an equal chance of selection, reducing bias.
Q24. Which of the following requires communication with those charged with governance?
A) Trivial clerical errors
B) Significant deficiencies and material weaknesses
C) All audit adjustments
D) Analytical review results
✅ Answer: B
Explanation: Auditors must communicate significant deficiencies and material weaknesses to governance.
Q25. Analytical procedures are required during:
A) Only planning stage
B) Only completion stage
C) Both planning and completion stages
D) Fieldwork only
✅ Answer: C
Explanation: Analytical procedures are required in planning and completion, but optional in fieldwork.
Q26. Which of the following is NOT an inherent limitation of an audit?
A) Use of professional judgment
B) Sampling risk
C) Collusion among employees
D) Auditor independence
✅ Answer: D
Explanation: Independence is a professional requirement, not a limitation of the audit.
Q27. When auditors test transactions, they primarily test:
A) Management integrity
B) Controls effectiveness and financial accuracy
C) Business strategy
D) Market share of the client
✅ Answer: B
Explanation: Transaction testing is used to validate controls and accuracy of financial reporting.
Q28. Which of the following procedures best detects lapping of accounts receivable?
A) Bank reconciliation review
B) Confirmation of receivables
C) Review of cutoff statements
D) Comparing deposits with posting to AR ledger
✅ Answer: D
Explanation: Lapping (misappropriation of cash) is detected by comparing cash deposits with AR postings.
Q29. Audit documentation (workpapers) must be retained for at least:
A) 3 years
B) 5 years
C) 7 years
D) 10 years
✅ Answer: C
Explanation: PCAOB requires 7-year retention of audit workpapers.
Q30. Which of the following increases control risk?
A) Ineffective segregation of duties
B) Frequent independent reconciliations
C) Proper IT system security
D) Management review of reports
✅ Answer: A
Explanation: Lack of segregation of duties raises the likelihood of misstatements.
Q31. Which of the following reports is issued when the auditor is not independent?
A) Adverse
B) Qualified
C) Disclaimer
D) No opinion is issued
✅ Answer: D
Explanation: If the auditor is not independent, they cannot issue an opinion.
Q32. Which of the following is an ethical requirement under the AICPA Code?
A) Maintaining independence
B) Increasing audit fees annually
C) Following IFRS
D) Reporting all immaterial errors
✅ Answer: A
Explanation: Independence is a fundamental ethical requirement.
Q33. Which evidence provides the highest reliability?
A) Auditor’s recalculation
B) Management inquiry
C) Prior year workpapers
D) Client-prepared schedules
✅ Answer: A
Explanation: Recalculation by auditor is highly reliable because it is direct evidence.
Q34. Which of the following is considered audit evidence?
A) Verbal assurance from management
B) Written representations, confirmations, and physical inspection
C) Auditor’s personal opinion
D) Board minutes only
✅ Answer: B
Explanation: Evidence includes written, physical, and external confirmations.
Q35. Which of the following best describes the purpose of internal control testing?
A) To replace substantive procedures
B) To reduce detection risk
C) To assess whether controls operate effectively
D) To guarantee no fraud occurs
✅ Answer: C
Explanation: Control testing checks if controls are effective and reliable.
Q36. The risk that material misstatements will not be prevented or detected on a timely basis by the entity’s internal controls is:
A) Detection risk
B) Control risk
C) Inherent risk
D) Audit risk
✅ Answer: B
Explanation: This is the definition of control risk.
Q37. When a going concern issue exists, the auditor should:
A) Issue a disclaimer of opinion
B) Modify the audit opinion to adverse
C) Include an emphasis-of-matter paragraph if properly disclosed
D) Ignore the issue if immaterial
✅ Answer: C
Explanation: A going concern uncertainty is disclosed with emphasis-of-matter unless not properly disclosed.
Q38. Which of the following best reduces detection risk?
A) Larger sample sizes and more substantive procedures
B) Using more client-prepared schedules
C) Relying on internal audit
D) Shortening audit procedures
✅ Answer: A
Explanation: Increasing testing reduces detection risk.
Q39. Which of the following is an example of audit evidence obtained through observation?
A) Watching inventory count
B) Bank confirmation
C) Recalculation of depreciation
D) Analytical review
✅ Answer: A
Explanation: Observation means auditor watches processes (e.g., inventory count).
Q40. Which of the following is a required audit communication to governance?
A) Audit strategy
B) All errors detected
C) Fraud involving senior management
D) Auditor’s billing rates
✅ Answer: C
Explanation: Fraud involving senior management must always be communicated.
Q41. Which type of opinion states that financial statements “do not present fairly”?
A) Disclaimer
B) Qualified
C) Adverse
D) Unmodified
✅ Answer: C
Explanation: An adverse opinion states that financials are materially misstated.
Q42. Which of the following is NOT a responsibility of management?
A) Designing internal controls
B) Preparing financial statements
C) Providing audit evidence
D) Expressing an audit opinion
✅ Answer: D
Explanation: Auditors express the opinion, not management.
Q43. Audit risk is:
A) Risk auditors give wrong opinion when financials are misstated
B) Risk client fails to detect fraud
C) Risk internal controls fail
D) Risk inherent misstatements occur
✅ Answer: A
Explanation: Audit risk = risk of inappropriate opinion when financials are materially misstated.
Q44. Which is most likely to be considered a material weakness?
A) Failure to reconcile bank accounts monthly
B) Failure to safeguard petty cash
C) Use of outdated software
D) Minor posting error in general ledger
✅ Answer: A
Explanation: Failure to reconcile major accounts = material weakness.
Q45. Which of the following is true about audit sampling?
A) It eliminates all risks
B) It always uses statistical methods
C) It involves examining less than 100% of items
D) It is optional in audits
✅ Answer: C
Explanation: Sampling = testing a subset of items.
Q46. Which of the following is an example of an inherent risk?
A) Complex financial instruments
B) Lack of segregation of duties
C) Failure of detection procedures
D) Auditor fatigue
✅ Answer: A
Explanation: Inherent risk arises from business/transaction complexity.
Q47. Which standard-setting body oversees CPA audit standards in the USA?
A) AICPA
B) IASB
C) FASB
D) SEC
✅ Answer: A
Explanation: AICPA Auditing Standards Board sets US audit standards (PCAOB for public companies).
Q48. Which of the following procedures best addresses existence of inventory?
A) Confirm with suppliers
B) Observe physical count
C) Review perpetual records
D) Test valuation calculations
✅ Answer: B
Explanation: Observing physical inventory count addresses existence.
Q49. The risk that an auditor incorrectly concludes a material misstatement does not exist is:
A) Type I error
B) Type II error
C) Detection risk
D) Inherent risk
✅ Answer: B
Explanation: Type II error = risk of failing to detect a misstatement.
Q50. Which audit opinion states that except for certain matters, financial statements are fairly presented?
A) Qualified opinion
B) Disclaimer
C) Adverse
D) Unmodified
✅ Answer: A
Explanation: A qualified opinion is “fairly presented except for” specific issues.
✅ You’ve completed CPA AUD Batch 1 (1–50 MCQs)!
This set focused on the core foundations of auditing: ethics, risk assessment, evidence, and reporting.
👉 Next, check out:
- CPA AUD Batch 2
- CPA AUD Batch 3
- CPA AUD Batch 4
- CPA FAR (Financial Accounting & Reporting)
- CPA REG (Regulation) MCQs
Keep practicing with these free resources to build confidence and maximize your exam score. Bookmark this page and share it with fellow CPA candidates preparing for the AUD exam worldwide.