Welcome to CPA AUD TBS Part 2 (11–20). These practice simulations focus on real-world auditing scenarios including revenue recognition, going concern, sampling, fraud risk, and compliance with laws. Each simulation includes step-by-step solutions designed to strengthen your exam performance.Outro (for post):
TBS 11: Going Concern Evaluation
Case: Client has recurring operating losses and negative cash flows.
Task: What should the auditor do and how should it be reflected in the audit report?
✅ Answer:
- Auditor should evaluate management’s plans for future viability.
- If substantial doubt remains → include an Emphasis-of-Matter paragraph about going concern.
TBS 12: Revenue Recognition
Case: A company records revenue when a purchase order is received, but shipment occurs a month later.
Task: Identify the misstatement and correct treatment.
✅ Answer:
- Misstatement: Premature revenue recognition (before performance obligation is satisfied).
- Correct: Revenue should be recognized when goods are shipped/delivered.
TBS 13: Confirmation Procedures
Case: Client refuses to allow the auditor to send accounts receivable confirmations.
Task: State the auditor’s next step.
✅ Answer:
- Treat as scope limitation.
- Apply alternative procedures (review cash receipts, shipping docs).
- If not sufficient → issue qualified opinion or disclaimer.
TBS 14: Fraud Risk
Case: CFO pressures staff to “adjust” numbers to meet analyst forecasts.
Task: Identify red flag and auditor’s responsibility.
✅ Answer:
- Red flag: Management override of controls.
- Auditor must expand fraud testing, increase professional skepticism, and report to governance.
TBS 15: Audit Sampling – Monetary Unit
Case: Population = $500,000, sample size = 50, misstatement found = $5,000.
Task: Estimate projected misstatement.
✅ Answer:
- Misstatement rate = $5,000 ÷ $50,000 tested = 10%.
- Projected misstatement = 10% × $500,000 = $50,000.
TBS 16: Audit Assertions
Case: Auditor checks if recorded sales actually occurred.
Task: Which assertion is tested?
✅ Answer:
- Assertion: Occurrence.
- Ensures transactions are real and valid.
TBS 17: Inventory Valuation
Case: Market value of inventory < cost. Client records at cost.
Task: State correct GAAP treatment.
✅ Answer:
- Inventory should be valued at lower of cost or net realizable value (LCNRV).
- Misstatement = overstated assets.
TBS 18: Management Representation Letter
Case: Management refuses to sign the representation letter.
Task: What should the auditor do?
✅ Answer:
- Refusal = scope limitation.
- Auditor must disclaim opinion or withdraw from engagement.
TBS 19: Audit Planning
Case: Auditor identifies high inherent risk in revenue transactions.
Task: How should audit planning be adjusted?
✅ Answer:
- Increase sample sizes, perform more substantive testing, and focus on cutoff and occurrence.
TBS 20: Compliance with Laws & Regulations
Case: Client violated environmental regulations, possible heavy fines.
Task: How should the auditor address this?
✅ Answer:
- Discuss with management and legal counsel.
- If material, disclose in notes and consider effect on audit opinion.
That wraps up CPA AUD Task-Based Simulations Part 2. By practicing these simulations, you’re improving your ability to tackle real exam scenarios. Next, we’ll move into Part 3 (21–30) for more advanced CPA AUD cases.
Previous Part: CPA AUD TBS Part 1
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