Preparing for the CPA AUD exam requires more than just memorizing MCQs—it demands practice with real exam-style Task-Based Simulations (TBSs). In this post, we bring you Part 3 (Questions 21–30) of our CPA AUD TBS series. These scenarios cover crucial audit areas including revenue recognition, internal controls, going concern, subsequent events, and audit evidence reliability. Each simulation is designed with step-by-step answers and explanations to help you master the skills examiners look for. Whether you are sitting in the US, Canada, or internationally, this resource will strengthen your preparation with plagiarism-free, authoritative, and exam-relevant content.
📘 CPA AUD Task-Based Simulations (TBS) – Part 3 (21–30)
TBS 21 – Revenue Recognition (ASC 606)
Scenario:
An audit client, BrightCo, recognizes revenue when goods are shipped. However, the audit team discovers several December sales where products were shipped on January 3rd but recorded as December revenue.
Task:
Identify the audit issue and suggest the correct adjustment.
Answer & Explanation:
This is a cutoff error. Revenue should be recognized when control transfers (January 3rd). The auditor should propose an adjusting entry reducing December revenue and receivables. This ensures compliance with ASC 606.
TBS 22 – Internal Control Deficiency
Scenario:
During walkthroughs, the auditor notes that the same person at a small company authorizes, records, and reconciles vendor payments.
Task:
Classify the control deficiency and recommend improvements.
Answer & Explanation:
This is a material weakness because of lack of segregation of duties. Recommendation: assign separate staff to authorization, recording, and reconciliation or implement mitigating controls (e.g., independent review by management).
TBS 23 – Audit Sampling Risk
Scenario:
The auditor tests 50 invoices for existence. No errors are found. However, the population contains 5,000 invoices.
Task:
What risk still exists, and how can it be mitigated?
Answer & Explanation:
Sampling risk – the sample may not represent the population. Mitigation: increase sample size, use statistical sampling, and evaluate tolerable misstatement relative to materiality.
TBS 24 – Going Concern Evaluation
Scenario:
XYZ Corp has recurring losses and negative operating cash flows. Management has disclosed plans for new financing but documentation is limited.
Task:
What is the auditor’s responsibility?
Answer & Explanation:
The auditor must evaluate whether substantial doubt exists about going concern for 12 months after issuance. If adequate disclosure is included, the opinion should be unmodified with an emphasis-of-matter paragraph.
TBS 25 – Fraud Risk (Revenue)
Scenario:
Management provides aggressive revenue targets. The auditor notices round-dollar sales entries at year-end.
Task:
How should the auditor respond?
Answer & Explanation:
This is a fraud risk indicator. The auditor should perform extended cut-off testing, substantive analytics, and journal entry testing at year-end. Professional skepticism must be maintained.
TBS 26 – Related Party Transactions
Scenario:
A company leases a warehouse from a board member’s relative. The lease terms are below market rate.
Task:
What audit procedure should be performed?
Answer & Explanation:
The auditor should obtain board minutes, confirm relationship, and ensure full disclosure in financial statements. Related party transactions require special scrutiny and proper disclosure under GAAP.
TBS 27 – Contingent Liabilities
Scenario:
ABC Corp is facing litigation, and legal counsel indicates a probable loss of $2M. No accrual is made.
Task:
How should the auditor address this?
Answer & Explanation:
If the loss is probable and estimable, the auditor should recommend accrual of $2M and disclosure. Failure to accrue could result in a qualified or adverse opinion.
TBS 28 – Audit Report Modification
Scenario:
The auditor could not obtain sufficient evidence for inventory valuation due to destroyed records.
Task:
What type of audit opinion is appropriate?
Answer & Explanation:
This is a scope limitation. If material but not pervasive → qualified opinion. If pervasive → disclaimer of opinion.
TBS 29 – Subsequent Events
Scenario:
On January 15, after year-end, a major customer of the client declares bankruptcy due to conditions existing at year-end.
Task:
What is the auditor’s responsibility?
Answer & Explanation:
This is a Type I subsequent event. The auditor should ensure adjustment of receivables at year-end to reflect probable loss.
TBS 30 – Audit Evidence Reliability
Scenario:
The auditor receives a verbal confirmation from management about pending contracts but no written documentation.
Task:
Assess the reliability of this evidence.
Answer & Explanation:
Verbal client representations are least reliable. The auditor should obtain written confirmation or corroborative evidence from third parties. Reliance only on management representation is insufficient.
With CPA AUD Task-Based Simulations Part 3 (21–30) completed, you now have more tools to sharpen your audit problem-solving skills. Each scenario reflects the depth of analysis required in the real CPA exam. Continue with Part 4 (Questions 31–40) to complete this section and solidify your readiness. Explore our full CPA Exam Portal for AUD, FAR, REG, and Discipline sections, all built to provide unique, trustworthy, and exam-focused content that helps you achieve success.
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