Note: These sample questions were extracted from several exams given over the years. Therefore, some questions may seem repetitive. It is advised that you read each question carefully, though, as some have subtle differences. Also, please do not be alarmed if this page has not been updated in some time. Due to the nature of the material covered, exam questions do not change radically over time.

1. Discuss the audit risk model. In your discussion, you should include definitions of each term. In addition, comment on the controllability of each variable in the model.
   



2. a.	Define materiality.
   b.	Discuss the quantitative and qualitative factors that must be considered in assessing materiality.

   
   


3. The following communications/letters pass between various parties to an audit engagement. For each communication below, indicate: (1) author, (2) addressee, (3) whether required to comply with GAAS, and (4) timing.
   
   a. Engagement letter
   b. Notification of reportable condition
   c. Comfort letter
   


4. Comment on the following graph.
   
   


5. Internal control comprises the plan of organization and all the coordinate methods and measures adopted within a business to safeguard its assets, check the accuracy and reliability of its accounting data, promote operational efficiency, and encourage adherence to prescribed managerial policies.
   
   

   a.	What is the purpose of the auditor's assessment of control risk?
   b.	How is the auditor's understanding of the internal control structure documented?
   c.	What is the purpose of the tests of control?
   d.	If, after assessing control risk and performing tests of controls, the auditor concludes that there are no reportable conditions in the client's internal control structure and that tested controls are working effectively, is it necessary for the CPA to perform additional audit evidence gathering procedures? Explain.

   
   



6. 	True State of Nature
   Auditor's Decision Control is Effective Control is Not Effective	Control is Effective Control is Not Effective OK (a) (b) OK

   
   (1) Identify a and b in the decision matrix above.
   (2) Discuss the consequences to the auditor of a and b.
   


7. In one short paragraph, describe why financial statements are audited.
   


8. Explain why it is necessary for the standard audit report to contain these three words and phrases. "Opinion", "present fairly in all material respects," and "generally accepted accounting principles."
   


9. A CPA is told by his audit client that insistence on disclosing a certain event in a footnote to the financial statements will be a violation of the rule on confidential client information and, furthermore, the possible loss of a bank loan from disclosing the event in the footnote could result in their inability to pay the CPA his audit fee. How should the CPA react to each of these comments?
   


10. Under the Securities Act of 1933, the plaintiff may successfully sue the auditor for ordinary negligence if the financial statements contain a material misstatement or omission and the plaintiff can prove a loss. Discuss what the plaintiff does not have to prove.
    


11. What is the difference between fraudulent financial reporting and theft of cash by an employee?
    


12. In one short paragraph, describe why financial statements are audited. Your text noted four factors that give rise to a natural demand for audit services to reduce information risk. Note: Federal securities laws requiring submission of audited financial statements is NOT one of the reasons.
    


13. Explain why it is necessary for the standard audit report to contain these three words and phrases:
    a. "Opinion"
    b. "present fairly in all material respects"
    c. "generally accepted accounting principles"
    


14. Discuss what is meant by:
    a. "unqualified opinion"
    b. "qualified opinion"
    c. "disclaimer of opinion"
    d. "adverse opinion"
    


15. Describe four examples of the evolution of ethics rules during the last 30 years.
    


16. In what way is gross negligence more serious than ordinary negligence but less serious than fraud?
    


17. Discuss what third parties who sue the auditor under provisions of the Securities Exchange Act of 1934 must prove.
    


18. List the five key financial statement assertions made by management.
    


19. Define the following terms:
    a. errors
    b. irregularities
    c. illegal acts
    d. materiality
    e. reportable condition
    f. tolerable misstatement
    


20. Auditors normally maintain two types of working paper files. Name them and give three examples of the types of data that may be found in each.
    


21. Discuss the auditor's responsibility for discovery of errors and irregularities.
    


22. What is the difference between the auditor's responsibility to detect illegal acts that are direct and material and illegal acts that are indirect and material?
    


23. Explain in detail your understanding of the audit risk model. Include in your remarks:
    

    a.	A definition of each of the components of the model.
    b.	A specific statement as to whether each component is subject to the control of the auditor.
    c.	If a component is subject to auditor control, a specific statement as to how it is controlled.

    
    


24. Discuss the meaning and significance of "sufficient competent evidential matter."
    


25. Explain the importance of analytical procedures as evidence.
    


26. Discuss the Foreign Corrupt Practices Act of 1977. Specifically, address in your remarks the major provisions of the Act and their applicability to both public and private USA companies.
    


27. Sometimes additional paragraphs are provided in an audit report at the discretion of the auditor. At other times GAAS requires the use of an additional paragraph(s). Briefly, distinguish between these two sets of circumstances, indicating the type of audit report that may be issued in each circumstance.
    


28. The concept of materiality is of major importance in auditing.
    

    a.	Define materiality.
    b.	Discuss the relationship between materiality and audit evidence collection.
    c.	Clarify how materiality is useful in determining the type of report to issue. (Hint: Think in terms of compliance with GAAS and GAAP.)

    
    


29. Certain words have faded from the auditor's report, including the concept of "auditor's certificate," and certain ideas have been clarified over time, such as the meaning of "present fairly." Comment on these changes and provide ONE more example of a key change in auditor's reports or the interpretation over time which has evolved in GAAS.
    


30. Discuss the role of the state board of public accountancy, state society of CPAs, and AICPA in fostering/administering entry, ethical conduct, and competence within the accounting profession.
    



31. a.	Under common law, the plaintiff traditionally bears the burden of proving their case against the defendant. What must the plaintiff demonstrate to succeed in a suit against an auditor? (HINT: There are four.)
    b.	Discuss the auditor's defense tactics against a client and against a third party user of financial statements.

    
    


32. Discuss the audit risk model. In your well organized, coherent commentary, you should specifically indicate who or what controls each component of the model.
    


33. Relate the third fieldwork standard to the "Mosaic Theory of Audit Evidence" as presented in class.
    


34. Discuss management's responsibilities with regard to the corporate internal control structure as a consequence of the Foreign Corrupt Practices Act of 1977.
    


35. Discuss the auditor's concerns, interests and responsibility for understanding and evaluating his client's internal control structure during a financial statement audit.
    


36. Comment on management responsibilities for establishing and maintaining internal control. Include in your discourse consideration of management's objective of maximizing shareholder wealth and their need to demonstrate good faith efforts to comply with laws and regulations governing minimal levels of internal control. Specifically, what has been the apparent influence of the Foreign Corrupt Practices Act of 1977 on public company internal controls. (Think specifically about the issues of efficiency and effectiveness and potential conflicts among objectives.)
    


37. What are the inherent limitations that afflict all internal control structures?
    


38. Relate the auditor's responsibilities to render an opinion on the fairness of presentation of financial statements to the client's internal control structure. Include in your discourse, commentary relating the second fieldwork standard to the third fieldwork standard.
    


39. How do CPAs typically document controls? What are the auditor's responsibilities under GAAS (as opposed to GAGAS) with respect to reportable conditions in a client's internal control structure? Is public disclosure required so that current or prospective creditors and shareholders might have access to this information?