📘 CPA AUD Practice MCQs (51–100)
Question 51
Which of the following best describes the primary purpose of an audit?
A) To detect all fraud in the financial statements
B) To provide reasonable assurance that the financial statements are free of material misstatement
C) To ensure compliance with tax regulations
D) To certify management’s performance
Correct Answer: B
Explanation: The primary purpose of an audit is to provide reasonable assurance that financial statements are free of material misstatements, whether due to fraud or error. Auditors do not guarantee absolute accuracy.
Question 52
An auditor evaluates the risk of material misstatement at both:
A) The financial statement level and assertion level
B) The audit report level and compliance level
C) The transaction level only
D) The internal audit level
Correct Answer: A
Explanation: Risk of material misstatement must be assessed at the overall financial statement level and at the assertion level (account balances, transactions, disclosures).
Question 53
Which assertion relates to whether all transactions have been recorded?
A) Completeness
B) Accuracy
C) Occurrence
D) Valuation
Correct Answer: A
Explanation: The completeness assertion ensures all transactions/events that should be recorded are included in the financial statements.
Question 54
Which of the following is an example of a substantive audit procedure?
A) Inquiry of management
B) Observation of internal controls
C) Confirmation of accounts receivable
D) Walkthrough of transactions
Correct Answer: C
Explanation: Substantive procedures test account balances and transactions directly. Confirmations of receivables are a classic substantive test.
Question 55
The risk that a material misstatement will not be prevented or detected by internal control is called:
A) Inherent risk
B) Control risk
C) Detection risk
D) Audit risk
Correct Answer: B
Explanation: Control risk refers to the possibility that a misstatement will not be prevented, detected, or corrected by the entity’s internal controls.
Question 56
An auditor should perform analytical procedures during:
A) Only planning
B) Only the completion phase
C) Both planning and completion phases
D) None of the above
Correct Answer: C
Explanation: Analytical procedures are required in the planning phase (to identify risks) and in the completion phase (to assess overall reasonableness).
Question 57
Which type of audit evidence provides the highest level of reliability?
A) Written representations from management
B) External confirmations
C) Oral inquiries
D) Internal documents
Correct Answer: B
Explanation: External confirmations (e.g., from banks, customers) are more reliable than internally generated evidence or management representations.
Question 58
In assessing fraud risk, auditors should presume risk exists in which two areas?
A) Revenue recognition and inventory valuation
B) Cash balances and payroll
C) Revenue recognition and management override of controls
D) Related-party transactions and cash flows
Correct Answer: C
Explanation: Auditors must always presume fraud risk in revenue recognition and management override of controls, regardless of circumstances.
Question 59
The engagement letter is used primarily to:
A) Communicate audit findings to management
B) Document the auditor’s independence
C) Confirm the auditor’s responsibility and scope of services
D) Serve as audit evidence
Correct Answer: C
Explanation: The engagement letter clarifies the scope of the audit, responsibilities of auditor and management, and objectives.
Question 60
Which of the following is an example of an auditor exercising professional skepticism?
A) Accepting management’s explanations without question
B) Questioning contradictory audit evidence
C) Limiting audit procedures due to time constraints
D) Fully relying on prior year’s work
Correct Answer: B
Explanation: Professional skepticism means maintaining a questioning mind and critically assessing audit evidence, especially if contradictions exist.
Question 61
The risk that the auditor’s procedures will not detect a material misstatement is called:
A) Control risk
B) Inherent risk
C) Detection risk
D) Audit risk
Correct Answer: C
Explanation: Detection risk is the chance that audit procedures fail to uncover misstatements. It is the only risk directly controlled by the auditor through audit planning.
Question 62
When evaluating internal controls, auditors are primarily concerned with:
A) Cost efficiency of operations
B) Safeguarding of assets and reliability of financial reporting
C) Employee job satisfaction
D) Tax compliance
Correct Answer: B
Explanation: Internal controls are designed to safeguard assets, ensure reliable financial reporting, and promote compliance.
Question 63
Which type of opinion is issued when financial statements are materially misstated but not pervasive?
A) Unqualified opinion
B) Qualified opinion
C) Adverse opinion
D) Disclaimer of opinion
Correct Answer: B
Explanation: A qualified opinion is issued when misstatements are material but limited in scope and not pervasive.
Question 64
Which type of sampling is most commonly used in substantive testing?
A) Random sampling
B) Judgmental sampling
C) Attribute sampling
D) Monetary-unit sampling
Correct Answer: D
Explanation: Monetary-unit sampling (MUS) is frequently used in substantive testing of account balances because it focuses on higher-value items.
Question 65
The audit committee of the board of directors should be composed of:
A) Independent members of management
B) Internal auditors and executives
C) Independent, non-executive directors
D) Shareholders
Correct Answer: C
Explanation: Audit committees should consist of independent, non-executive directors to ensure objectivity and oversight.
Question 66
Which of the following is an inherent limitation of internal controls?
A) Collusion among employees
B) Proper authorization procedures
C) Segregation of duties
D) Periodic reconciliations
Correct Answer: A
Explanation: Even with strong controls, collusion among employees can bypass safeguards—an inherent limitation of any control system.
Question 67
Which standard requires auditors to plan and perform audits with due professional care?
A) PCAOB Standards
B) Generally Accepted Auditing Standards (GAAS)
C) IFRS
D) Sarbanes-Oxley Act
Correct Answer: B
Explanation: GAAS requires that audits be planned and performed with due professional care and professional skepticism.
Question 68
Which is the most reliable type of audit evidence?
A) Physical observation
B) Written confirmation from external parties
C) Internal documents prepared by staff
D) Oral responses from management
Correct Answer: B
Explanation: External confirmations (like bank confirmations) are considered the most reliable form of audit evidence.
Question 69
An auditor concludes that internal controls are ineffective. What is the likely impact?
A) Decrease in audit procedures
B) Increase in detection risk
C) Increase in substantive testing
D) Decrease in inherent risk
Correct Answer: C
Explanation: If controls are ineffective, auditors rely less on them and perform more substantive testing to gather sufficient evidence.
Question 70
Which of the following is a fraud risk factor relating to incentives/pressures?
A) Weak internal controls
B) Complex transactions
C) Management’s need to meet financial targets
D) Ineffective oversight
Correct Answer: C
Explanation: Fraud triangle includes incentives/pressures, opportunity, and rationalization. Pressure to meet earnings targets is a key driver.
Question 71
The auditor’s responsibility for detecting fraud includes:
A) Guaranteeing detection of all fraud
B) Providing reasonable assurance that financial statements are free from material misstatements
C) Relying solely on internal audit findings
D) Detecting immaterial frauds
Correct Answer: B
Explanation: Auditors provide reasonable assurance; they are not responsible for detecting all fraud, especially immaterial ones.
Question 72
An auditor tests controls over cash disbursements. The main assertion being tested is:
A) Completeness
B) Occurrence
C) Valuation
D) Rights and obligations
Correct Answer: B
Explanation: Testing disbursement controls addresses the occurrence assertion—that recorded disbursements actually occurred.
Question 73
Which of the following would likely be considered a significant deficiency in internal controls?
A) Lack of segregation of duties
B) Monthly reconciliations performed by a supervisor
C) Strong IT access controls
D) Independent internal audit reviews
Correct Answer: A
Explanation: Lack of segregation of duties is a common significant deficiency, as it increases the risk of fraud and errors.
Question 74
Audit documentation should provide:
A) Evidence of compliance with IFRS
B) Support for the auditor’s report and conclusions
C) Proof of management’s honesty
D) Financial projections for future periods
Correct Answer: B
Explanation: Documentation serves as evidence supporting audit conclusions and compliance with auditing standards.
Question 75
The auditor is unable to obtain sufficient evidence due to client restrictions. What opinion should be issued?
A) Unqualified
B) Adverse
C) Disclaimer of opinion
D) Qualified
Correct Answer: C
Explanation: A disclaimer of opinion is issued when auditors cannot obtain sufficient evidence and the scope limitation is pervasive.
Question 76
Which is a key element of the auditor’s responsibility under SOX Section 404?
A) Management certification of financial statements
B) Auditor’s evaluation of internal control effectiveness
C) External audit firm rotation
D) Independence disclosures
Correct Answer: B
Explanation: SOX 404 requires auditors to evaluate and report on the effectiveness of internal controls over financial reporting.
Question 77
The auditor’s use of sampling is based on the assumption that:
A) The sample will always detect fraud
B) The sample is representative of the population
C) Larger samples reduce audit quality
D) Sampling is only for controls
Correct Answer: B
Explanation: Audit sampling assumes the sample selected is representative of the entire population, allowing conclusions to be drawn.
Question 78
Which of the following is not a component of audit risk?
A) Inherent risk
B) Control risk
C) Compliance risk
D) Detection risk
Correct Answer: C
Explanation: Audit risk consists of inherent, control, and detection risk. Compliance risk is not part of the audit risk model.
Question 79
The auditor should communicate significant deficiencies in internal control to:
A) External shareholders
B) Audit committee and management
C) Public through the audit report
D) Tax authorities
Correct Answer: B
Explanation: Auditors must communicate significant deficiencies and material weaknesses to management and the audit committee.
Question 80
Which is an example of an analytical procedure?
A) Counting inventory physically
B) Comparing current-year ratios with prior years
C) Confirming receivables with customers
D) Inspecting documents
Correct Answer: B
Explanation: Analytical procedures involve evaluating financial data by studying relationships, like ratio analysis or trend comparisons.
Question 81
Which audit evidence is least reliable?
A) Bank confirmations
B) Vendor invoices
C) Client-prepared internal spreadsheets
D) Lawyer’s letters
Correct Answer: C
Explanation: Internal spreadsheets lack external validation and are less reliable compared to third-party or external evidence.
Question 82
When is substantive testing performed?
A) Before risk assessment
B) After controls are tested
C) To detect material misstatements
D) Only if controls are effective
Correct Answer: C
Explanation: Substantive testing is conducted to detect material misstatements in account balances and transactions.
Question 83
Which opinion is issued when financial statements are materially misstated and pervasive?
A) Unqualified
B) Qualified
C) Adverse
D) Disclaimer
Correct Answer: C
Explanation: An adverse opinion is issued when misstatements are both material and pervasive, making the statements misleading.
Question 84
The purpose of engagement letters is to:
A) Provide legal protection for the auditor
B) Clarify the scope, objectives, and responsibilities of both auditor and client
C) Confirm independence of the auditor
D) Summarize audit results
Correct Answer: B
Explanation: An engagement letter clearly defines the audit scope, objectives, responsibilities, and limitations, reducing misunderstandings.
Question 85
Audit sampling is used because:
A) It eliminates detection risk
B) Auditors cannot examine all transactions
C) It guarantees fraud detection
D) GAAS prohibits full testing
Correct Answer: B
Explanation: Sampling is necessary since auditors cannot test 100% of transactions; it balances efficiency and assurance.
Question 86
Which is a management assertion related to account balances?
A) Existence
B) Cutoff
C) Classification
D) Presentation
Correct Answer: A
Explanation: Existence is an assertion about account balances (e.g., inventory actually exists at year-end).
Question 87
Which standard requires independence in fact and appearance?
A) IFRS
B) PCAOB
C) GAAS
D) GAAP
Correct Answer: C
Explanation: Under GAAS, auditors must be independent both in fact and in appearance to maintain objectivity and credibility.
Question 88
Which procedure would best test the completeness assertion for accounts payable?
A) Confirming balances with vendors
B) Examining subsequent cash disbursements
C) Reviewing vendor invoices recorded before year-end
D) Inspecting bank reconciliations
Correct Answer: B
Explanation: Subsequent disbursements testing ensures all liabilities existing at year-end were recorded (completeness).
Question 89
The auditor’s report should include:
A) A statement of absolute assurance
B) Management’s responsibility for financial statements
C) Only positive findings
D) Projected financial information
Correct Answer: B
Explanation: The audit report must clearly state that management is responsible for the preparation of financial statements.
Question 90
Which type of risk cannot be reduced by increasing audit procedures?
A) Detection risk
B) Inherent risk
C) Sampling risk
D) Control risk
Correct Answer: B
Explanation: Inherent risk is due to the nature of transactions/accounts and cannot be reduced by audit procedures.
Question 91
The audit risk model is expressed as:
A) AR = CR × IR
B) AR = IR × CR × DR
C) AR = IR + CR + DR
D) AR = DR × IR
Correct Answer: B
Explanation: The audit risk model is AR = IR × CR × DR (audit risk = inherent × control × detection risk).
Question 92
Which is an example of a preventive control?
A) Bank reconciliations
B) Physical inventory counts
C) Supervisory approvals of transactions
D) Review of financial reports
Correct Answer: C
Explanation: Preventive controls stop errors or fraud before they occur; approvals and authorizations are preventive.
Question 93
Which of the following is considered a significant risk?
A) Routine payroll transactions
B) Related-party transactions
C) Simple cash sales
D) Basic expense reimbursements
Correct Answer: B
Explanation: Related-party transactions pose higher risks due to lack of independence and potential for misstatement.
Question 94
The primary purpose of analytical procedures at the planning stage is to:
A) Reduce audit fees
B) Identify areas of potential misstatement
C) Replace substantive testing
D) Confirm account balances
Correct Answer: B
Explanation: Analytical procedures at the planning stage help identify unusual trends or risks for further testing.
Question 95
An auditor uses a walkthrough primarily to:
A) Test financial statement balances
B) Understand internal control design and implementation
C) Confirm balances with third parties
D) Reduce substantive testing
Correct Answer: B
Explanation: A walkthrough traces transactions from initiation to reporting, confirming internal control design and operation.
Question 96
Which of the following audit opinions indicates no material misstatements?
A) Disclaimer
B) Qualified
C) Adverse
D) Unqualified
Correct Answer: D
Explanation: An unqualified (clean) opinion states financial statements are fairly presented with no material misstatements.
Question 97
Which factor increases inherent risk?
A) Simple, routine transactions
B) High volume of complex transactions
C) Strong internal controls
D) Stable business environment
Correct Answer: B
Explanation: Complex, non-routine, or high-volume transactions increase the likelihood of errors and misstatements.
Question 98
Which type of evidence is most persuasive when testing accounts receivable?
A) Bank reconciliations
B) Customer confirmations
C) Internal spreadsheets
D) Management representations
Correct Answer: B
Explanation: Direct confirmations from customers provide the most reliable evidence about receivables.
Question 99
The auditor’s primary objective when reviewing subsequent events is to:
A) Detect all frauds
B) Identify events that affect financial statement presentation
C) Assess audit fees
D) Confirm related-party transactions
Correct Answer: B
Explanation: Subsequent events review ensures events after balance sheet date but before audit report are properly reflected/disclosed.
Question 100
When an auditor is engaged to review interim financial information, the level of assurance provided is:
A) No assurance
B) Limited assurance
C) Reasonable assurance
D) Absolute assurance
Correct Answer: B
Explanation: A review provides limited assurance (less than a full audit) that financial statements need no material modifications.
You’ve completed CPA AUD Part 2 (MCQs 51–100). ✅ Consistent practice with structured explanations will help you master auditing concepts and score higher in the exam.
👉 Next, continue with CPA AUD Part 3 (MCQs 101–150) to cover more advanced audit procedures and reporting standards.
👉 Next, check out:
- CPA AUD Batch 1
- CPA AUD Batch 3
- CPA AUD Batch 4
- CPA FAR (Financial Accounting & Reporting)
- CPA REG (Regulation) MCQs
For complete preparation, explore our full CPA Exam MCQ Series across AUD, FAR, and REG sections.