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AICPA CPA-Auditing Exam
CPA Auditing and Attestation (AUD) (Page 27 )

Updated On: 12-Feb-2026
Page 27 of 207
PDF with 1026 Questions

Which of the following best describes what is meant by the term generally accepted auditing standards?

  1. Rules acknowledged by the accounting profession because of their universal application.
  2. Pronouncements issued by the Auditing Standards Board.
  3. Measures of the quality of the auditor's performance.
  4. Procedures to be used to gather evidence to support financial statements.

Answer(s): C

Explanation:

Choice "c" is correct. Generally accepted auditing standards ("GAAS") are measures of the quality of the auditor's performance.
Choice "a" is incorrect. GAAS are not "rules," nor are they universally applicable. GAAS are measures of the quality of an auditor's performance.
Choice "b" is incorrect. The Auditing Standards Board (ASB) issues many types of pronouncements, including (but not limited to) "Statements on Auditing Standards" (SASs).
While SASs are considered to be interpretations of GAAS, not all ASB pronouncements relate to audits. Therefore, just because something is issued by the ASB does not make it GAAS.
Choice "d" is incorrect. Auditing standards differ from auditing procedures in that procedures relate to acts to be performed, whereas standards deal with the quality of the performance of those acts.



According to the profession's ethical standards, which of the following events may justify a departure from a Statement of Financial Accounting Standards?

  1. Option A
  2. Option B
  3. Option C
  4. Option D

Answer(s): C

Explanation:

Choice "c" is correct. Yes - Yes. Rule 203 of the code of professional conduct of the AICPA states that if the financial statements or data contain a GAAP departure, the departure may be justified if the CPA can demonstrate that due to unusual circumstances, such as new legislation or the evolution of a new form of business transaction, the FS would otherwise be misleading. Under these circumstances, the auditor's report should describe the departure, its approximate effects, if practicable, and the reasons why compliance with the generally accepted principle would result in a misleading statement.

Choices "a", "b", and "d" are incorrect, per the above Explanation.



Which of the following conditions or events most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern?

  1. Cash flows from operating activities are negative.
  2. Research and development projects are postponed.
  3. Significant related party transactions are pervasive.
  4. Stock dividends replace annual cash dividends.

Answer(s): A

Explanation:

Choice "a" is correct. Negative cash flows from operating activities most likely would cause an auditor to have substantial doubt about an entity's ability to continue as a going concern. Choices "b" and "d" are incorrect. Plans to reduce or delay cash expenditures are mitigating factors conserving cash (e.g., postponing R&D projects and replacing cash dividends with stock dividends). This would not ordinarily cause an auditor to have substantial doubt about an entity's ability to continue as a going concern.
Choice "c" is incorrect. The existence of significant related party transactions should be disclosed but would not ordinarily cause an auditor to have substantial doubt about an entity's ability to continue as a going concern.



For an entity that does not receive governmental financial assistance, an auditor's standard report on financial statements generally would not refer to:

  1. Significant estimates made by management.
  2. An assessment of the entity's accounting principles.
  3. Management's responsibility for the financial statements.
  4. The entity's internal control.

Answer(s): D

Explanation:

Choice "d" is correct. The auditor's standard report generally does not make reference to the entity's internal control. Note that for an entity that does receive governmental financial assistance, a written report on internal control is required. Also, note that an auditor may (but is not required to) expand his or her audit report to clarify that a GAAS audit does not require the level of testing and reporting on internal control that is required for issuers. Choices "a" and "b" are incorrect. The scope paragraph states that, "an audit also includes assessing the accounting principles used and significant estimates made by management." Choice "c" is incorrect. The introductory paragraph states that the "financial statements are the responsibility of the company's management."



Which of the following procedures should an auditor generally perform regarding subsequent events?

  1. Compare the latest available interim financial statements with the financial statements being audited.
  2. Send second requests to the client's customers who failed to respond to initial accounts receivable confirmation requests.
  3. Communicate material weaknesses in the internal control structure to those charged with governance.
  4. Review the cut-off bank statements for several months after the year-end.

Answer(s): A

Explanation:

Choice "a" is correct.
When performing procedures regarding subsequent events, the auditor generally will compare the latest available interim financial statements with the financial statements being audited to determine if any significant subsequent event occurred that would need to be reflected in the statements being audited.
Choice "b" is incorrect. Sending second requests to the client's customers who failed to respond to initial A/R confirmation requests is a substantive procedure that provides evidence about receivables existing at year end, not about subsequent events.
Choice "c" is incorrect. Internal control weaknesses should be communicated to those charged with governance, but this communication provides no evidence about subsequent events. Choice "d" is incorrect. Bank cut-off statements generally are reviewed for only a week to ten days subsequent to year-end. Reviewing them for a longer period such as "several months" would provide little additional audit evidence regarding the YE FS and thus would not be a cost beneficial procedure.






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