WorksheetsMid test 1
Total questions: 19
Worksheet time: 11mins
Yexmarine is your new client, this engagement will represent 20% of the recurring practice income for the firm. Your firm were able to win the client without it going out to tender as one of the Directors of Yexmarine, Sebastian, is your partner’s wife. Sebastian were very impressed with one of the audit managers she met and have asked if he could come and work temporarily in her accounts department as they’ve had some members of the team leave recently who haven’t yet been replaced.
Which of the followings are ethical threats in respect of the engagement with Yexmarine?
(1) Self-interest
(2) Self-review
(3) Advocacy
(4) Intimidation
1
1,2,3
1,2,4
2,3,4
Which of the following statements is TRUE regarding assurance:
(1) Auditors are required to express an opinion as to whether the financial statements give a true and fair view;
(2) An audit is a type of reasonable assurance engagement.
Both statements are true
Both statements are false
Statement 1 is false
Statement 2 is false
A fraud has recently been discovered, involving the payroll's expenses of Yexmarine Ltd over a period of three years. The management of Yexmarine has written to the audit firm claiming that they had a responsibility to detect fraud during their audit, and requesting an explanation as to how they could have missed it. Which THREE of the following points should the auditor make in response to the Yexmarine’s management?
Auditor has no responsibilities as such to detect fraud.
Responsibilities set out in engagement letter.
Management’s Blue is responsible for detection fraud through implementing and monitoring the internal control system.
Audit firm is responsible for detecting fraud and error at Blue.
Which TWO of the following reasons affect to assurance engagement quality
The superivisor of assurance engagement may fail to communicate the issues arising to the engagement partner
The auditor may perform the right work to an adequate standard
The client could be negligent
The chief accountant of a company which is a supplier of audited entity could be incompetent
Which of the following procedures is NOT likely to result in the discovery of possible non-compliance with laws and regulations?
Enquiring of management or the entity’s lawyer
Reviewing internal control questionnaires
Undertaking tests of details on classes of transactions
Reading minutes of board meetings
An audit firm has identified that the current year fees to be received from a listed client for audit and other services will represent 16% of the firm’s total fee income (15.5% in the prior year). Which of the following safeguards would NOT be relevant in addressing the threat identified in relation to fees?
Disclosure to those charged with governance of the client that its fees represent more than 15% of the audit firm’s total fee income
A pre-issuance review to be conducted by an independent professional accountant
Separate engagement teams to provide the audit and non-audit services
A post-issuance review to be conducted by an external accountant or regulatory body
Which THREE of the following clients have high inherent risk
Grey Ltd has evidence of questionable integrity of management
Green Ltd has significant unexplained transactions
White Ltd has few unusual transactions
Blue Ltd has poor recent or forecast performance
Your client has asked why the auditor’s report your firm has issued on its financial statements talks about “true and fair” rather than “correct” given that you had spent three weeks on site reviewing all its accounting records and controls. Which THREE of the following explain why this type of opinion has been given on the financial statements?
All transactions must be reviewed.
Judgement involved in the use of accounting policies and estimates.
Audit is designed to ensure that accounts are free from material misstatements.
Sampling is used to identify a representative number from each population, but still there is a risk that incorrect items would not be chosen.
You are the auditor of Yexmarine Ltd, a new audit client having some special purpose subsidiaries. You are aware that your audit client has covered ISA 550 Related Parties. Which THREE of the following lists of possible procedures you would perform to ensure that all material related party transactions have been identified
Obtain a list of current known related parties and discuss the list of related parties as disclosed by the directors as to its accuracy and completeness.
Enquiry of directors as to whether have been any material transactions with related parties.
Review the accounting records before and after the year end for any large amounts and analyze with reasons.
Issue a modified audit report because any transactions arising from special purpose subsidiaries of Yexmarine will be considered as material.
Which of the following is NOT a provision of the UK Corporate Governance Code?
There should be a clear division of responsibilities between the leadership of the board and the leadership of the company’s business
All members of the board, excluding the chairman, should be independent non-executive directors
Executive director remuneration should be linked to corporate and individual performance
All directors should be subject to annual re-election
Dulce is your audit client which develops software packages. Mr John, director of Dulce has proposed a potential business opportunity to your auditing firm. The proposal is that Dulce and your firm could jointly develop accounting and tax calculation software, and that revenue from sales of the software would be equally split between the two firms.
Which of the following is ethical threats arising from Mr’s John proposal?
Self-interest
Advocacy
Familiarity
Intimidation
Which of the following are the key elements of an assurance engagement:
(1) Three-party relationship;
(2) A subject matter;
(3) Suitable criteria;
(4) An assurance file
1,2,3
1,2,3,4
2,3,4
2,3
Which ONE of the following actions is NOT a quality control action in engagement performance phase?
Direction
Documentation and review
Consultation
Observation
Which ONE of the followings is NOT a main element of a firm’s quality control system?
Engagement performance
Monitoring
Risk assessment process
Acceptance and continuance of client relationships and specific engagements
During your firm’s external audit of Yexmarine Ltd (Yexmarine), a phamarceutiacal manufacturer, through inquiring its staffs, you were told that the company frequently fails to provide its factory workers with the legally required protective clothing when working with hazardous chemicals. Which TWO of the following explain why this information should be considered by your firm during the external audit regarding ISA 250 “Consideration with laws and regulations in audit of financial statements”?
Failure to provide protective clothing may breach health and safety regulations and may indicate a lack of management integrity.
There may be an impact on the financial statements due to legal claims if employees suffer injuries or going concern issues if authorities close factory.
Auditors should note the non-compliance with laws and regulations in the engagement letter.
There may be an immaterial impact on the financial statements due to not arising any legal claims from Lemon’s employees.
Which of the following statements is false relating to review actions in the audit firm?
The review will help to assess the sufficiency and appropriateness of obtained audit evidence.
The review is the obligatory procedure according to law and regulations
Engagement quality control review (EQCR) is performed by engagement partner
A ‘hot review’ is a review carried out by a partner not otherwise involved in the engagement or an external consultant
Which of the following is true regarding assurance engagement
A statutory audit gives reasonable assurance that financial statements give a true and fair view
A negative assurance conclusion gives a high level of assurance.
Reasonable assurance is absolute assurance of the correctness of the subject matter
The practitioner’s conclusion in a review engagement is expressed in positive form of assurance
Which THREE of the following parties affect to audit quality?
The individual auditor
The client
The third party
The engagement partner
Which of the following statement explain for “Familiarity” threat?
The auditors’ own personal interest in client which could influcence the auditor’s independence.
When carrying out the audit, the auditors, review work that their own firm has undertaken previously, e.g. preparing accounts or making a valuation.
If the auditors get involved in disputes concerning the client, they may end up acting for or against the client, which undermines the appearance of objectivity.
The auditors may be intimidated by a dominant or aggressive atmosphere at the client.
If the auditors are involved with the client for a long time, they may become unduly sympathetic towards directors and management and thus too inclined to trust their unsupported word.
