Free CPA AUD (Auditing & Attestation) Ethics, Professional Responsibilities and General Principles Practice Questions

C is correct. AU-C 200.03 states that the overall objective of the auditor is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to express an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. Detecting all fraud and illegal acts (C) is not feasible and overstates the auditor's responsibility; auditors provide reasonable, not absolute, assurance. Absolute assurance (B) is not attainable due to inherent limitations of an audit. Evaluating internal control effectiveness and issuing a separate opinion (D) describes an integrated audit under PCAOB standards for issuers, not the primary objective of a GAAS audit for nonissuers.

D is correct. SQMS No. 1 requires the firm to establish a risk assessment process as a component of its system of quality management. This process involves identifying quality objectives for each component of the system, identifying and assessing quality risks (conditions, events, circumstances, actions, or inactions) that may adversely affect achieving those objectives, and designing and implementing responses to address the assessed risks. The standard does not require an external consultant (A); the firm performs its own assessment. There is no standardized numerical scoring formula issued by the AICPA (C); the firm uses professional judgment to assess risks. Prior approval from the Peer Review Board (D) is not required before accepting engagements; peer review evaluates the firm's system periodically, not on an engagement-by-engagement basis.

D is correct. Under the Uniform Guidance (2 CFR 200.516), the auditor reports questioned costs in the schedule of findings and questioned costs. For each finding, the auditor must also evaluate and report whether the noncompliance constitutes a material weakness, significant deficiency, or neither, in the entity's internal control over compliance with the federal program requirements. This dual reporting -- the compliance finding and the internal control assessment -- is a core requirement of the single audit. Directly notifying the federal agency and requesting program suspension (B) exceeds the auditor's authority; the federal agency determines appropriate action based on the audit report. Including compliance findings as GAAP departures in the financial statement opinion (C) conflates the compliance audit with the financial statement audit. Withholding findings pending the entity's dispute (D) violates the auditor's reporting obligations under the Uniform Guidance.