CPA AUD: Audit Procedures and Evidence

CPA means Certified Public Accountant. AUD means Auditing and Attestation. This topic page isolates evidence and procedure selection before you return to mixed practice.

Topic snapshot

What this topic tests

This topic tests whether the selected procedure actually produces evidence for the assertion and risk in the stem. It also tests whether the evidence is reliable enough, whether sampling conclusions are interpreted correctly, and whether data used in a procedure is prepared before the auditor relies on it.

Common traps

• choosing the procedure that is easiest to perform instead of the one that addresses the assertion
• overvaluing inquiry or management representations when stronger evidence is needed
• confusing tests of controls with substantive procedures
• comparing only the sample deviation rate when the upper deviation rate drives a control-reliance conclusion
• running data matches before cleaning keys, dates, subtotals, or credit memo records

How to reason through these questions

Ask what the auditor is trying to prove: occurrence, completeness, valuation, rights and obligations, cutoff, or presentation. Then choose evidence that is sufficient, appropriate, and reliable for that objective. If the procedure cannot answer the assertion-level question, it is not the best answer.

Sample questions

These questions are original Mastery Exam Prep practice items aligned to this topic area. They are designed for self-assessment and are not official exam questions.

Question 1

Topic: Performing Further Procedures and Obtaining Evidence

An auditor is completing the audit of a nonissuer. Overall materiality for the financial statements as a whole is $100,000, and no qualitative factors have been identified that would make smaller misstatements material. Management corrected a $60,000 understatement of accrued payroll. The following uncorrected misstatements remain:

How should the auditor present and characterize these items in the summary of misstatements?

• A. Include the corrected payroll item with the uncorrected items and characterize the aggregate pretax income overstatement as $151,000, which is material.
• B. Present the payroll item as a corrected misstatement and aggregate the uncorrected pretax income overstatement as $91,000, which is not material individually or in the aggregate.
• C. Exclude the projected depreciation misstatement from the uncorrected misstatement summary and characterize the aggregate pretax income overstatement as $66,000.
• D. Present each uncorrected item separately but avoid aggregating them because each individual misstatement is below overall materiality.

Best answer: B

What this tests: Performing Further Procedures and Obtaining Evidence

Explanation: The corrected payroll item should not be included in the aggregate of remaining uncorrected misstatements. The uncorrected factual, judgmental, and projected misstatements all overstate pretax income and total $91,000, which is below the stated overall materiality with no qualitative concerns identified.

A summary of misstatements distinguishes corrected misstatements from uncorrected misstatements. For evaluating the financial statements, the auditor considers uncorrected misstatements individually and in the aggregate, including likely misstatements such as sample projections and judgmental differences in estimates. Here, the uncorrected items are $36,000, $30,000, and $25,000, all in the same direction, for an aggregate pretax income overstatement of $91,000. Because overall materiality is $100,000 and the stem states there are no qualitative factors making a smaller amount material, the uncorrected misstatements are not material individually or in the aggregate. The $60,000 payroll item was corrected, so it is not part of the remaining uncorrected aggregate.

• Including the corrected payroll item overstates the remaining uncorrected misstatement total.
• Excluding the projected depreciation misstatement is improper because projected sample misstatements are likely misstatements considered in the aggregate.
• Looking only at individual misstatements ignores the required aggregate evaluation of uncorrected misstatements.

Corrected misstatements are presented separately from uncorrected misstatements, and the remaining known and likely uncorrected misstatements aggregate to $91,000, below overall materiality.

Question 2

Topic: Performing Further Procedures and Obtaining Evidence

An auditor is performing a search for unrecorded liabilities by analyzing a client-prepared spreadsheet of all nonpayroll cash disbursements paid from January 1 through January 31 after year-end. Before selecting items for testing, which evidence best supports the conclusion that the spreadsheet contains the intended population?

• A. The auditor agreed several spreadsheet line items to vendor invoices and check images with no exceptions.
• B. The accounts payable manager stated that the same spreadsheet format was used in the prior-year audit.
• C. The auditor independently re-ran the ERP query using payment date January 1 through January 31 and nonpayroll payment type, and agreed the resulting record count and total paid amount to system control totals.
• D. Management provided a written representation that the spreadsheet includes all nonpayroll January disbursements.

Best answer: C

What this tests: Performing Further Procedures and Obtaining Evidence

Explanation: The best support comes from validating how the data were obtained and reconciling the output to reliable system totals. Re-running the query with the intended search criteria directly addresses whether the spreadsheet includes the intended population for the audit procedure.

When audit evidence is based on extracted data, the auditor should evaluate whether the data are complete, accurate, and relevant for the planned procedure. For a search of unrecorded liabilities using January cash disbursements, the critical question is whether the extract includes all nonpayroll payments with payment dates in the specified period. Independently re-running the query and agreeing the record count and total amount to system control totals provides direct evidence that the search criteria and resulting population are reliable enough for selecting items to test.

• A management representation is useful only as supplemental evidence; it does not validate the query or the completeness of the extract.
• Agreeing several listed items to invoices and check images supports selected-item accuracy or occurrence, not completeness of the population.
• Prior-year use of a spreadsheet format does not establish that the current-year query criteria or extracted data are reliable.

Independently validating the query criteria and reconciling totals to system control totals best supports the completeness and relevance of the extracted audit data.

Question 3

Topic: Performing Further Procedures and Obtaining Evidence

In auditing a nonissuer’s December 31 accounts receivable, the audit plan included a procedure to test the existence of selected year-end customer balances. The sample size was approved as adequate for the planned procedure. The auditor sent positive confirmations directly to 40 customers; 34 customers confirmed without exception. For the 6 nonresponses, the auditor examined January cash receipts and matched remittance advices to the specific invoices included in the December 31 balances, with no exceptions. What should the auditor conclude about this planned procedure?

• A. Evidence is insufficient because every positive confirmation request must be returned by the customer.
• B. Evidence is insufficient because subsequent cash receipts are relevant only to valuation, not existence.
• C. Sufficient appropriate evidence has been obtained to achieve the existence objective for the selected balances.
• D. Evidence is insufficient because confirmations of receivables primarily test completeness of recorded balances.

Best answer: C

What this tests: Performing Further Procedures and Obtaining Evidence

Explanation: The planned objective was to test existence of selected accounts receivable balances. Confirmations received directly from customers are strong evidence, and properly performed alternative procedures for nonresponses can also provide sufficient appropriate evidence.

When positive confirmations are not returned, the auditor may perform alternative procedures if those procedures provide relevant and reliable evidence for the assertion being tested. For accounts receivable existence, examining subsequent cash receipts can be appropriate when the auditor matches the payment and remittance information to the specific invoices outstanding at year-end. Because the sample size was already approved as adequate and no exceptions were found, the evidence obtained achieves the objective of the planned procedure for the selected balances.

• Requiring every positive confirmation to be returned is too absolute; alternative procedures may address nonresponses.
• Subsequent cash receipts may support existence when tied to the specific year-end invoices, not merely total customer payments.
• Confirmations of recorded receivables primarily support existence and rights, not completeness.

Direct confirmations and alternative procedures tying subsequent cash receipts to year-end invoices provide relevant and reliable evidence of existence for the planned sample.

Question 4

Topic: Performing Further Procedures and Obtaining Evidence

An auditor is evaluating whether a planned substantive procedure achieved its objective. Inventory held at an outside warehouse is material to the financial statements.

Workpaper excerpt:

Which conclusion is best supported by the workpaper excerpt?

• A. The planned procedure achieved its objective for existence, but additional evidence is needed only for condition.
• B. The planned procedure achieved its objective because the client-prepared transfer tickets and management representation are consistent.
• C. The warehouse’s failure to respond should be treated as agreement with the recorded inventory quantities.
• D. Sufficient appropriate evidence has not been obtained because the evidence lacks direct independent or physical support for the goods at the warehouse on December 31.

Best answer: D

What this tests: Performing Further Procedures and Obtaining Evidence

Explanation: The workpaper does not show sufficient appropriate evidence for the planned objective. The evidence obtained is primarily internal or management-provided and does not directly verify that the goods existed and were in acceptable condition at the outside warehouse on December 31.

Audit evidence must be sufficient in quantity and appropriate in relevance and reliability for the objective being tested. Here, the objective was to obtain evidence about existence and condition of material inventory held by an outside warehouse at year-end. A nonresponse to a positive confirmation is not evidence of agreement, and client-prepared transfer tickets only show that goods were transferred before year-end. Management’s representation may support other evidence, but it is not a substitute for more reliable evidence such as a warehouse confirmation, warehouse records, physical inspection, or relevant subsequent shipment documentation. Therefore, the planned procedure’s objective has not been achieved.

• Consistent client records and management representations may be useful, but they are not sufficiently reliable by themselves for material third-party inventory.
• Transfer tickets dated before year-end do not prove the goods existed at the warehouse on December 31.
• A confirmation nonresponse is not affirmative evidence; alternative procedures are needed.

For material inventory held by a third party, internal records and management representations do not provide sufficiently reliable evidence of existence and condition at year-end.

Question 5

Topic: Performing Further Procedures and Obtaining Evidence

In a nonissuer audit, an auditor uses monetary-unit sampling to test the existence of accounts receivable. Tolerable misstatement for the population is $250,000. The sample contains known misstatements of $40,000, total projected misstatement of $210,000, and an allowance for sampling risk of $70,000, producing an upper misstatement limit of $280,000. Management has not shown that any exception is anomalous. How should the auditor characterize the sampling result?

• A. As an unacceptable result indicating that the population may be materially misstated, requiring expanded substantive procedures or a proposed adjustment.
• B. As an acceptable result because total projected misstatement is less than tolerable misstatement.
• C. As a control deviation requiring an increased assessed control risk for revenue controls.
• D. As inconclusive only if known misstatements exceed tolerable misstatement.

Best answer: A

What this tests: Performing Further Procedures and Obtaining Evidence

Explanation: The auditor evaluates projected misstatement together with the allowance for sampling risk. Because the upper misstatement limit exceeds tolerable misstatement, the sample does not support accepting the receivables population without further audit response.

In substantive sampling, the auditor does not evaluate only the known misstatements found in the sample or only the projected misstatement. The auditor considers sampling risk by comparing an upper misstatement limit, or similar estimate, with tolerable misstatement. Here, the upper misstatement limit is $280,000, which exceeds the $250,000 tolerable misstatement. Since the exceptions are not shown to be anomalous, the auditor should treat the result as indicating that the population may be materially misstated. Appropriate responses include expanding substantive procedures, examining additional items, asking management to investigate and adjust the population, or otherwise obtaining sufficient appropriate evidence.

• Treating the result as acceptable ignores the $70,000 allowance for sampling risk.
• Calling the result a control deviation confuses substantive sampling misstatements with tests of controls.
• Focusing only on known misstatements ignores projection and sampling risk in evaluating the population.

Because the upper misstatement limit of $280,000 exceeds tolerable misstatement of $250,000, the auditor cannot accept the population as fairly stated based on this sample.

Question 6

Topic: Performing Further Procedures and Obtaining Evidence

An auditor is testing a nonissuer’s year-end accounts receivable balance using a representative variables sample and ratio estimation. The population recorded amount is $3,000,000. Tolerable misstatement is $120,000, and the allowance for sampling risk is $25,000. Which sample result best supports the auditor’s conclusion that accounts receivable is not materially misstated?

• A. The sample recorded amount was $300,000 and the audited amount was $285,000, producing a projected overstatement of $150,000 before considering sampling risk.
• B. The sample recorded amount was $300,000 and the audited amount was $291,000, producing a projected overstatement of $90,000 and an upper misstatement estimate of $115,000.
• C. No individual receivable selected in the sample had a misstatement greater than $120,000.
• D. The sample net overstatement was $9,000, which is less than the $120,000 tolerable misstatement for the population.

Best answer: B

What this tests: Performing Further Procedures and Obtaining Evidence

Explanation: The best support comes from extrapolating the sample misstatement to the population and adding the allowance for sampling risk. Here, the resulting upper misstatement estimate is $115,000, which is below the $120,000 tolerable misstatement.

In variables sampling, the auditor does not evaluate only the dollar amount of errors found in the sample. The sample misstatement must be projected to the population using the selected estimation method, and the auditor considers an allowance for sampling risk. Under ratio estimation, the sample overstatement is $9,000 divided by the $300,000 sample recorded amount, or 3%. Applying 3% to the $3,000,000 population gives a projected overstatement of $90,000. Adding the $25,000 allowance for sampling risk gives an upper misstatement estimate of $115,000. Because that amount is below tolerable misstatement, it supports the conclusion that the recorded balance is not materially misstated.

• A projected overstatement of $150,000 before sampling risk already exceeds tolerable misstatement, so it does not support the conclusion.
• Comparing only the sample misstatement to population tolerable misstatement ignores required extrapolation.
• Looking only for individually large misstatements does not address whether smaller sample errors project to a material population misstatement.

Ratio projection gives a 3% overstatement applied to the $3,000,000 population, and $90,000 plus the $25,000 allowance is below tolerable misstatement.

Question 7

Topic: Performing Further Procedures and Obtaining Evidence

During substantive testing of revenue for a December 31 year-end, an auditor examines a sale recorded on December 30. The contract terms are FOB shipping point, and the entity recognizes revenue when goods are transferred to the carrier. The client provides a sales order and invoice dated December 30, and the customer paid the invoice in full on January 15. The auditor obtains a carrier tracking record directly from the carrier showing the goods were picked up on January 3. Which classification best describes the carrier tracking record for purposes of evaluating the recorded revenue?

• A. Contradictory evidence related to the revenue cutoff assertion that should be investigated before concluding.
• B. Corroborative evidence of the receivable’s existence that eliminates the need to test revenue cutoff.
• C. Evidence relevant only to the valuation assertion because the customer paid after year-end.
• D. An internal client document that is less reliable than the sales order and invoice.

Best answer: A

What this tests: Performing Further Procedures and Obtaining Evidence

Explanation: The carrier record contradicts management’s implied assertion that the sale belonged in the current year. Professional skepticism requires the auditor to evaluate and resolve inconsistent evidence, even when other evidence, such as payment, supports a related assertion.

Audit evidence may corroborate one assertion while contradicting another. The January 15 cash receipt supports that a receivable existed and was collectible, but it does not establish that revenue was recognized in the proper period. Because the terms are FOB shipping point, transfer to the carrier is the key cutoff event. A carrier record obtained directly from the carrier is external evidence and is highly relevant to whether the sale should have been recorded before December 31. The auditor should investigate the inconsistency and obtain sufficient appropriate evidence before concluding on revenue recognition.

• Payment after year-end supports collection or existence, but it does not override contradictory cutoff evidence.
• Valuation is not the main issue because the dispute concerns whether revenue was recorded in the correct period.
• The carrier tracking record is external evidence obtained directly, not an internal client document.

The independently obtained carrier record conflicts with current-year revenue recognition under FOB shipping point terms and directly affects cutoff.

Question 8

Topic: Performing Further Procedures and Obtaining Evidence

An auditor is performing a substantive analytical procedure over interest expense to address the completeness and accuracy assertions. The client had no debt other than the following fixed-rate notes; interest is simple and no debt issuance costs or penalty interest apply. The auditor set a tolerable difference of $10,000 for this analysis.

The client recorded interest expense of $270,000 for 20X5. Which conclusion is most appropriate?

• A. Recorded interest expense should be compared only with prior-year interest expense because analytical procedures cannot use loan agreements.
• B. Recorded interest expense is understated by $30,000 because Note C should be accrued for the full year.
• C. Recorded interest expense is consistent with the auditor’s expectation, and no investigation of a difference is indicated.
• D. The auditor must disregard the analytical procedure because substantive analytical procedures cannot provide evidence about interest expense.

Best answer: C

What this tests: Performing Further Procedures and Obtaining Evidence

Explanation: The auditor should develop an expectation using reliable, independent inputs and compare it with the recorded amount. Here, expected interest is $120,000 for Note A, $120,000 for Note B, and $30,000 for Note C, totaling $270,000, which matches the client’s recorded expense.

Substantive analytical procedures can provide audit evidence when the auditor develops a sufficiently precise expectation from reliable data and investigates differences exceeding the established threshold. Interest expense is often suitable because the relationship between principal, interest rate, and time outstanding is predictable. In this case, expected interest equals $2,000,000 × 6% + $1,500,000 × 8% + $1,200,000 × 5% × 6/12, or $270,000. Because the recorded amount equals the expectation, the procedure supports the completeness and accuracy of interest expense for the risk addressed, subject to the auditor’s judgment about the reliability of the underlying data.

• Accruing Note C for a full year ignores the fact that it was outstanding only from July 1 through December 31.
• Comparing only with prior-year expense would be less precise than using known principal amounts and stated interest rates.
• Substantive analytical procedures can provide evidence when relationships are predictable and the expectation is sufficiently precise.

The independently developed expectation is $270,000, which equals the recorded amount and is within the $10,000 tolerable difference.

Question 9

Topic: Performing Further Procedures and Obtaining Evidence

In an audit of a nonissuer, the auditor plans to use management’s internally generated backlog report as the basis for a substantive analytical procedure over year-end revenue. The expectation will depend on the report’s completeness and cutoff by shipping date. The report is an Excel file exported by the sales manager from the order-entry system; the auditor has not tested IT general controls or application controls over the order-entry system, has not reconciled the report to underlying order records, and has not tested any report rows to source documents. How should the auditor characterize the reliability of this report for the planned procedure?

• A. The report is sufficiently reliable because it was generated from the client’s order-entry system rather than prepared entirely manually.
• B. The report is not sufficiently reliable until the auditor obtains evidence about the completeness and accuracy of the relevant report fields.
• C. The report is automatically unusable as audit evidence because internally generated information cannot support substantive procedures.
• D. The report is sufficiently reliable because it will be used in an analytical procedure rather than as direct evidence of recorded transactions.

Best answer: B

What this tests: Performing Further Procedures and Obtaining Evidence

Explanation: The report is not yet sufficiently reliable because the auditor has no evidence that the exported information is complete and accurate for the fields driving the expectation. Internally generated information can be used, but its reliability must be evaluated in light of the planned procedure.

When an auditor uses information produced by the entity, the auditor should evaluate whether the information is sufficiently reliable for the audit purpose. That includes considering the source of the information, controls over its preparation, and whether the auditor has tested or otherwise verified completeness and accuracy of the data being used. In this scenario, the planned analytical procedure depends on backlog completeness and shipping-date cutoff, but the auditor has not tested controls, reconciled the report to underlying records, or tested report details to source documents. Therefore, the report should not be treated as sufficiently reliable without additional procedures.

• System-generated information is not automatically reliable; controls and report logic or data accuracy still may need testing.
• Analytical procedures still require reliable underlying data, especially when the data drives the auditor’s expectation.
• Internally generated information is not automatically prohibited; it may support audit evidence if its completeness and accuracy are appropriately supported.

Internally generated information used in an audit procedure must be supported by evidence that it is complete and accurate for the intended use.

Question 10

Topic: Performing Further Procedures and Obtaining Evidence

Near the end of an audit of a nonissuer, the auditor performs final analytical procedures. The workpaper includes the following note:

Revenue decreased 8% due to the loss of a major customer, which is consistent with audit evidence obtained.
Cost of sales decreased only 2%; purchase prices and product mix were generally stable.
Gross margin increased from 29% in the prior year to 34% in the current year.
Staff conclusion: No additional work is needed because net income approximates the preliminary expectation.

The engagement manager determines that the workpaper conclusion is deficient. Which response best corrects the deficiency?

• A. Accept the staff conclusion because final analytical procedures are not required when substantive procedures did not identify material misstatements.
• B. Lower planning materiality and reperform all substantive procedures because any unexplained fluctuation invalidates the audit plan.
• C. Investigate the unexpected gross margin relationship, corroborate any explanation with audit evidence, and perform further procedures if the inconsistency is not resolved.
• D. Propose an adjustment to reduce current-year gross margin to the prior-year percentage because the increase is inconsistent with the revenue decline.

Best answer: C

What this tests: Performing Further Procedures and Obtaining Evidence

Explanation: The deficiency is the unresolved inconsistency between the gross margin increase and the auditor’s understanding of revenue, costs, pricing, and product mix. Final analytical procedures are used to assess overall consistency and may require additional procedures when unexpected relationships remain unexplained.

Final analytical procedures are performed near the end of the audit to help the auditor form an overall conclusion about whether the financial statements are consistent with the auditor’s understanding of the entity. Here, the facts suggest an unexpected relationship: revenue decreased significantly, cost of sales decreased only slightly, prices and product mix were stable, yet gross margin increased materially. The auditor should not conclude solely that net income approximates expectation. The proper correction is to investigate the fluctuation, obtain and corroborate management’s explanation, and perform additional audit procedures if the explanation does not resolve the inconsistency.

• Treating final analytical procedures as unnecessary is incorrect; they are required in forming the overall audit conclusion.
• Forcing gross margin to equal the prior year is unsupported; analytical procedures identify matters to investigate, not automatic adjustments.
• Reperforming all substantive procedures and lowering materiality overstates the required response unless further facts show the audit plan was invalid.

Final analytical procedures require the auditor to evaluate whether the financial statements are consistent with the auditor’s understanding and to resolve unexpected relationships before forming the overall conclusion.

Continue with full practice

Use the CPA AUD Practice Test page for the full practice route, mixed-topic practice, timed mock exams, and explanations.

Related focused pages

• Free CPA AUD Full-Length Practice Exam
• CPA AUD: Ethics and Professional Responsibilities
• CPA AUD: Risk Assessment and Planned Response
• CPA AUD: Forming Conclusions and Reporting

Free review resource

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