US Certified Public Accountant (AICPA Uniform CPA Examination) · Auditing and Attestation
CPA AUD Ethics, professional responsibilities and general principles: practice questions with answers
6 free exam-style questions on Ethics, professional responsibilities and general principles for CPA AUD Auditing and Attestation. Try each one, then open the answer to read the explanation. Fincora has 77 original questions on this syllabus area.
Question 1
Merriweather & Voss LLP audits the financial statements of Wexley Freight Corp., a nonissuer. Dana Whitaker, a manager on the Wexley attest engagement team, held the investments below at December 31, 2026. Under the AICPA Code of Professional Conduct, which holding is a direct financial interest in Wexley?
- A Units of a diversified mutual fund, chosen by Dana, whose portfolio includes Wexley stock
- B Wexley 6% debentures that Dana bought through her personal brokerage account
- C A limited partner's interest, with no say in investment decisions, in a fund that holds Wexley stock
- D Shares of Rowan Logistics, Wexley's largest customer, held in Dana's individual retirement account
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Answer: B. Under the AICPA Code (definitions in ET 0.400 and the overall financial interests interpretation, ET 1.240.010), a financial interest is an ownership or creditor interest in an entity, so it includes debt securities such as debentures.
- A direct financial interest is one owned directly by the person, or held through an intermediary that the person controls or whose investment decisions the person can supervise or take part in.
- An indirect financial interest is held through an intermediary, such as a mutual fund or a limited partnership, whose investment decisions the person cannot control or influence.
Dana is a covered member. Any direct financial interest held by a covered member impairs independence, however small. An indirect interest impairs independence only if it is material to the covered member. The debentures are a direct interest, so the firm's independence is impaired unless the interest is disposed of under the Code's rules.
Question 2
Bellhaven Group, Inc. is an issuer audited by Fairmont Tull LLP. In January 2027 four people ask the firm to prepare their personal 2026 federal income tax returns. Under PCAOB Rule 3523, for whom may Fairmont Tull provide this service without impairing its independence?
- A Bellhaven's chief accounting officer, who has held that position at Bellhaven since early 2023
- B The spouse of Bellhaven's chief financial officer, who holds no position of any kind at Bellhaven
- C A Bellhaven director who is in a financial reporting oversight role only by virtue of the board seat
- D Bellhaven's corporate controller, once the audit committee has pre-approved the tax engagement
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Answer: C. PCAOB Rule 3523 says a registered firm is not independent of an issuer audit client if, during the audit and professional engagement period, it provides any tax service to a person in a financial reporting oversight role (FROR) at the client, or to an immediate family member of that person. Exceptions include a person who is in an FROR only because he or she is a member of the board of directors (or similar), and certain persons who were not in an FROR before a hiring or promotion.
The chief accounting officer and the controller are in FRORs, and the CFO's spouse is an immediate family member of a person in an FROR. Audit committee pre-approval (Rule 3524) applies only to permitted services; it cannot make a prohibited service permissible.
Question 3
When developing an expectation for the December 31, 2026, sales returns reserve of Westbrook Home Fitness LLC, a nonissuer online retailer, the audit senior started from last year's return rate of 3.0% of fourth-quarter sales and raised it only to 3.2%, even though returns received in January 2027 were double those received in January 2026. Which judgment bias does this most likely show?
- A Availability bias
- B Anchoring bias
- C Confirmation bias
- D Overconfidence bias
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Answer: B. Common judgment biases auditors must guard against (described in the AICPA's professional judgment and skepticism guidance and in AU-C 200 on professional judgment):
| Bias | Meaning |
|---|---|
| Anchoring | Starting from an initial value, such as last year's figure or management's number, and adjusting insufficiently |
| Availability | Judging likelihood by how easily examples come to mind |
| Confirmation | Seeking or favoring evidence that confirms an existing view |
| Overconfidence | Overestimating one's own ability or the accuracy of one's judgments |
| Automation | Over-relying on output from automated tools |
Doubling post-year-end returns while moving the rate only from 3.0% to 3.2% is a classic sign of anchoring on the prior-year rate.
Question 4
A manager at Greywood Orchards' new audit firm is drafting the engagement letter for the 2026 audit of Greywood, a nonissuer. Which of the following must the letter include to meet AU-C 210?
- A The fee basis, the billing schedule and the terms for payment of the firm's invoices
- B The names of the audit staff assigned and the planned hours for each audit area
- C A statement that the predecessor auditor has consented to a review of its working papers
- D A statement that, given inherent limitations, some material misstatements may not be detected
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Answer: D. AU-C 210 requires the engagement letter to include:
1. the objective and scope of the audit;
2. the auditor's responsibilities;
3. management's responsibilities;
4. a statement that, because of the inherent limitations of an audit and of internal control, there is an unavoidable risk that some material misstatements may not be detected, even when the audit is properly planned and performed under GAAS;
5. the applicable financial reporting framework; and
6. a reference to the expected form and content of the auditor's report, and a statement that it may differ.
Fees and billing, staffing and arrangements with a predecessor may also be included, but they are not required.
Question 5
A working paper in the 2026 audit file of Brannock Hardware, a nonissuer, reads in full: "Sales cutoff: selected 20 shipments near year-end and agreed each to its invoice and the sales journal. No exceptions. Cutoff is appropriate. Prepared: R.T." Applying the AU-C 230 experienced-auditor standard, what is missing?
- A Copies of all 20 shipping documents and invoices, because every document inspected must be kept in the file
- B The client controller's signature confirming the results, because management must agree to the working papers
- C Nothing further, because the procedure and conclusion are stated and an experienced auditor could repeat the test
- D The identifying characteristics of the 20 shipments tested, the date of the work, and who reviewed it and when
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Answer: D. AU-C 230 requires documentation that lets an experienced auditor with no previous connection to the audit understand the nature, timing and extent of procedures, the results and evidence obtained, and significant findings and conclusions. Specifically, the auditor records:
- the identifying characteristics of the specific items or matters tested (for example, shipment numbers and dates);
- who performed the work and the date it was completed; and
- who reviewed the work, the date and the extent of the review.
The paper names the preparer only. It needs the shipment identifiers, the completion date and evidence of review. Copies of source documents are optional.
Question 6
Kessler Brandt LLP found a material weakness in the integrated audit of Ridgeway Pharma, an issuer, whose report is dated February 22, 2027. It also found a significant deficiency in the audit of Cobalt Marine Supply, a nonissuer, whose report was released on March 5, 2027. By when must each be communicated in writing?
- A Ridgeway: within 60 days after report release; Cobalt: before the report is released
- B Ridgeway: before the ICFR report is issued; Cobalt: no later than May 4, 2027
- C Ridgeway: before the ICFR report is issued; Cobalt: no later than March 19, 2027
- D Ridgeway: within 14 days after report release; Cobalt: no later than May 4, 2027
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Answer: B. - Issuer (PCAOB AS 2201): all material weaknesses and significant deficiencies are communicated in writing to management and the audit committee before the auditor's report on ICFR is issued.
- Nonissuer (AU-C 265): the written communication is best made by the documentation completion date and no later than 60 days after the report release date: March 5, 2027 + 60 days = May 4, 2027 (26 days to March 31, 30 in April, 4 in May).
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