Preparing for the CPA AUD (Auditing & Attestation) section requires not just memorization but also deep conceptual clarity. In this Part 4 (MCQs 151–200) set, we provide 50 carefully selected practice questions with detailed explanations. These questions cover audit risk, internal controls, reporting issues, evidence reliability, and opinion formation—topics frequently tested on the actual CPA exam.
📘 CPA AUD Part 4 (MCQs 151–160)
Q151. Which of the following procedures is most appropriate to test the existence of inventory?
a) Reviewing vendor invoices
b) Observing physical inventory count
c) Analyzing gross margin trends
d) Confirming with suppliers
Answer: b) Observing physical inventory count
Explanation: Existence of inventory is best verified by physically observing and counting stock.
Q152. An auditor assesses control risk too low when:
a) Controls are effective but assessed as weak
b) Controls are weak but assessed as strong
c) Audit procedures are expanded unnecessarily
d) Audit risk is eliminated
Answer: b) Controls are weak but assessed as strong
Explanation: This leads to less substantive testing, increasing the chance of missing misstatements.
Q153. Which of the following is an example of management assertion related to completeness?
a) All transactions are recorded
b) Assets exist
c) Balances are valued properly
d) Rights and obligations are correctly disclosed
Answer: a) All transactions are recorded
Explanation: Completeness refers to ensuring that nothing material has been omitted.
Q154. When an auditor reviews debt agreements for restrictive covenants, they are primarily concerned with:
a) Classification
b) Completeness
c) Valuation
d) Existence
Answer: a) Classification
Explanation: Restrictive covenants determine how debt should be classified (e.g., current vs. long-term).
Q155. Which audit procedure provides the most reliable evidence?
a) Analytical procedures
b) Inquiry of management
c) External confirmations
d) Observation of procedures
Answer: c) External confirmations
Explanation: Confirmations obtained directly from third parties are highly reliable.
Q156. An auditor tests sales cutoff at year-end primarily to obtain evidence about:
a) Existence of receivables
b) Completeness of sales
c) Valuation of receivables
d) Classification of liabilities
Answer: b) Completeness of sales
Explanation: Cutoff testing ensures transactions are recorded in the correct period, preventing omission.
Q157. Which of the following would be considered a significant deficiency in internal control?
a) Lack of segregation of duties
b) A small clerical error corrected by staff
c) Delay in preparing bank reconciliations for one month
d) Management override of petty cash procedures
Answer: a) Lack of segregation of duties
Explanation: This is a significant deficiency as it creates risk of fraud/error.
Q158. Which standard requires auditors to communicate significant deficiencies to those charged with governance?
a) PCAOB AS 5
b) AU-C 265
c) GAAP
d) GAAS General Standard
Answer: b) AU-C 265
Explanation: AU-C 265 requires communication of significant deficiencies and material weaknesses.
Q159. Which of the following is an example of substantive testing?
a) Testing approval signatures on purchase orders
b) Reviewing authorization controls
c) Confirming receivables with customers
d) Inspecting segregation of duties
Answer: c) Confirming receivables with customers
Explanation: Substantive tests verify balances and transactions directly.
Q160. Which of the following factors would most likely heighten an auditor’s professional skepticism?
a) Stable financial trends
b) High turnover of senior management
c) Strong internal controls
d) Clean prior audit reports
Answer: b) High turnover of senior management
Explanation: Frequent management changes increase fraud risk and demand skepticism.
Q161. Which of the following is a management assertion tested when an auditor confirms accounts receivable?
a) Valuation
b) Existence
c) Completeness
d) Rights and obligations
Answer: b) Existence
Explanation: Confirmations verify that receivables actually exist and are owed by customers.
Q162. An auditor uses a positive confirmation request. This means:
a) The customer only responds if they disagree with the balance
b) The customer must always reply, whether they agree or not
c) The auditor does not expect a reply
d) It is used only for immaterial accounts
Answer: b) The customer must always reply, whether they agree or not
Explanation: Positive confirmations require explicit responses, making them more reliable.
Q163. Which audit evidence is least reliable?
a) Written confirmation from a bank
b) Auditor’s observation
c) Oral representation from management
d) Inspecting physical assets
Answer: c) Oral representation from management
Explanation: Oral statements are the least reliable without corroboration.
Q164. The risk of incorrect acceptance in sampling relates to:
a) Detection risk
b) Inherent risk
c) Control risk
d) Audit risk
Answer: a) Detection risk
Explanation: It means the auditor may accept an incorrect balance as fairly stated.
Q165. Which of the following is considered a dual-purpose test?
a) Confirming receivables
b) Testing approvals on purchase orders
c) Observing physical inventory
d) Performing bank reconciliation
Answer: b) Testing approvals on purchase orders
Explanation: It tests both controls (approval process) and substantive evidence (validity of transactions).
Q166. Which of the following would be considered a material weakness in internal control?
a) Failure to reconcile petty cash monthly
b) Missing pre-numbered purchase orders
c) Significant deficiency uncorrected over time
d) Management override of controls
Answer: d) Management override of controls
Explanation: Override of controls is a direct material weakness.
Q167. When evaluating going concern, auditors primarily assess:
a) Management’s business strategy
b) Events and conditions raising doubt about survival
c) The entity’s tax obligations
d) Past audit results
Answer: b) Events and conditions raising doubt about survival
Explanation: Going concern evaluation focuses on financial viability.
Q168. Which type of opinion is issued when misstatements are material but not pervasive?
a) Adverse opinion
b) Disclaimer of opinion
c) Qualified opinion
d) Unmodified opinion
Answer: c) Qualified opinion
Explanation: A qualified opinion is given when issues are material but confined.
Q169. Which of the following procedures is most effective in detecting kiting?
a) Bank confirmation
b) Cutoff bank statement review
c) Cash flow analysis
d) Analytical procedures
Answer: b) Cutoff bank statement review
Explanation: Reviewing transactions around year-end helps detect kiting schemes.
Q170. Which standard requires auditors to assess fraud risk?
a) AU-C 240
b) AU-C 315
c) PCAOB AS 2201
d) GAAP
Answer: a) AU-C 240
Explanation: AU-C 240 specifically addresses the auditor’s responsibility for fraud risk assessment.
Q171. The primary purpose of analytical procedures during planning is to:
a) Identify audit report wording
b) Assess risk areas and unusual trends
c) Replace substantive testing
d) Conclude on going concern
Answer: b) Assess risk areas and unusual trends
Explanation: Planning analytics help focus audit efforts.
Q172. When evaluating internal control, an auditor is required to:
a) Issue an opinion on effectiveness
b) Document understanding of controls
c) Eliminate substantive testing
d) Test 100% of transactions
Answer: b) Document understanding of controls
Explanation: Auditors must document their understanding to support risk assessments.
Q173. Which is an example of a detection risk control?
a) Proper segregation of duties
b) Auditor’s substantive procedures
c) Management’s oversight
d) Preventive controls
Answer: b) Auditor’s substantive procedures
Explanation: Detection risk relates to audit procedures failing to detect misstatements.
Q174. Which of the following audit procedures tests rights and obligations?
a) Inspecting loan agreements
b) Confirming receivables
c) Reperforming depreciation
d) Physical inspection of assets
Answer: a) Inspecting loan agreements
Explanation: This verifies whether the entity truly owns the rights or owes obligations.
Q175. Which is most likely to be considered a significant risk?
a) Revenue recognition
b) Payroll accruals
c) Depreciation
d) Routine purchases
Answer: a) Revenue recognition
Explanation: Revenue recognition is inherently risky due to manipulation potential.
Q176. Which of the following audit procedures provides evidence about valuation of accounts receivable?
a) Confirmations
b) Reviewing subsequent collections
c) Inspecting invoices
d) Testing cutoff
Answer: b) Reviewing subsequent collections
Explanation: If receivables are later collected, it supports valuation.
Q177. When issuing an adverse opinion, the auditor states that:
a) Financial statements are fairly stated
b) Misstatements are immaterial
c) Misstatements are pervasive and material
d) The auditor could not obtain sufficient evidence
Answer: c) Misstatements are pervasive and material
Explanation: An adverse opinion means statements are not fairly presented.
Q178. Which type of evidence is considered the most persuasive?
a) Internally generated reports
b) External confirmations
c) Management inquiries
d) Auditor recalculations
Answer: b) External confirmations
Explanation: Direct evidence from third parties is the strongest form of evidence.
Q179. The primary responsibility for preventing fraud rests with:
a) External auditor
b) Internal audit function
c) Management
d) Audit committee
Answer: c) Management
Explanation: Management is responsible for designing effective controls to prevent fraud.
Q180. Which of the following would most likely result in an emphasis-of-matter paragraph?
a) Departure from GAAP
b) Significant subsequent event
c) Scope limitation
d) Misstatement of inventory
Answer: b) Significant subsequent event
Explanation: Important events disclosed in the notes often require emphasis-of-matter.
Q181. Which of the following is a substantive test of details?
a) Observing inventory count
b) Recomputing depreciation expense
c) Reviewing control environment
d) Inquiry of management
Answer: b) Recomputing depreciation expense
Explanation: Substantive details verify balances/transactions directly.
Q182. Which audit procedure would be most useful in testing completeness of liabilities?
a) Bank confirmation
b) Searching for unrecorded liabilities
c) Vouching invoices to ledger
d) Reviewing board minutes
Answer: b) Searching for unrecorded liabilities
Explanation: Ensures all obligations are recorded.
Q183. Which of the following increases detection risk?
a) Larger sample sizes
b) Ineffective audit procedures
c) More experienced staff
d) Stronger controls
Answer: b) Ineffective audit procedures
Explanation: Poor procedures increase risk that misstatements go undetected.
Q184. Which of the following statements is true regarding audit risk?
a) Audit risk can be eliminated
b) Audit risk can be reduced to 0%
c) Audit risk can only be reduced, not eliminated
d) Audit risk is irrelevant to materiality
Answer: c) Audit risk can only be reduced, not eliminated
Explanation: Auditing is based on reasonable, not absolute, assurance.
Q185. When an auditor re-performs a control, the purpose is to:
a) Confirm financial statement balances
b) Test operating effectiveness of control
c) Eliminate need for substantive testing
d) Reduce inherent risk
Answer: b) Test operating effectiveness of control
Explanation: Re-performance directly evaluates control function.
Q186. An auditor is least likely to rely on which type of evidence?
a) Physical inspection
b) External confirmations
c) Oral inquiries
d) Recalculation
Answer: c) Oral inquiries
Explanation: Inquiry alone is weak evidence.
Q187. Which of the following would cause an auditor to issue a disclaimer of opinion?
a) Material departure from GAAP
b) Scope limitation
c) Pervasive misstatement
d) Going concern uncertainty
Answer: b) Scope limitation
Explanation: Lack of sufficient evidence leads to disclaimer.
Q188. Which type of sampling risk relates to concluding controls are effective when they are not?
a) Risk of under-reliance
b) Risk of incorrect rejection
c) Risk of incorrect acceptance
d) Risk of over-reliance
Answer: d) Risk of over-reliance
Explanation: Leads to overestimating control effectiveness.
Q189. Which report is issued on internal control over financial reporting for public companies?
a) Compilation report
b) Agreed-upon procedures report
c) PCAOB AS 2201 opinion
d) SSAE 18 report
Answer: c) PCAOB AS 2201 opinion
Explanation: Public companies require integrated audit under PCAOB AS 2201.
Q190. Which audit procedure best tests the cutoff assertion for sales?
a) Confirming accounts receivable
b) Tracing shipping documents to sales invoices
c) Reviewing aged receivables
d) Analytical review of gross margin
Answer: b) Tracing shipping documents to sales invoices
Explanation: Ensures sales are recorded in the correct period.
Q191. Which of the following is an inherent limitation of internal control?
a) Management override
b) Documentation of policies
c) Preventive controls
d) Segregation of duties
Answer: a) Management override
Explanation: Override can defeat even strong controls.
Q192. When an auditor evaluates whether accounting principles are appropriate, the focus is on:
a) GAAP compliance
b) Internal control policies
c) Detection risk
d) Audit procedures
Answer: a) GAAP compliance
Explanation: Appropriateness means conformity with GAAP/IFRS.
Q193. Which of the following is most relevant for related-party transactions?
a) Substantive analytical procedures
b) Examining board minutes and disclosures
c) Confirming bank balances
d) Observing inventory
Answer: b) Examining board minutes and disclosures
Explanation: Governance documents often reveal related-party dealings.
Q194. Which type of evidence provides the highest level of reliability?
a) Auditor’s recalculation
b) External confirmation
c) Oral inquiry
d) Internal memos
Answer: b) External confirmation
Explanation: Independent third-party evidence is most reliable.
Q195. Which of the following matters should always be communicated to those charged with governance?
a) Management override of controls
b) Minor clerical errors
c) Inherent risk levels
d) Sampling risk estimates
Answer: a) Management override of controls
Explanation: Significant deficiencies/material weaknesses must be communicated.
Q196. Which of the following best illustrates sampling risk?
a) The sample supports a balance that is actually misstated
b) A control operates effectively but is not documented
c) Analytical review identifies unusual variances
d) Auditor increases sample size
Answer: a) The sample supports a balance that is actually misstated
Explanation: Sampling risk arises when conclusions from the sample differ from the population.
Q197. Which audit procedure addresses presentation and disclosure assertions?
a) Reviewing footnotes to financial statements
b) Confirming receivables
c) Physical inventory observation
d) Cutoff testing
Answer: a) Reviewing footnotes to financial statements
Explanation: Disclosures relate to completeness, accuracy, and clarity in notes.
Q198. An auditor finds management refused to provide a written representation letter. The auditor should:
a) Issue an unmodified opinion
b) Perform additional substantive tests only
c) Consider it a scope limitation and disclaim opinion
d) Rely on oral representations
Answer: c) Consider it a scope limitation and disclaim opinion
Explanation: A signed rep letter is required evidence.
Q199. Which of the following procedures best tests valuation of inventory?
a) Confirming with suppliers
b) Testing standard cost buildup and price tests
c) Observing physical count
d) Analytical review of gross margin
Answer: b) Testing standard cost buildup and price tests
Explanation: Valuation is confirmed through cost analysis.
Q200. The final step in forming an audit opinion is to:
a) Perform additional procedures
b) Review subsequent events
c) Evaluate sufficiency and appropriateness of evidence
d) Communicate findings to regulators
Answer: c) Evaluate sufficiency and appropriateness of evidence
Explanation: The auditor concludes if enough evidence supports the opinion.
This completes CPA AUD MCQs Part 4 (151–200) with comprehensive answers and explanations. Together with Parts 1, 2, and 3, you now have access to a complete set of 200+ practice questions tailored for the CPA AUD section.
👉 Next, check out:
- CPA AUD Batch 1
- CPA AUD Batch 2
- CPA AUD Batch 3
- CPA FAR (Financial Accounting & Reporting)
- CPA REG (Regulation) MCQs
Keep revising these questions, and don’t forget to practice full-length mock exams for better time management. For more CPA exam preparation (FAR, REG, and ISC sections), stay connected—we regularly publish updated and exam-relevant MCQs to ensure your success.