AUD CPA Exam Breakdown

The auditing and attestation (AUD) test on the CPA exam covers audit reports, reviews and compilations. Another heavily tested area is audit assertions. Planning your study for this test can be overwhelming. Our AUD CPA Exam breakdown will help you plan your study time and understand the most important test concepts.

You can access a detailed list of every topic on the AUD test through the AICPA website. This list is really valuable, because it also explains the percentage of questions for each section of the test. Print off this list and use it as a guide. If you study every topic on this list, you’ll cover all of the important concepts.

 

Audit reports and other engagements

Now, I’m not big on asking CPA candidates to memorize information word for word. However, you need to memorize the specific language on an unqualified audit report. You’ll end up seeing a question covering every sentence of an audit report.

The unqualified audit report is your starting point for all of the other engagement reports. An audit is an opinion as to whether or not the financial statements are materially correct. An unqualified report means that the financials are free of material misstatement.

A qualified report means that the CPA found an exception. If you understand the unqualified report (and memorize it), the exception language will make more sense to you. Also, keep in mind that CPAs issue other reports that are not audits. Reviews and compilations, along with agree-upon procedures, are all reports that do not provide an opinion on the financial statements.

 

Segregation of duties

The AUD test includes many questions on internal controls. These controls are in place to protect assets from theft and to ensure that the financial statements are accurate. Segregation of duties is a critical topic for setting up proper internal controls.

There are three duties that should be segregated between three different employees. Now, that may not be possible for a small business. However, as your company grows, you need to put these controls in place.

Here are the three duties, using internal controls for cash as an example:

  • Custody: One employee, maybe the administrative assistant, should have physical custody of the checkbook.
  • Authority: A second employee should have authority to sign a check. Think of this duty is authority to move assets. An employee who can sign out equipment for use on a job site also has authority to move assets.
  • Recordkeeping: The staff member who reconciles the checkbook should be a third individual. The bank reconciliation process is the best way to detect any fraudulent transactions, so this task needs to be kept separate.

Make sure that you understand these concepts. This knowledge can help you answer many AUD test questions.

 

Assertions

Why do CPAs perform certain types of audit procedures? The reasons can seem vague. One way to get clarity about why a procedure is performed is to understand assertions.

Management is responsible for creating the financial statements. So, assertions are representations made by management. Let’s assume that an auditor is working on inventory and the valuation assertion for inventory. The auditor performs test work to ensure that inventory is properly valued. For example, an auditor will check to make sure that no inventory items are obsolete or damaged.

Use these tips to plan your study for the AUD test. If you use the AICPA’s content list and understand these important concepts, you’ll be in good shape for the test.

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