Free CPA AUD Practice Questions Online

Correct answer: A. Identify the relationship as a threat and evaluate its significance

A close family relationship with a person able to influence the audited program creates an independence threat. GAGAS first requires identification and evaluation of threats, followed by safeguards when they can reduce the threat to an acceptable level.

• B: An audit opinion responds to evidence and misstatements, not automatically to the existence of an independence threat.
• C: Independence is evaluated before and throughout the engagement, not only after a misstatement appears.
• D: The related party cannot serve as the independent evaluator of safeguards.

Correct answer: B. No assurance

A compilation assists management in presenting financial information in financial-statement form without obtaining or providing assurance. A review provides limited assurance, while an audit provides reasonable assurance.

• A: Reasonable assurance is associated with an audit, not a compilation.
• C: Limited assurance is associated with a review engagement.
• D: Professional engagements do not provide absolute assurance.

Correct answer: B. Decline or discontinue the service that creates the threat

When an identified threat is not at an acceptable level and no effective safeguard can eliminate it or reduce it sufficiently, the conceptual framework requires the member to decline or discontinue the affected professional service.

• A: The conceptual framework applies precisely when a circumstance is not otherwise addressed.
• C: Client acknowledgment does not cure an unacceptable threat.
• D: Those charged with governance may be consulted, but the member retains responsibility for compliance.

Correct answer: A. The engagement partner

The engagement partner has overall responsibility for managing and achieving quality on the audit engagement and for creating an environment emphasizing the firm's culture and expected behavior. Client personnel and governance do not assume that professional responsibility.

• B: The CFO is responsible for the client's financial reporting, not audit engagement quality.
• C: Internal audit may assist but does not assume the external engagement partner's responsibility.
• D: Audit committee oversight does not transfer responsibility for managing audit quality.

Correct answer: B. The gift creates an unacceptable threat and should not be accepted

A gift or entertainment from an attest client that is not clearly insignificant creates self-interest, familiarity, or undue-influence threats that safeguards cannot ordinarily reduce through mere timing or internal disclosure. The partner should not accept it.

• A: The threat is not cured merely because fieldwork has ended while the professional engagement continues.
• C: Disclosure to one team member does not neutralize a substantial personal benefit.
• D: The ethical threat arises from the benefit and relationship, not the client's accounting classification.