Practice questions
US CPA (AICPA): Practice Questions
30 questions · 4 domains · ~38 min · Updated 2026-05-31
Original concept-check questions for the US CPA Exam across Auditing (AUD), Financial Accounting & Reporting (FAR) and Taxation & Regulation (REG). Each answer is explained, including why the others are wrong. Filter by domain or difficulty. These test understanding of public concepts — not real exam questions, and not tax advice.
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The purpose of an audit engagement letter is to:
Correct answer: B. The engagement letter sets out scope, objectives and responsibilities. An audit cannot guarantee no fraud; the opinion is formed after work is done; and it does not replace the separate management representation letter. -
An unmodified (unqualified) audit opinion means:
Correct answer: B. An unmodified opinion states the statements are fairly presented in all material respects under the framework. It is not investment advice, not a fraud guarantee, and audits test on a sample/risk basis, not every transaction. -
Professional skepticism requires an auditor to:
Correct answer: B. Professional skepticism is a questioning mindset and critical evaluation of evidence — neither assuming dishonesty nor blindly trusting. Full-population testing is not what skepticism means. -
Which audit evidence is generally the most reliable?
Correct answer: B. Evidence obtained directly from an independent external source (a bank confirmation) is generally most reliable. Client-provided copies, verbal management assurances and internal memos are weaker. -
Under accrual accounting, revenue is recognized when:
Correct answer: B. Accrual accounting recognizes revenue when earned, not when cash arrives. Invoicing or year-end timing do not by themselves trigger recognition. -
The basic accounting equation is:
Correct answer: B. Assets = Liabilities + Equity is the fundamental identity. The other arrangements are algebraically incorrect. -
Which statement reports financial position at a single point in time?
Correct answer: B. The balance sheet is a snapshot at a date. The income, cash-flow and retained-earnings statements all cover a period of time. -
The matching principle states that:
Correct answer: B. Matching aligns expenses with the revenues they produce in the same period. It is unrelated to the balance-sheet identity, does not mandate cash basis, and does not defer revenue indefinitely. -
Depreciation is best described as:
Correct answer: B. Depreciation systematically allocates cost over useful life; it is not a market-value adjustment, a cash flow, or a valuation method. -
Which business structure generally provides both pass-through taxation and limited liability?
Correct answer: B. S corporations and LLCs typically combine pass-through taxation with limited liability. A C corporation has limited liability but is taxed at the entity level; sole proprietorships and general partnerships are pass-through but lack limited liability. -
C corporation profits are generally taxed:
Correct answer: B. C corporations face double taxation: once at the corporate level and again when profits are distributed as dividends. The other options misstate how corporate taxation works. -
In agency law, authority a principal creates through conduct that leads a third party to reasonably believe an agent is authorized is called:
Correct answer: B. Apparent authority arises from the principal's conduct toward third parties. Express authority is explicitly granted; fiduciary duty is an obligation, not authority; ratification is after-the-fact approval. -
The current US CPA Exam consists of:
Correct answer: B. Under the current model, candidates take three core sections (AUD, FAR, REG) plus one discipline section they choose. The other counts are incorrect. -
A CPA license is maintained through:
Correct answer: B. Licensed CPAs maintain their license via state-mandated CPE (often around 40 hours/year). You do not re-sit the exam, and dues alone do not satisfy CPE. -
The going-concern assumption presumes that a business will:
Correct answer: B. Going concern assumes continued operation. The other options contradict the assumption. -
A liability is best described as:
Correct answer: B. A liability is a present obligation. What a company owns is an asset; equity and revenue are different elements. -
Accounts receivable is classified as a(n):
Correct answer: A. Receivables are amounts owed to the company, a right to future cash, so they are assets, not liabilities, expenses or equity. -
On the statement of cash flows, buying equipment is classified as a(n):
Correct answer: B. Purchasing long-term assets is an investing activity. Operating covers day-to-day items and financing covers debt/equity. -
Reporting inventory at the lower of cost or net realizable value reflects the principle of:
Correct answer: A. Writing inventory down to the lower value reflects conservatism. The other principles address different issues. -
Retained earnings primarily increase when a company:
Correct answer: B. Net income raises retained earnings (dividends reduce it). Share issuance affects paid-in capital; buying equipment and borrowing do not change retained earnings. -
In auditing, materiality refers to:
Correct answer: B. Materiality is about whether a misstatement could change a user's decision. Audit length, fees and staffing are unrelated. -
The primary purpose of a company's internal controls is to:
Correct answer: B. Controls give reasonable (not absolute) assurance and do not eliminate all fraud, set prices, or replace the audit. -
Audit risk is commonly modeled as the combination of inherent risk, control risk and:
Correct answer: B. The audit risk model is inherent x control x detection risk. The other risks are financial, not audit-model, components. -
Auditor independence requires that the auditor:
Correct answer: B. Independence means avoiding relationships that impair objectivity. Owning shares, doing the client's books or guaranteeing results all impair it. -
In the US, an individual reports personal income tax on:
Correct answer: A. Individuals file Form 1040. Form 1120 is for C corporations, 941 is payroll tax, and W-9 requests a taxpayer ID. -
A taxpayer generally chooses between the standard deduction and:
Correct answer: B. Taxpayers take either the standard deduction or itemized deductions, whichever is larger. The other options are not that choice. -
Under the statute of frauds, which contract generally must be in writing to be enforceable?
Correct answer: B. Contracts for the sale of land must be written. Small everyday transactions are not within the statute of frauds. -
A sole proprietor's personal liability for business debts is:
Correct answer: B. A sole proprietorship gives no liability shield, so liability is unlimited. An LLC or corporation would limit it. -
Under the AICPA Code of Professional Conduct, a CPA in public practice must maintain:
Correct answer: B. The Code requires integrity, objectivity and independence. The other options are not professional requirements. -
After passing the first section of the CPA Exam, a candidate must pass the remaining sections within:
Correct answer: B. Conditional credit expires after a rolling window (many boards moved from 18 to 30 months). It is neither as short as 6 months nor unlimited.
Practice questions FAQ
- Are these real CPA exam questions?
- No. These are original study questions written to test understanding. They are not real exam questions, exam dumps, or copied from any provider.
- How should I use these practice questions?
- Answer each one, read the explanation (including why the wrong options are wrong), and use the per-domain score below to focus your revision on weak areas. Revisit before exam day.
- How many questions should I do before the exam?
- Enough to score consistently across every domain, alongside full-length practice from official or reputable providers. Understanding why each answer is right matters more than raw volume.
- What score means I am ready?
- A good signal is consistently scoring around 80% or higher across all domains on questions you have not seen before, and being able to explain why the wrong options are wrong.
- Should I use exam dumps?
- No. Dumps (real or leaked questions) breach provider policy, can void your certification, and do not build the understanding the exam actually tests.