No single component of the 4-part CPA Exam is easy. This is as it should be; appropriate professional certification is necessary to protect the public interest, by ensuring only qualified candidates are licensed as CPAs. For many, the Auditing section of the Exam is the most difficult.
The Auditing Exam
AUD consists of three testlets of 30 multiple choice questions and seven task-based simulations designed to measure the CPA-candidate's practical auditing knowledge. AUD topics Include: Standards of Practice, Planning/Evidence, Internal Controls (IC), Reports, and Compilations/Reviews. Figure 1 provides a graphic representation of AUD content:
Five Difficult AUD Subjects
Matching relevant assertions involves detecting material misstatements within a financial statement. Doing so requires mastery of analytical procedures that ascertain the credibility of specific disclosures concerning account balances and transactions. Numerous problems can arise for the examinee concerning the precise audit-procedures to be used for testing conditions as diverse as 3rd-party confirmation, year-end valuation and inspection of items-purchased, as they are described on the financial statement. Selecting the audit-procedure appropriate to the example(s) provided on the test requires a thorough understanding of the auditing process and its application. Proofs must be generated to substantiate the audit outcome, confirming the data on a clients financial statement is accurate (or not).
Describing the explicit audit procedures to be applied to precise categories of account balances and transactions as they appear on AUD is associated with relevant assertion-matching (RAM, above). Indeed, procedure-description informs the matching-process and is required to select the appropriate analytical process for RAM. It is true that most auditing texts provide substantive glossaries and these procedures are taught/practiced in classes. However, AUD-candidates are frequently confounded by the distinction between precise aspects of balances and transactions, as well as their significance in expressing audit procedures. Candidates may also fail to provide the necessary degree of detail in describing the appropriate procedures.
Internal control (IC) determines if disclosures are accurate and management of financial risk is working effectively. This ensures clients' assets are accurately portrayed and do not jeopardize their firms' operations. Seeking material and significant weaknesses in reports is a function of IC, requiring the auditor to apply qualitative/non-statistical analysis of conditions affecting an entitys adherence to appropriate IC-standards. In addition, germane statistical processes ensure consistent quantitative measurements of its financial reporting. It is not often explicit on the exam which need to be applied, especially among multiple-choice questions; applying the best IC-solution can be difficult.
Sampling occurs when less than 100 percent of account or transaction items are used as a basis for auditing. Sampling is problematic because only part of a larger domain is used to ascertain characteristics of the entire class under consideration. Acquiring appropriate sampling skills is largely a consequence of professional experience; thus, understanding, accurately planning and evaluating audit samples is a fourth area presenting many AUD-candidates with exceptional difficulty.
Auditing compilations are attest engagements only; they are NOT assurance engagements, and generally don't require 3rd-party reviews. In contrast, reviews are BOTH attest and assurance engagements, requiring 3rd-party stipulations. Although these differences are often clear, it can sometimes be difficult for AUD-candidates to distinguish between them. Reviews tend to be more procedurally complex than compilations.
In all cases, the AUD-candidate must ensure explanations of procedures are sufficiently comprehensive that inexperienced personnel understand the description. Since auditing requires systematic evaluation of an entity's accounts, the objective evidence about their reliability must be presented clearly. Showing mastery of this is perhaps the most difficult requirement of the AUD-exam.