Which two of the following statements best describe the statutory audit?

B It is an independent examination.

C It is an opinion on the truth and fairness of the financial statements.

A It leads to a certification of the correctness of the financial statements.

D It may be carried out by both external and internal auditors.

The following is an extract from an independent auditor's unmodified report. "In our opinion, the financial statements give a true and fair view of the state of the company's affairs at 31 March 20X7, and of its profit for the year then ended." Which one of the following describes the type of assurance provided by this statement?

B High level of assurance expressed positively

A Absolute assurance expressed positively

C Limited level of assurance expressed positively

D Limited level of assurance expressed negatively

Marnie LLP, an audit firm, has been asked by Opportunity Ltd to accept appointment as auditor. Opportunity Ltd's previous auditor was Kim LLP. Which one of the following should be Marnie LLP's course of action if Opportunity Ltd refuses to give them permission to contact Kim LLP?

D Make no communication with Kim LLP or their other clients and should normally decline the appointment

A Contact Kim LLP in writing in any case and then accept the appointment

B Telephone Kim LLP in order to obtain the information sought and then accept the appointment

C Contact Kim LLP's other clients to try and gain access to Kim LLP, and then accept the appointment

Under which three of the following circumstances must a firm decline, or should normally decline, an appointment as auditor to a company?

A The prospective client refuses to grant the firm permission to contact the previous auditor

B The prospective client refuses to grant permission to the previous auditor to communicate with the firm.

D The client is one for which your firm is ethically barred from acting.

C The prospective client still owes audit fees to the previous auditor.

In order to comply with the Money Laundering Regulations, which one of the following is the number of years for which assurance firms should keep records of the identification of their clients?

B For a minimum of five years and for five years after the relationship with the client has ceased

A For a minimum of seven years and for seven years after the relationship with the client has ceased

C For a minimum of five years and for seven years after the relationship with the client has ceased

D There is no requirement to hold records on client identification for more than one year

Which one of the following is not a right that an auditor has under the Companies Act 2006?

D The right to disclose confidential information in every circumstance without the permission of the client

A The right of access to the company's accounting records

B The right to receive all necessary information and explanations

C The right to see all minutes of management and shareholders' meetings

Which three of the following would be found in the overall audit strategy document?

B Calculation of preliminary materiality thresholds

A Detailed plan of audit procedures

According to ISA (UK) 315, Identifying and Assessing Risks of Material Misstatement Through Understanding the Entity and its Environment, which three of the following are reasons why the auditor should understand the entity and its environment?

A To identify and assess the risks of material misstatements

B To be in a position to design and perform audit procedures

C To be better able to assess the risks of fraud

D To obtain information for other future assignments with the same client

Which three of the following describe analytical procedures?

B Comparing actual results with forecast results

C Comparing company ratios with industry averages

D Comparing budgeted with actual results

A Comparing a cash account balance with a bank balance and identifying reconciling items

Which one of the following is most likely to be adopted as an audit strategy if inherent and control risk are assessed as low?

A Rely on controls, limited substantive procedures necessary

B Rely on controls, no substantive procedures necessary

C Rely on controls, extensive substantive procedures necessary

D No reliance on controls, extensive substantive procedures necessary

Which one of the following is an implication of purchase invoices not being authorised?

C Unauthorised payments will be made

A Unauthorised purchases will be made.

B Purchases will be made from unauthorised suppliers.

D Purchases will not be made at the best possible price

Which one of the following describes control risk?

C The risk that a material misstatement would not be prevented, detected or corrected by the accounting and internal control system

A The susceptibility of an account balance or class of transactions to material misstatements, assuming there are no related controls

B The risk that the auditor's procedures do not detect material misstatements

D The risk that a material misstatement is caused by external pressures faced by the company

Which one of the following best describes professional scepticism?

D Forming a critical assessment and bringing into question the reliability of audit evidence

A Disbelieving everything the client says

B Asking the client a number of times the same question to see if the answer is the same

C Making management sign off all evidence provided to the auditor

As part of his analytical procedures on the financial statements of Nails Ltd, Peter has identified that the current ratio has decreased from 1.7 to 1.3. All purchases of inventory are currently made for cash and all sales are credit sales. Which two of the following could be a valid explanation for this decrease?

B The company has shifted its reliance from long-term debt to short-term debt.

C The company has decided to adopt a just in time inventory system (whereby the supplier will deliver direct to its stores, eliminating the need for a distribution centre).

A The company has increased its credit policy to customers from 30 to 50 days

D The company has recently offered special discounts to customers to attract more sales.

As part of her analytical procedures on the financial statements of PC Ltd, a manufacturing company, Amisha, has identified that the gross margin has increased from 23% to 28%. Which two of the following could be a valid explanation for this increase?

A The company has considerably reduced discounts for bulk purchases given to customers.

D There has been a significant change in the sales mix.

B The price of raw materials has increased and this increase has been passed on to customers through increased sales prices.

C The recent increase in competition has resulted in sales prices having to be reduced

Which two of the following would increase inherent risk?

A The company operates in a fast-moving industry.

D The company has a number of legal claims against it which threaten its future.

B The company does not provide IT training to its employees.

C The company does not authorise sales orders prior to sales being made.

CHAPTER 1 2 3 FUNDAMENTAL AUDITING

Authored by Chi Giang

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MULTIPLE SELECT QUESTION

45 sec • 1 pt

Which three of the following constitute possible subject matter which may be evaluated for the purposes of an assurance engagement?

A Data

B Systems or processes

C Corporate governance

D IFRS

MULTIPLE SELECT QUESTION

45 sec • 1 pt

Which two of the following describe the roles of the responsible party in any assurance engagement?

A Setting the criteria of the assurance engagement

B Gathering evidence on the subject matter

C Issuing an opinion on the subject matter against the criteria set

D Preparing the subject matter

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which one of the following describes the assurance provided and conclusion given in a reasonable assurance engagement?

A Absolute and negative

B High and negative

C High and positive

D Low and positive

MULTIPLE SELECT QUESTION

45 sec • 1 pt

Which three of the following statements form part of the generally accepted definition of 'fair', in the context of 'a true and fair view'?

A The information is free from discrimination and bias

B The accounts have been correctly extracted from the company's books and records.

C The information complies with generally accepted accounting practice.

D The accounts reflect the commercial substance of the company's underlying transactions.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

The following is an extract from an independent accountant's unmodified report on a profit forecast:
"Based on our examination of the evidence supporting the assumptions, nothing has come to our attention which causes us to believe that these assumptions do not provide a reasonable basis for the forecast."
Which one of the following best describes the types of wording and of assurance provided by this statement?

A High level of assurance expressed using a negative form of words

B Limited level of assurance expressed using a negative form of words

C Reasonable assurance expressed using a negative form of words

D Negative assurance expressed using a positive form of words

MULTIPLE SELECT QUESTION

45 sec • 1 pt

MULTIPLE SELECT QUESTION

45 sec • 1 pt

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CHAPTER 1 2 3 FUNDAMENTAL AUDITING

Which three of the following constitute possible subject matter which may be evaluated for the purposes of an assurance engagement?

Which two of the following describe the roles of the responsible party in any assurance engagement?

Which one of the following describes the assurance provided and conclusion given in a reasonable assurance engagement?

Which three of the following statements form part of the generally accepted definition of 'fair', in the context of 'a true and fair view'?

Which two of the following statements best describe the statutory audit?

ANSWER ADDITION F

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