The CPA Auditing & Attestation (AUD) exam tests your knowledge of auditing principles, internal controls, risk assessment, evidence collection, and professional ethics. In this Part 3 (MCQs 101–150), we bring you practice questions with correct answers and explanations, designed to replicate real exam scenarios. These questions will strengthen your understanding of audit evidence, internal controls, fraud risk, and audit reporting. Practicing consistently with such detailed MCQs not only improves accuracy but also builds exam confidence.
📘 CPA AUD Part 3 (MCQs 101–150 with Answers & Explanations)
Q101. The primary objective of audit evidence is to:
a) Support the auditor’s opinion
b) Satisfy management’s requests
c) Comply with GAAP requirements
d) Provide financial forecasts
Answer: a) Support the auditor’s opinion
Explanation: Audit evidence is gathered to provide a reasonable basis for the auditor’s opinion on the financial statements, ensuring reliability and accuracy.
Q102. Which of the following provides the most reliable audit evidence?
a) Client representations
b) External confirmations from banks
c) Internal memos
d) Inquiries with staff
Answer: b) External confirmations from banks
Explanation: Evidence obtained directly from external, independent sources (like banks) is more reliable than internal evidence or verbal representations.
Q103. An auditor finds inconsistencies in vendor invoices. The most appropriate next step is to:
a) Ignore the issue
b) Obtain additional supporting documentation
c) Ask management to explain
d) Reduce audit procedures
Answer: b) Obtain additional supporting documentation
Explanation: When inconsistencies arise, auditors must perform further procedures and gather more evidence before drawing conclusions.
Q104. Which assertion is tested when an auditor verifies that all recorded sales actually occurred?
a) Completeness
b) Occurrence
c) Valuation
d) Rights and obligations
Answer: b) Occurrence
Explanation: Occurrence assertion checks whether recorded transactions actually took place.
Q105. Analytical procedures are least effective in detecting:
a) Unusual fluctuations
b) Fraudulent transactions
c) Overall trends
d) Misstatements in expense accounts
Answer: b) Fraudulent transactions
Explanation: Analytical procedures are strong for trends and variances but weak in detecting intentional fraud.
Q106. Which of the following is an example of substantive testing?
a) Observing inventory counts
b) Reviewing internal controls
c) Confirming accounts receivable balances
d) Discussing procedures with management
Answer: c) Confirming accounts receivable balances
Explanation: Substantive testing directly verifies balances and transactions, such as confirming A/R with customers.
Q107. An auditor tests completeness by:
a) Tracing source documents to accounting records
b) Reconciling bank confirmations
c) Examining journal entries
d) Reviewing financial statements
Answer: a) Tracing source documents to accounting records
Explanation: Tracing ensures all valid transactions are recorded (completeness).
Q108. Which type of audit evidence is considered the weakest?
a) Auditor’s direct observation
b) Written confirmations
c) Verbal representations from management
d) External documents
Answer: c) Verbal representations from management
Explanation: Oral statements are the weakest form of evidence due to lack of independent reliability.
Q109. A management letter issued by the auditor usually contains:
a) Auditor’s opinion
b) Suggestions for improving internal controls
c) Adjustments to financial statements
d) Legal compliance reports
Answer: b) Suggestions for improving internal controls
Explanation: A management letter highlights weaknesses and recommends improvements for better internal controls.
Q110. Which audit procedure would best detect kiting?
a) Bank transfer schedule
b) Cash count observation
c) Review of petty cash
d) Analytical procedures
Answer: a) Bank transfer schedule
Explanation: Kiting involves recording bank transfers incorrectly; a schedule helps detect overlapping transfers.
Q111. Which of the following is a primary objective of internal control?
a) To eliminate all fraud
b) To safeguard assets and ensure reliable reporting
c) To prepare tax returns
d) To replace external audits
Answer: b) To safeguard assets and ensure reliable reporting
Explanation: Internal controls provide reasonable assurance about safeguarding assets, reliability of financial reporting, and compliance—not complete fraud elimination.
Q112. Which procedure would best test the valuation of accounts receivable?
a) Confirm balances with customers
b) Review subsequent cash collections
c) Examine invoices for accuracy
d) Review customer credit ratings
Answer: b) Review subsequent cash collections
Explanation: Collection after year-end confirms whether receivables were collectible and properly valued.
Q113. Which audit risk is associated with overstated revenue?
a) Inherent risk
b) Detection risk
c) Control risk
d) Sampling risk
Answer: a) Inherent risk
Explanation: Revenue recognition has a high inherent risk due to opportunities for manipulation.
Q114. The auditor’s responsibility regarding illegal acts by a client is to:
a) Report directly to the SEC always
b) Design audit procedures to detect all illegal acts
c) Assess their impact on the financial statements
d) Ignore them unless material
Answer: c) Assess their impact on the financial statements
Explanation: The auditor’s duty is to assess how illegal acts affect the financial statements, not to detect all such acts.
Q115. Which of the following would be considered a significant deficiency?
a) Ineffective segregation of duties
b) Small immaterial error in payroll
c) A minor clerical error
d) Delays in preparing bank reconciliations
Answer: a) Ineffective segregation of duties
Explanation: Poor segregation of duties can allow fraud or material misstatement, thus a significant deficiency.
Q116. When testing payroll transactions, the auditor’s main focus is on:
a) Completeness and accuracy
b) Valuation and rights
c) Classification
d) Existence only
Answer: a) Completeness and accuracy
Explanation: Payroll testing ensures all employees are valid and payments are accurate.
Q117. Which of the following audit procedures provides evidence of existence for inventory?
a) Physical count observation
b) Cutoff testing
c) Reviewing vendor invoices
d) Price testing
Answer: a) Physical count observation
Explanation: Observing and counting inventory confirms that items physically exist.
Q118. Which of the following best describes detection risk?
a) Risk that a misstatement will occur
b) Risk that internal controls will not prevent errors
c) Risk that audit procedures will not detect misstatements
d) Risk of fraud by management
Answer: c) Risk that audit procedures will not detect misstatements
Explanation: Detection risk arises from audit procedures failing to uncover existing misstatements.
Q119. An auditor reviews board minutes to obtain evidence about:
a) Completeness of expenses
b) Authorization of significant transactions
c) Accuracy of financial statements
d) Valuation of assets
Answer: b) Authorization of significant transactions
Explanation: Board minutes often include approvals of major transactions, loans, or policies.
Q120. Which of the following is a limitation of internal control?
a) Management override
b) Timely preparation of reports
c) Proper segregation of duties
d) Effective monitoring
Answer: a) Management override
Explanation: Even the best controls can be bypassed by senior management, which is a key limitation.
Q121. Which assertion is primarily tested when an auditor confirms accounts receivable?
a) Completeness
b) Existence
c) Valuation
d) Rights and obligations
Answer: b) Existence
Explanation: Confirmations provide direct evidence from customers that receivables exist.
Q122. Which of the following is an example of control activity?
a) Monitoring operations
b) Segregation of duties
c) Tone at the top
d) Risk assessment
Answer: b) Segregation of duties
Explanation: Control activities are policies and procedures—like segregation of duties—designed to mitigate risks.
Q123. An auditor vouches entries in the sales journal to shipping documents. Which assertion is tested?
a) Existence/occurrence
b) Completeness
c) Valuation
d) Cutoff
Answer: a) Existence/occurrence
Explanation: Vouching checks that recorded sales actually occurred by tracing to supporting shipping documents.
Q124. Which of the following is a substantive audit procedure?
a) Test of controls
b) Analytical procedures
c) Walkthroughs
d) Reviewing policies
Answer: b) Analytical procedures
Explanation: Substantive procedures include tests of details and analytical procedures to detect misstatements.
Q125. When an auditor increases reliance on controls, what happens to detection risk?
a) It increases
b) It decreases
c) It remains the same
d) It becomes irrelevant
Answer: a) It increases
Explanation: More reliance on controls means less substantive testing, which raises detection risk.
Q126. Which of the following would be a material weakness in internal control?
a) Failure to reconcile accounts monthly
b) Lack of timely management review of reports
c) Absence of proper authorization for transactions
d) All of the above
Answer: d) All of the above
Explanation: Any of these deficiencies could allow a material misstatement, making them material weaknesses.
Q127. The auditor’s primary consideration when assessing internal controls is:
a) Efficiency of operations
b) Cost reduction opportunities
c) Effect on financial statement assertions
d) Compliance with tax laws
Answer: c) Effect on financial statement assertions
Explanation: Auditors focus on controls that prevent or detect misstatements in financial reporting.
Q128. Which of the following would most likely be considered fraud risk?
a) Unusual journal entries at year-end
b) Segregation of duties
c) Authorization of large purchases
d) Routine payroll processing
Answer: a) Unusual journal entries at year-end
Explanation: Late, unusual journal entries may indicate management override or fraud.
Q129. The auditor’s evaluation of misstatements involves considering:
a) Materiality in the context of financial statements as a whole
b) Immaterial individual errors only
c) Only qualitative factors
d) Only quantitative factors
Answer: a) Materiality in the context of financial statements as a whole
Explanation: Materiality judgments consider both quantitative and qualitative aspects across the entire financial picture.
Q130. Which of the following is a preventive control?
a) Bank reconciliation
b) Supervisory approval of purchase orders
c) Independent review of reports
d) Internal audit reviews
Answer: b) Supervisory approval of purchase orders
Explanation: Preventive controls stop errors or fraud before they occur, such as requiring prior authorization.
Q131. Tracing from source documents to the accounting records tests which assertion?
a) Existence
b) Completeness
c) Rights and obligations
d) Valuation
Answer: b) Completeness
Explanation: Tracing ensures that all valid transactions are recorded in the accounting records.
Q132. Which type of evidence provides the highest level of reliability?
a) Inquiry of management
b) Analytical procedures
c) External confirmations
d) Internal documentation
Answer: c) External confirmations
Explanation: Evidence obtained directly from independent third parties is most reliable.
Q133. An auditor’s decision to perform substantive procedures at year-end rather than interim is based on:
a) Audit staffing availability
b) Risk of material misstatement
c) Client preference
d) Cost-benefit considerations
Answer: b) Risk of material misstatement
Explanation: Higher risk requires year-end testing for greater assurance.
Q134. Which of the following factors would most likely increase control risk?
a) Strong segregation of duties
b) Lack of independent review of journal entries
c) Effective IT general controls
d) Frequent reconciliations
Answer: b) Lack of independent review of journal entries
Explanation: Without review, unauthorized or fraudulent entries may go undetected, increasing control risk.
Q135. Which of the following procedures is least likely to detect fraud?
a) Analytical procedures
b) Inquiry of employees
c) Confirmation of accounts receivable
d) Observation of inventory counts
Answer: b) Inquiry of employees
Explanation: Inquiries provide only verbal evidence and are less reliable in detecting fraud compared to confirmations or observations.
Q136. Which of the following is not a responsibility of the auditor under PCAOB standards?
a) Expressing an opinion on financial statements
b) Designing controls to prevent fraud
c) Evaluating internal control over financial reporting
d) Considering risk of material misstatement
Answer: b) Designing controls to prevent fraud
Explanation: Management, not auditors, is responsible for designing and implementing internal controls.
Q137. Which type of sampling is most commonly used for tests of controls?
a) Judgmental sampling
b) Attribute sampling
c) Discovery sampling
d) Variable sampling
Answer: b) Attribute sampling
Explanation: Attribute sampling is used to test whether controls are operating effectively.
Q138. Which situation represents a scope limitation?
a) Management refuses to allow confirmation of receivables
b) Auditor relies on third-party evidence
c) Audit staff lacks expertise
d) Client changes accounting policies
Answer: a) Management refuses to allow confirmation of receivables
Explanation: This prevents the auditor from obtaining sufficient appropriate evidence, leading to a scope limitation.
Q139. Which of the following would be considered a subsequent event?
a) Settlement of a lawsuit after year-end
b) Recording of depreciation expense
c) Payment of year-end bonuses
d) Amortization of prepaid insurance
Answer: a) Settlement of a lawsuit after year-end
Explanation: Events occurring after the balance sheet date but before report issuance that affect financial statements are subsequent events.
Q140. Which of the following would most likely require an auditor to issue an adverse opinion?
a) Inability to observe inventory
b) Material misstatement that is pervasive
c) Lack of independence
d) Going concern uncertainty
Answer: b) Material misstatement that is pervasive
Explanation: A pervasive material misstatement that affects financial statements as a whole leads to an adverse opinion.
Q141. Which of the following is an example of a test of details?
a) Comparing current ratios year over year
b) Sending confirmations to customers
c) Developing expectations of gross margin
d) Reviewing board minutes
Answer: b) Sending confirmations to customers
Explanation: Tests of details directly verify balances or transactions, such as receivables confirmations.
Q142. The primary responsibility for establishing and maintaining internal control rests with:
a) The auditor
b) The client’s management
c) Audit committee
d) External regulators
Answer: b) The client’s management
Explanation: Management designs, implements, and maintains internal control. Auditors only evaluate its effectiveness.
Q143. When an auditor uses analytical procedures as substantive tests, they are most effective when:
a) Predictable relationships exist
b) Data is unreliable
c) Industry is volatile
d) Client refuses detailed testing
Answer: a) Predictable relationships exist
Explanation: Analytical procedures work best when stable and predictable relationships are expected.
Q144. Which of the following would be most likely detected by a cutoff test?
a) Unrecorded liabilities
b) Payroll fraud
c) Overstated depreciation
d) Unauthorized journal entries
Answer: a) Unrecorded liabilities
Explanation: Cutoff tests check that transactions are recorded in the correct accounting period, helping detect unrecorded liabilities.
Q145. Which report is issued when financial statements are fairly presented, except for a specific material issue?
a) Unqualified opinion
b) Adverse opinion
c) Disclaimer of opinion
d) Qualified opinion
Answer: d) Qualified opinion
Explanation: A qualified opinion is issued when a material misstatement exists but is not pervasive.
Q146. Which of the following audit procedures provides evidence about valuation of accounts receivable?
a) Confirmations
b) Vouching sales invoices
c) Reviewing subsequent cash receipts
d) Observing inventory count
Answer: c) Reviewing subsequent cash receipts
Explanation: Cash receipts after year-end show whether receivables were collectible, supporting valuation.
Q147. The risk that an auditor will not detect a material misstatement is called:
a) Inherent risk
b) Control risk
c) Detection risk
d) Audit risk
Answer: c) Detection risk
Explanation: Detection risk is the risk that audit procedures fail to detect a misstatement.
Q148. Which of the following is a general standard under GAAS?
a) Adequate planning and supervision
b) Proper study of internal control
c) Sufficient appropriate audit evidence
d) Opinion on financial statements
Answer: a) Adequate planning and supervision
Explanation: General standards include competence, independence, and proper planning/supervision.
Q149. Which of the following situations requires an auditor to express a disclaimer of opinion?
a) Scope limitation due to client’s refusal to allow access to records
b) Material departure from GAAP
c) Pervasive misstatement
d) Lack of going concern disclosures
Answer: a) Scope limitation due to client’s refusal to allow access to records
Explanation: If the auditor cannot obtain sufficient evidence, a disclaimer of opinion is required.
Q150. Which of the following is not a component of the audit risk model?
a) Control risk
b) Detection risk
c) Analytical risk
d) Inherent risk
Answer: c) Analytical risk
Explanation: Audit risk model = Inherent Risk × Control Risk × Detection Risk. Analytical risk is not a component.
👉 Next, check out:
- CPA AUD Batch 1
- CPA AUD Batch 2
- CPA AUD Batch 4
- CPA FAR (Financial Accounting & Reporting)
- CPA REG (Regulation) MCQs
This concludes CPA AUD Part 3 (MCQs 101–150). By mastering these practice questions, you are building a strong foundation for your CPA Auditing & Attestation exam success. Continue to the next set for more challenging scenarios and exam-style questions. Bookmark this page and share it with fellow CPA candidates to stay ahead in your preparation.