CPA Profession & Audit Firms

What is the role of CPA firms in auditing?

CPA firms conduct audits to ensure the accuracy, reliability, and compliance of financial
statements.

What are the main types of CPA firms?

Big Four, national firms, regional firms, and small local firms.

What services do CPA firms provide besides auditing?

Tax services, consulting, financial planning, and bookkeeping.

How do Big Four accounting firms differ from other CPA firms?

They operate internationally and audit large multinational companies.

Why do small businesses rely on CPA firms for financial reporting?

They lack in-house expertise to prepare financial statements.

Audit Standards & Regulations

What is the Sarbanes-Oxley Act, and why is it important?

A law that strengthens corporate accountability and prevents fraud.

What is the role of the PCAOB in auditing?

Oversees public company audits and enforces quality control standards.

How does the SEC regulate financial reporting?

Ensures public companies provide transparent financial information.

What are Generally Accepted Auditing Standards (GAAS)?

A set of principles guiding auditors on quality and performance.

What is the purpose of International Standards on Auditing (ISAs)?

Ensure global consistency in auditing practices.

Audit Process & Procedures

What are the key stages of an audit?

Planning, risk assessment, evidence collection, and reporting.

What is audit risk, and why is it important?

The chance of issuing an incorrect audit opinion.

How do auditors assess internal controls?

By examining company policies and procedures.

 What is materiality in auditing?

The threshold for misstatements that impact decisions.

What is professional skepticism, and why is it important?

A questioning mindset to detect fraud or errors.

Types of Audits

What are the three main types of audits?

Financial, operational, and compliance audits.

What is the purpose of a financial statement audit?

To ensure financial reports are accurate and follow standards.

 How does an operational audit differ from a financial audit?

Focuses on efficiency and effectiveness rather than financial accuracy.

What is a compliance audit?

Ensures companies follow laws and regulations.

Who performs government audits, and why are they important?

Government auditors, ensuring public funds are used properly.

Audit Reports & Opinions

What are the four types of audit opinions?

Unqualified, qualified, adverse, and disclaimer.

 What does an unqualified audit opinion mean?

The financial statements are fairly presented.

When does an auditor issue a qualified opinion?

When minor misstatements or limitations exist.

What is an adverse audit opinion?

Indicates serious misstatements in financial reports.

Why would an auditor issue a disclaimer of opinion?

Due to insufficient evidence.

Ethics & Auditor Responsibilities

What ethical principles must auditors follow?

Integrity, objectivity, confidentiality, and independence.

How do auditors remain independent?

By avoiding conflicts of interest.

What is due professional care in auditing?

Performing audits diligently and carefully.

Why is confidentiality important in auditing?

Protects client information and maintains trust.

What is the expectation gap in auditing?

The difference between public expectations and auditor responsibilities.

Audit Evidence & Documentation

What is audit evidence, and why is it important?

Supports conclusions in financial audits.

What are the types of audit evidence?

Documents, confirmations, inquiries, observations, and analytics.

How do auditors verify transactions?

By examining records, confirmations, and reconciliations.

What is the purpose of audit documentation?

Provides proof of audit procedures and findings.

How do auditors determine the reliability of evidence?

Based on source, objectivity, and relevance.

Internal Controls & Risk Management

What are internal controls, and why are they important?

Safeguard assets and ensure accurate reporting.

How do auditors test internal controls?

Through observations, walkthroughs, and testing transactions.

What is fraud risk assessment?

Evaluating the likelihood of fraud.

What is management’s role in internal control?

To design and enforce control procedures.

 What factors increase audit risk?

Weak controls, complex transactions, and management override.

Audit Quality & Peer Review

What is quality control in auditing?

Ensures CPA firms follow professional standards.

What is the purpose of a peer review?

Evaluates a CPA firm’s compliance with quality standards.

How does the PCAOB inspect audit firms?

Reviews compliance and identifies deficiencies.

 What are the benefits of audit quality control?

Improves reliability and reduces errors.

What happens if an audit firm fails a peer review?

Possible disciplinary action and loss of credibility.

Technology & Future of Auditing

How is technology changing auditing?

AI, data analytics, and blockchain improve efficiency.

What are the risks of using AI in auditing?

Bias, cybersecurity threats, and data privacy concerns.

 How does blockchain impact auditing?

Provides tamper-proof transaction records.

What is continuous auditing?

Real-time monitoring of transactions.

How can auditors prepare for future challenges?

Adopt technology, improve skills, and follow

51. What is the primary role of CPA firms?

A) Preparing tax returns

B) Conducting audits of financial statements

C) Selling financial software

D) Managing investment portfolios

Answer: B) Conducting audits of financial statements

52. Which of the following is NOT one of the Big Four CPA firms?

A) Deloitte

B) Ernst & Young

C) KPMG

D) Grant Thornton

Answer: D) Grant Thornton

53. What is the main function of the Public Company Accounting Oversight Board
(PCAOB)?

A) Setting tax regulations

B) Overseeing auditors of public companies

C) Issuing financial reports

D) Managing CPA licensing exams

Answer: B) Overseeing auditors of public companies

54. What law established the PCAOB?

A) Securities Act of 1933

B) Sarbanes–Oxley Act

C) Securities Exchange Act of 1934

D) Dodd-Frank Act

Answer: B) Sarbanes–Oxley Act

55. How often does the PCAOB inspect firms that audit more than 100 public companies?

A) Annually

B) Every two years

C) Every three years

D) Every five years

Answer: A) Annually
56. Which organization has authority over financial statement reporting for public
companies in the U.S.?

A) PCAOB

B) SEC

C) AICPA

D) FASB

Answer: B) SEC

57. Which CPA firm category primarily serves smaller businesses and non-profits?

A) Big Four

B) National Firms

C) Regional Firms

D) Small Local Firms

Answer: D) Small Local Firms

58. What type of CPA firm service involves helping clients improve business processes and
systems?

A) Tax services

B) Management consulting services

C) Audit services

D) Compilation services

Answer: B) Management consulting services

59. What is a peer review in the context of CPA firms?

A) An IRS audit of tax services

B) A financial statement review by external auditors

C) An evaluation of a CPA firm’s quality control system

D) A legal investigation into CPA malpractice

Answer: C) An evaluation of a CPA firm’s quality control system

60. Which of the following is NOT an organizational structure used by CPA firms?

A) Proprietorship

B) Limited Liability Partnership (LLP)

C) C Corporation

D) Limited Liability Company (LLC)

Answer: C) C Corporation

61. What is the main benefit of a Limited Liability Partnership (LLP) for CPA firms?

A) Unlimited liability protection

B) Full tax exemption

C) Protection from the negligence of other partners

D) No regulatory oversight

Answer: C) Protection from the negligence of other partners

62. Which professional body sets ethical standards for CPAs?

A) SEC

B) PCAOB

C) AICPA

D) IRS

Answer: C) AICPA

63. The Sarbanes–Oxley Act was passed in response to scandals involving which
company?
A) Apple

B) Enron

C) Google

D) Microsoft

Answer: B) Enron

64. What does the Securities Act of 1933 primarily regulate?

A) Insider trading

B) Issuance of new securities

C) Corporate tax rates

D) Auditing procedures

Answer: B) Issuance of new securities

65. What is Form 10-K used for?

A) Quarterly financial reports

B) Annual financial reports

C) Reporting changes in company management

D) Tax filing

Answer: B) Annual financial reports

66. Which standard-setting body issues International Standards on Auditing (ISAs)?

A) PCAOB

B) AICPA

C) IAASB

D) FASB

Answer: C) IAASB
67. What is the primary goal of Generally Accepted Auditing Standards (GAAS)?

A) Ensuring financial statements are profitable

B) Establishing uniform audit guidelines

C) Regulating tax policies

D) Controlling inflation

Answer: B) Establishing uniform audit guidelines

68. What is an important principle of auditor independence?

A) The auditor should be part of the client’s management team

B) The auditor should remain unbiased and objective

C) The auditor should accept gifts from clients

D) The auditor should make investment decisions for the client

Answer: B) The auditor should remain unbiased and objective

69. Which type of CPA firm service provides a written assurance on financial statements?

A) Tax preparation

B) Consulting

C) Attestation

D) Bookkeeping

Answer: C) Attestation

70. What is the main purpose of the AICPA’s Code of Professional Conduct?

A) Setting tax rates for CPA firms

B) Regulating government audits

C) Establishing ethical guidelines for CPAs

D) Managing financial investments

Answer: C) Establishing ethical guidelines for CPAs

71. What does a review service by a CPA provide?

A) Full assurance on financial statements

B) Limited assurance based on inquiry and analytical procedures

C) No assurance at all

D) A tax refund estimate

Answer: B) Limited assurance based on inquiry and analytical procedures

72. What is the primary purpose of audit documentation?

A) To serve as a legal defense for auditors

B) To record evidence and support audit conclusions

C) To increase the audit cost

D) To replace financial statements

Answer: B) To record evidence and support audit conclusions

73. Which type of CPA firm structure is most commonly used by the Big Four?

A) Sole Proprietorship

B) Limited Liability Partnership (LLP)

C) General Partnership

D) Corporation

Answer: B) Limited Liability Partnership (LLP)

74. What is Form 8-K used for?

A) Registering new securities

B) Reporting major corporate events

C) Filing tax returns

D) Reporting international transactions

Answer: B) Reporting major corporate events

75. The AICPA issues which type of auditing guidance?

A) International Financial Reporting Standards (IFRS)

B) Statements on Auditing Standards (SASs)

C) Tax codes

D) Investment regulations

Answer: B) Statements on Auditing Standards (SASs)

76. What does the term “due professional care” mean in auditing?

A) The auditor must be perfect in all work

B) The auditor must exercise diligence and competence

C) The auditor should complete audits as quickly as possible

D) The auditor should prioritize client relationships over regulations

Answer: B) The auditor must exercise diligence and competence

77. Which CPA firm service does NOT provide assurance?

A) Audit

B) Review

C) Compilation

D) Attestation

Answer: C) Compilation
78. The main role of the SEC is to:

A) Set tax laws

B) Regulate corporate financial reporting

C) Approve CPA exams

D) Manage auditing firms

Answer: B) Regulate corporate financial reporting

79. What is the purpose of financial statement audits?

A) Detecting fraud

B) Providing assurance on financial statement accuracy

C) Preparing tax returns

D) Managing corporate budgets

Answer: B) Providing assurance on financial statement accuracy

80. What is the purpose of the audit report issued by a CPA firm?
A) To provide financial planning advice
B) To express an opinion on the fairness of financial statements
C) To prepare tax documents
D) To evaluate investment opportunities
Answer: B) To express an opinion on the fairness of financial statements

81. Which of the following is NOT a part of Generally Accepted Auditing Standards
(GAAS)?
A) General standards
B) Standards of fieldwork
C) Standards of reporting
D) Taxation standards
Answer: D) Taxation standards

82. What type of audit opinion is issued when financial statements are presented fairly in
all material respects?
A) Adverse opinion
B) Qualified opinion
C) Disclaimer of opinion
D) Unqualified opinion
Answer: D) Unqualified opinion
83. What is the primary responsibility of auditors regarding fraud detection?
A) To prevent fraud from occurring
B) To detect and report all instances of fraud
C) To provide reasonable assurance that financial statements are free of material misstatements
due to fraud
D) To prepare fraud reports for government agencies
Answer: C) To provide reasonable assurance that financial statements are free of material
misstatements due to fraud

84. Which of the following is an example of an attestation service provided by CPA firms?
A) Preparing an individual’s tax return
B) Conducting a financial statement audit
C) Consulting on business strategy
D) Providing bookkeeping services
Answer: B) Conducting a financial statement audit

85. What is the main difference between an audit and a review?

A) A review provides full assurance, while an audit provides limited assurance
B) An audit provides a higher level of assurance than a review
C) A review includes physical inspection of assets, while an audit does not
D) Only government entities require audits, while businesses require reviews
Answer: B) An audit provides a higher level of assurance than a review