CPA Auditing & Assurance Services 2 — Questions and Answers
Question 1: Which sampling method gives every item in the population an equal and nonzero chance of selection?
- Systematic sampling
- Haphazard sampling
- Simple random sampling (Correct answer)
- Stratified sampling
Correct answer: Simple random sampling
Simple random sampling ensures each item has an equal and nonzero probability of being selected, satisfying statistical sampling requirements.
Question 2: An auditor discovers a material weakness in internal control over financial reporting. What must the auditor do?
- Issue a qualified audit opinion immediately
- Communicate the weakness in writing to management and those charged with governance (Correct answer)
- Withdraw from the engagement
- Report directly to the SEC without notifying management
Correct answer: Communicate the weakness in writing to management and those charged with governance
Under AU-C 265, auditors must communicate material weaknesses in writing to management and those charged with governance.
Question 3: What is the primary purpose of an engagement letter in an audit?
- To confirm the audit fee schedule
- To establish the terms and conditions of the audit engagement (Correct answer)
- To document the auditor's independence
- To summarize audit findings for management
Correct answer: To establish the terms and conditions of the audit engagement
An engagement letter establishes the agreed-upon terms of the audit, including the objective, scope, and responsibilities of each party.
Question 4: When testing controls, an auditor finds 3 deviations in a sample of 60 items. The tolerable deviation rate is 5%. What should the auditor conclude?
- Controls are effective because 3 deviations is acceptable
- Rely on controls since the sample deviation rate is below the tolerable rate
- The controls may not be effective; consider increasing substantive testing (Correct answer)
- No further action is needed
Correct answer: The controls may not be effective; consider increasing substantive testing
A 5% sample deviation rate (3/60) equals the tolerable rate, and considering sampling risk, the auditor should increase substantive testing.
Question 5: Which of the following best describes 'professional skepticism' as required by auditing standards?
- Assuming all management representations are false
- Questioning all audit evidence regardless of source
- A questioning mind and critical assessment of audit evidence (Correct answer)
- Refusing to rely on any internal controls
Correct answer: A questioning mind and critical assessment of audit evidence
Professional skepticism involves a questioning mind and critical assessment of evidence, neither assuming dishonesty nor unquestioned acceptance of management claims.
Question 6: Under PCAOB standards, how often must auditors of public companies rotate the lead engagement partner?
- Every 3 years
- Every 5 years (Correct answer)
- Every 7 years
- Every 10 years
Correct answer: Every 5 years
PCAOB rules require rotation of the lead engagement partner after five consecutive years on the engagement.
Question 7: Which type of audit opinion is issued when the financial statements are presented fairly except for a specific material departure from GAAP?
- Adverse opinion
- Disclaimer of opinion
- Qualified opinion (Correct answer)
- Unmodified opinion
Correct answer: Qualified opinion
A qualified opinion is issued when there is a material but not pervasive departure from GAAP, using the phrase 'except for.'
CPA Auditing & Assurance Services 2
Which sampling method gives every item in the population an equal and nonzero chance of selection?