Area II: Risk Assessment — CPA Practice Question 16

How to approach this question

Recall the 4-step major program determination process. 1. Identify Type A/B. 2. Assess Risk of A. 3. Assess Risk of B. 4. Select Major Programs (High Risk A + High Risk B to meet coverage).

Full Answer

C.The auditor must test the high-risk Type A program and may need to test high-risk Type B programs to meet the percentage of coverage rule.✓ Correct

Under the Uniform Guidance, the auditor uses a risk-based approach. High-risk Type A programs must be audited. Low-risk Type A programs generally do not, unless needed for coverage. High-risk Type B programs are selected to replace low-risk Type A programs or to meet the percentage of coverage requirement (20% for low-risk auditees, 40% for others).

Common mistakes

Assuming all Type A programs are automatically major programs.

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Common mistakes

Practice the full CPA AUD Practice Exam 3

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