Preparing for the CPA AUD exam requires more than multiple-choice practice. Task-Based Simulations (TBS) mirror the real exam format, where you solve practical, scenario-driven audit problems. In this post, we cover CPA AUD TBS Part 1 (1–10) with detailed solutions to help you build exam confidence.
TBS 1: Audit Report Modifications
Case: An auditor discovers a material misstatement that management refuses to correct. The misstatement does not pervasively affect the financial statements.
Task: Identify the correct type of audit opinion to issue and draft the key explanatory paragraph.
✅ Answer:
- Opinion: Qualified Opinion (due to material but not pervasive misstatement).
- Explanatory paragraph: “Except for the effects of the misstatement described in the Basis for Qualified Opinion paragraph, the financial statements present fairly…”
Explanation: A qualified opinion is used when a material misstatement exists, but the overall financials are not misleading.
TBS 2: Internal Control Deficiency
Case: In a client’s payroll system, the same employee both prepares timesheets and approves payments.
Task: Identify the control deficiency and suggest a corrective action.
✅ Answer:
- Deficiency: Lack of segregation of duties (authorization and record-keeping in one person).
- Fix: Assign timesheet preparation to HR and payment approval to finance.
TBS 3: Sampling – Attribute Testing
Case: An auditor tests 60 invoices and finds 3 with errors.
Task: Calculate the sample error rate and project it to a population of 1,200 invoices.
✅ Answer:
- Sample error rate = 3/60 = 5%.
- Projected error = 1,200 × 5% = 60 invoices likely misstated.
TBS 4: Audit Evidence Evaluation
Case: A client provides internally generated sales reports without supporting documentation.
Task: Assess reliability of evidence and what the auditor should do.
✅ Answer:
- Reliability: Low (internally generated, no external support).
- Auditor should obtain external confirmations or supporting documentation.
TBS 5: Risk Assessment
Case: A new IT system has frequent downtime, delaying transaction recording.
Task: Identify the risk and its audit implication.
✅ Answer:
- Risk: Increased risk of incomplete or inaccurate recording of transactions.
- Audit Implication: Auditor should expand substantive testing and evaluate IT controls.
TBS 6: Audit Procedures – Inventory
Case: Inventory count shows differences between system records and physical stock.
Task: State two audit procedures to resolve this.
✅ Answer:
- Perform cut-off testing for purchases/sales.
- Trace sample items from physical count to system records.
TBS 7: Related Party Transactions
Case: Company gives a loan to its CEO without board approval.
Task: Identify the reporting requirement.
✅ Answer:
- Auditor must disclose related party transactions in audit report if material and not properly approved.
TBS 8: Subsequent Events
Case: A client’s warehouse burns down after year-end but before audit report date.
Task: State audit treatment.
✅ Answer:
- Event: Type II subsequent event (no effect on year-end F/S).
- Auditor should disclose in notes if material.
TBS 9: Audit Documentation
Case: Audit file lacks evidence of supervisory review of working papers.
Task: State why this is a deficiency.
✅ Answer:
- Missing review violates audit documentation standards (PCAOB/ISA 230).
- Increases audit risk due to unchecked errors.
TBS 10: Ethics – Independence
Case: Audit manager owns $5,000 stock in the audit client.
Task: State the ethical issue and consequence.
✅ Answer:
- Issue: Independence impaired (financial interest).
- Consequence: Auditor cannot issue opinion → must withdraw.
This completes CPA AUD Task-Based Simulations Part 1. Review each case carefully, as these scenarios reflect actual exam challenges. Up next: Part 2 (11–20) with more practice problems and real-world applications.
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