CPA Auditing Principles & Procedures 2 — Questions and Answers
Question 1: Which sampling method gives every item in a population an equal chance of selection?
- Systematic sampling
- Judgmental sampling
- Simple random sampling (Correct answer)
- Cluster sampling
Correct answer: Simple random sampling
Simple random sampling ensures each item has an equal and independent probability of being selected from the population.
Question 2: An auditor discovers a material misstatement after issuing an unmodified opinion. The auditor should first:
- File a report with the SEC immediately
- Notify the client and determine if the financial statements need revision (Correct answer)
- Withdraw from the engagement
- Issue a new audit report without notifying anyone
Correct answer: Notify the client and determine if the financial statements need revision
Per AU-C 560, the auditor must notify management and those charged with governance to assess whether the financial statements need to be revised.
Question 3: Which type of analytical procedure compares current-year account balances to prior-year balances?
- Ratio analysis
- Trend analysis (Correct answer)
- Reasonableness testing
- Regression analysis
Correct answer: Trend analysis
Trend analysis involves comparing financial data over multiple periods to identify unusual fluctuations or patterns.
Question 4: The concept of 'audit risk' is best described as the risk that:
- The client commits fraud during the audit period
- The auditor expresses an inappropriate opinion on materially misstated statements (Correct answer)
- The auditor fails to complete the audit on time
- Internal controls fail to prevent all errors
Correct answer: The auditor expresses an inappropriate opinion on materially misstated statements
Audit risk is the risk that the auditor issues an unmodified (clean) opinion when the financial statements are actually materially misstated.
Question 5: When an auditor lacks independence, which report should be issued?
- Adverse opinion
- Disclaimer of opinion
- Qualified opinion
- No report should be issued and the engagement must be withdrawn (Correct answer)
Correct answer: No report should be issued and the engagement must be withdrawn
A lack of independence is a scope limitation so fundamental that the auditor must withdraw from the engagement rather than issue any form of opinion.
Question 6: Which of the following is an example of a substantive analytical procedure?
- Recalculating depreciation expense and comparing it to the prior year (Correct answer)
- Observing the client's physical inventory count
- Tracing transactions from the journal to source documents
- Confirming accounts receivable balances with customers
Correct answer: Recalculating depreciation expense and comparing it to the prior year
A substantive analytical procedure involves evaluating plausibility of financial data by comparing it to expectations, such as recalculating and comparing depreciation.
Question 7: Under PCAOB standards, integrated audits require the auditor to opine on:
- Financial statements only
- Internal control over financial reporting only
- Both financial statements and internal control over financial reporting (Correct answer)
- The company's compliance with all applicable laws
Correct answer: Both financial statements and internal control over financial reporting
PCAOB AS 2201 requires auditors of public companies to issue opinions on both the financial statements and the effectiveness of ICFR.
CPA Auditing Principles & Procedures 2
Which sampling method gives every item in a population an equal chance of selection?