CPA Quiz: Planned Audit Response

What this quiz covers

This quiz focuses on Planned Audit Response, giving you a quick way to practice the rules, question types, and explanations that matter most for CPA.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

Question 1

1. Rely on the control because the reconciliations exist, and documentation timing does not affect operating effectiveness under PCAOB standards.
2. Perform substantive tests only and skip any control evaluation because integrated audits do not require testing controls when substantive procedures are planned.
3. Test the control by inspecting a sample of reconciliations for evidence of timely, independent review (including dates and reviewer sign-off), corroborate through inquiry and observation where needed, and if review is not timely/documented, increase substantive procedures on the affected accounts and evaluate the severity of the deficiency for ICFR reporting. (correct answer)
4. Apply AICPA nonissuer guidance and communicate the issue only to management, because issuer ICFR communications are not required if the audit opinion is unmodified.

Question 2

1. Select invoices from the identified cluster and vouch to underlying shipping documents (e.g., bills of lading) and customer acknowledgments to verify shipment occurred before year-end and terms support revenue recognition; expand testing if exceptions are found. (correct answer)
2. Test the design of controls over shipping terms changes and, if designed well, eliminate detailed cut-off testing.
3. Perform the cut-off test only at interim because year-end testing is unnecessary when analytics have been performed on the full population.
4. Use a materiality threshold equal to total revenue times 5% and test only invoices above that threshold because smaller invoices cannot cause a material misstatement.

Question 3

1. Perform tests of controls over the spreadsheet model's change management and rely on those controls to reduce substantive testing.
2. Obtain management representations that the reserve is adequate and reduce further audit work because the reserve is an estimate.
3. Select a sample of inventory items and recalculate lower of cost or net realizable value using recent sales prices/subsequent sales, aged inventory reports, and current replacement costs; also develop an independent expectation of the reserve and compare to management's estimate. (correct answer)
4. Limit testing to items with recorded value above $900,000 because amounts below overall materiality are not subject to substantive testing.

Question 4

1. Perform a test of controls by selecting a sample of consolidation uploads and inspecting evidence of independent review and approval prior to posting; additionally, test IT access and change controls over the upload process and increase substantive journal entry testing focused on late, unusual entries. (correct answer)
2. Perform only substantive analytics on the income statement because journal entry testing is required only when fraud has been confirmed.
3. Apply AICPA nonissuer standards and limit testing to inquiry and observation because PCAOB integrated audit requirements do not apply to issuers.
4. Test the control only in the following year because late-year entries occur at year-end and cannot be tested until after the audit report is issued.

Question 5

1. Increase substantive procedures over cash disbursements by testing a sample of new vendors for existence and inspecting supporting invoices and receiving documentation, and communicate the significant deficiency to those charged with governance. (correct answer)
2. Rely on the compensating control that the controller is experienced and conclude the deficiency is inconsequential without additional work.
3. Perform a walkthrough only and, if the process appears reasonable, reduce detailed testing because the control deficiency relates to operations rather than financial reporting.
4. Apply PCAOB integrated-audit requirements and issue an adverse opinion on internal control over financial reporting based solely on the segregation-of-duties issue.

Question 6

1. Rely on substantive analytical procedures over revenue trends because the control exception is limited to two months and does not affect year-end balances.
2. Test the operating effectiveness of the override-approval control by selecting a sample of override transactions from the affected period, inspecting evidence of independent approval, and reperformance of the system's approval workflow; if failures are found, expand substantive tests of revenue (especially quarter-end) and evaluate whether the deficiency is a material weakness. (correct answer)
3. Treat the issue as a significant deficiency only and communicate it to management in a management letter after the audit report is issued, without modifying planned procedures.
4. Apply AICPA guidance for nonissuers and perform only inquiry of management about whether overrides were appropriate, because PCAOB testing is not required when IT is involved.

Question 7

1. Perform a test of controls over the revenue cycle because receivables originate from sales, and conclude the gain is reasonable if revenue controls are effective.
2. Inspect the transfer and repurchase agreements, evaluate whether control is surrendered under the applicable accounting framework, confirm key terms with the related party, and test subsequent collections/repurchases to assess whether sale accounting and the recorded gain are appropriate. (correct answer)
3. Rely primarily on management's memo supporting sale accounting because the transaction is nonrecurring and management is responsible for GAAP conclusions.
4. Apply AICPA guidance for nonissuers and treat the related-party nature as immaterial if the gain is less than 5% of total assets.

Question 8

1. Perform additional substantive procedures for revenue (including detailed testing of billing-to-GL completeness and cut-off) for the fourth quarter and evaluate whether the failure to perform the control affects the ICFR opinion. (correct answer)
2. Rely on the control based on prior quarters' performance and reduce fourth-quarter substantive testing.
3. Apply AICPA nonissuer standards and treat the missed reconciliation as a minor operational issue not affecting financial reporting.
4. Wait until after issuing the audit report to test whether the reconciliation was eventually completed and then decide if revenue was fairly stated.

Question 9

1. Test the management review control by inspecting evidence of the review and follow-up on significant variances and, due to weak documentation, perform substantive testing of the vendor rebates by inspecting executed agreements, recalculating amounts, and confirming key terms with vendors if necessary. (correct answer)
2. Rely on the existence of meetings as sufficient evidence that the control operated effectively and reduce substantive testing.
3. Apply AICPA nonissuer standards and treat the control as effective if management can explain the fluctuations during inquiry.
4. Test the management review control only at interim because monthly controls do not require year-end coverage.

Question 10

1. Select a sample of late-year customer contracts and vouch cash receipts and contract terms to the recorded revenue and deferred revenue balances, including testing whether performance obligations were satisfied and whether amounts collected upfront were deferred appropriately. (correct answer)
2. Confirm only the year-end cash balance because cash was collected upfront and therefore revenue recognition is not at risk.
3. Test only the design of controls over subscription billing and omit substantive testing because the company is an issuer.
4. Increase tolerable misstatement for deferred revenue because it is a liability and less likely to be misstated intentionally.

Question 11

1. Confirm a targeted sample of receivables (including past-due accounts), test subsequent cash receipts and post–year-end credit memos, and evaluate the allowance methodology and write-off authorization due to the segregation-of-duties weakness. (correct answer)
2. Rely on the client's aging report without testing because it is generated from the accounting system.
3. Perform only tests of controls over write-offs and omit substantive procedures because confirmations are optional for nonissuers.
4. Increase performance materiality for receivables because the allowance estimate is subjective.

Question 12

1. Treat the overrides as a significant risk indicator, test the authorization and support for the wire transfers, confirm recipient bank details where feasible, expand testing of cash disbursements, and evaluate whether the control failure indicates a material weakness in ICFR. (correct answer)
2. Accept the CFO's explanation because executive management has authority to override controls and no further procedures are needed.
3. Apply AICPA nonissuer guidance and communicate the matter only to management rather than to the audit committee.
4. Perform testing only at interim because year-end testing would be redundant once the acquisition closes.

Question 13

1. Test the spreadsheet-based control by evaluating access and change controls and inspecting evidence of review; additionally, perform substantive recalculation of stock-based compensation for a sample of grants by agreeing key inputs to grant documentation and reperforming the calculation. (correct answer)
2. Rely on the spreadsheet because it is a common tool and reduce substantive testing to inquiry.
3. Apply AICPA nonissuer guidance and treat the spreadsheet as outside ICFR scope for an issuer.
4. Perform the recalculation only at interim and assume no changes occurred for the year-end grants because they were late in the year.

Question 14

1. Perform tests of controls over voids/refunds (including system settings and approval logs) and perform substantive procedures using data analytics to identify unusual void/refund patterns by cashier and time, followed by targeted vouching to supporting documentation. (correct answer)
2. Rely on overall gross margin analytics and avoid detailed testing because cash sales are too numerous to audit.
3. Perform the void/refund testing only after the audit report is issued to avoid disrupting store operations.
4. Apply PCAOB standards and require management to provide an ICFR report for the nonissuer.

Question 15

1. Reliance on the work of the client's internal auditors.
2. Use of negative confirmations for accounts receivable.
3. Extent of tests of details, such as increasing sample sizes for price testing. (correct answer)
4. Level of performance materiality for the inventory account.

Question 16

1. Relying exclusively on management's written representations as sufficient audit evidence.
2. Communicating the risk to the audit committee and withdrawing from the engagement.
3. Incorporating an element of unpredictability in the selection and timing of audit procedures. (correct answer)
4. Focusing tests of controls solely on automated controls to reduce human intervention.

Question 17

1. A test of details of balances.
2. A substantive analytical procedure.
3. A dual-purpose test. (correct answer)
4. A risk assessment procedure.

Question 18

1. The auditor should increase the testing of the IT general controls to compensate for the weaknesses.
2. The auditor cannot rely on the automated application controls and must increase the extent of substantive testing. (correct answer)
3. The auditor can still rely on the automated application controls if they operated effectively in the prior year.
4. The auditor should test the automated application controls more extensively to compensate for the weak ITGCs.

Question 19

1. Substantive analytical procedures comparing the investment balance to industry averages.
2. Tests of details involving an evaluation of management's assumptions and the underlying data. (correct answer)
3. Observing the physical location of the privately held company's headquarters.
4. Testing the operating effectiveness of the client's controls over monitoring investments.

Question 20

1. Review the client's analysis of inventory turnover and obsolescence.
2. Perform test counts and observe the client's physical inventory count. (correct answer)
3. Inquire of management about the procedures used to control inventory movements.
4. Trace a sample of inventory purchases from the receiving reports to the perpetual inventory records.