CBS Auditing Principles & Procedures 2 — Questions and Answers
Question 1: Which type of audit opinion is issued when financial statements contain a material misstatement that is pervasive to the statements as a whole?
- Qualified opinion
- Adverse opinion (Correct answer)
- Disclaimer of opinion
- Unmodified opinion
Correct answer: Adverse opinion
An adverse opinion is issued when misstatements are both material and pervasive, meaning they affect the financial statements as a whole.
Question 2: The concept of 'professional skepticism' in auditing requires auditors to:
- Assume all management assertions are false
- Question everything without any basis
- Maintain a questioning mind and critically assess evidence (Correct answer)
- Accept client explanations without verification
Correct answer: Maintain a questioning mind and critically assess evidence
Professional skepticism means maintaining a questioning mind and critically assessing audit evidence rather than blindly accepting management representations.
Question 3: In budget auditing, a 'variance analysis' primarily compares:
- Actual results against prior-year actuals only
- Budgeted amounts against actual expenditures (Correct answer)
- Departmental budgets against industry benchmarks
- Revenue projections against capital expenditures
Correct answer: Budgeted amounts against actual expenditures
Variance analysis compares budgeted (planned) amounts against actual expenditures to identify deviations that require explanation.
Question 4: Which audit procedure involves independently confirming balances or transactions directly with third parties?
- Inspection
- Observation
- Confirmation (Correct answer)
- Recalculation
Correct answer: Confirmation
Confirmation involves obtaining representations from independent third parties (e.g., banks, customers) to verify account balances or transactions.
Question 5: A government budget audit that evaluates whether programs achieved their intended outcomes is called a:
- Compliance audit
- Financial statement audit
- Performance audit (Correct answer)
- Forensic audit
Correct answer: Performance audit
A performance audit (also called a program audit) assesses economy, efficiency, and effectiveness—including whether programs met their goals.
Question 6: The 'single audit' requirement under the Uniform Guidance applies to entities that expend federal awards of at least:
- $250,000 in a fiscal year
- $500,000 in a fiscal year
- $750,000 in a fiscal year (Correct answer)
- $1,000,000 in a fiscal year
Correct answer: $750,000 in a fiscal year
Under 2 CFR Part 200 (Uniform Guidance), a single audit is required when a non-federal entity expends $750,000 or more of federal awards in a fiscal year.
Question 7: When an auditor identifies a significant deficiency in internal controls, they must communicate this finding to:
- External regulators only
- Those charged with governance in writing (Correct answer)
- The general public via press release
- No one if it is remediated before year-end
Correct answer: Those charged with governance in writing
Significant deficiencies must be communicated in writing to those charged with governance (e.g., the audit committee or board).
CBS Auditing Principles & Procedures 2
Which type of audit opinion is issued when financial statements contain a material misstatement that is pervasive to the statements as a whole?