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Total questions: 138

Worksheet time: 1hrs 16mins

Name
Class
Date
1.

"Based on our review, nothing has come to our attention that causes us to believe that the accompanying financial statements do not present fairly, in all material respects... in accordance with International Financial Reporting Standards. "Which of the following BEST describes the type of assurance provided by this statement?


a)

  1. Limited level of assurance expressed negatively

b)

  1. High level of assurance expressed negatively

c)

  1. Negative assurance expressed positively

d)

  1. Positive assurance expressed negatively

2.

The level of assurance given by an assurance engagement will depend on the type of engagement. What level of assurance would normally be given to an audit of financial statements?


a)

  1. Zero

b)

  1. Limited

c)

Reasonable

d)

Absolute

3.

 Which of the following is the most appropriate definition of the external audit?


a)

  1. The external audit provides negative assurance on the truth and fairness of a company's financial statements

b)

  1. The external audit is an exercise carried out in order to give an opinion on the effectiveness of a company's internal control system.

c)

  1. The external audit is an exercise carried out by auditors in order to give an opinion on whether the financial statements of a company are materially misstated.

d)

  1. The external audit provides negative assurance on the truth and fairness of a company's financial statements

4.

 Is the following statement regarding stewardship true or false? "Directors are stewards of the investment made by shareholders in a company"


a)

t

b)

f

5.

Which two of the following are elements of an assurance engagement? 

(1) A three-party relationship

(2) Report

(3) Determination of materiality

(4) An engagement letter


a)

  1. (1) and (4) only

b)

  1. (2) and (3) only

c)

  1. (1) and (3) only

d)

  1. (1) and (2) only

6.

The person who has responsible for subject matters is

a)

  1. Auditor

b)

  1. Practitioner

c)

  1. Responsible party

d)

  1. Intended user

7.

Which body has responsible for issuing ISAs?


a)

  1. IASC

b)

  1. IESBA

c)

  1. IAASB

d)

  1. IASB

8.

Which of the following is limitation of the provision of audit engagement


a)

  1. The level of assurance provided by an external audit is reasonable assurance but not absolute assurance.

b)

Audit work is carried out by people independent of the entity.

c)

  1. Sampling is used in assurance work.

d)

Unqualified staff may be used on audit engagements

9.

Which one of the following statements best describes the evidence obtained and the opinion given in a reasonable assurance engagement?


a)

  1. A lower level of evidence and a positively worded opinion

b)

  1. A lower level of evidence and a negatively worded opinion

c)

  1. Sufficient appropriate evidence and a positively worded opinion

d)

  1. Sufficient appropriate evidence and a negatively worded opinion

10.

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.


a)

  1. Statement 2 is false

b)

  1. Statement 1 is false

c)

  1. Both statements are false

d)

  1. Both statements are true

11.

You are senior auditor of Smartwear Ltd. The director of Smartwear have requested you to assist them with the preparation of the statutory financial statements. Which of the following threats does this situation create


a)

  1. Advocacy

b)

  1. Familiarity

c)

  1. Self-review

d)

  1. Self-interest

12.

Your firm has been the external auditor of Dulce Ltd (Dulce) for a number of years. Lois Janson has been the engagement partner for approximately 6 years. Dulce is in the process of becoming a listed company and its director have requested that Lois Janson continue as the engagement partner once the company listed.Which ethical issues arising when your firm

accept the director's request?


a)

  1. Integrity

b)

  1. Familiarity

c)

  1. Self-review

d)

  1. Self-interest

13.

During the external audit of Yummee Ltd you discover that the director has accounted for research costs inappropriately resulting in a material misstatement in Yummee's financial statements. Your firm plans to issue a modified audit opinion if the misstatement is not corrected. During a conversation with your firm's audit partner, Yummee's managing director, Java Peraya, indicated that it is the directors' intention to seek the removal of your firm as external auditors if your firm issues a modified audit opinion in respect of this matter. Which of the following is an appropriate action that your firm should consider taking in response to the conversation between Java Peraya and your firm's audit partner.


a)

  1. Consider resignation as the director's action represents an intimidating threat and breakdown of trust as well as raising doubts about management's integrity

b)

  1. Provide unmodified audit opinion with an Emphasis of matters paragraph describing the material misstatement

c)

  1. Provide an unmodified audit opinion to retain the audit contract.

d)

  1. Discuss the issue with the director but don't request them to correct the accounting treatment

14.

Your firm is Yexmarine's external auditor. Yexmarine's director has suggested that the external audit fee should be renegotiated with at least 22% of the fee being based on the profit after tax of the company as they feel this will align the interests of your firm and Yexmarine.

Fees based on the outcome or results of work performed are known as...?


a)

  1. Bonus

b)

  1. Awards

c)

  1. Contingent fees

d)

  1. Self-interest

15.

Your firm's largest client in the term of fee income is Yexmarine plc. Your firm has acted for this client for 16 years and, in addition to the statutory audit, provides a range of non-audit services, including tax planning (for the company and its individual directors) and consultancy work in respect of Yexmarine's acquisition policy. The finance director of Yexmarine plc retired in May this year and was succeeded by a former member of your firm's staff who had managed the audit of Yexmarine plc for the preceding four years.

Which of the followings is not the ethical and professional issues raised by the situation described above?


a)

  1. Familiarity 16 years

b)

  1. Advocacy

c)

  1. Self-review provides a range of non-audit services, including tax planning

d)

  1. Self-interest largest client

16.

Your firm's largest client in the term of fee income is Yexmarine plc. Your firm has acted for this client for 16 years and, in addition to the statutory audit, provides a range of non-audit services, including tax planning (for the company and its individual directors) and consultancy work in respect of Yexmarine's acquisition policy. The finance director of Yexmarine plc retired in May this year and was succeeded by a former member of your firm's staff who had managed the audit of Yexmarine plc for the preceding four years.

Which of the following are the measures which should be implemented by your firm in order to mitigate any threats to objectivity which might arise?


a)

  1. All above measures

b)

  1. The use of different teams with separate reporting lines

c)

  1. Quality control procedures should be in place to ensure a healthy professional scepticism at all times

d)

  1. Assess the composition of the audit team in the light if this (may need to remove team members who have a close associated with this ex-employee).

e)

  1. Regular review should be performed to ensure that regular fees are below recommended threshold 

17.

You have been invited to tender for the audit of Dulce plc, a company that owns and operates 40 hotels in the south west of England. You have not previously acted for Dulce, but you are the current auditors of Yexmarine Ltd, a company that owns and operates hotels in 30 out of 35 towns in which Dulce operates. The hotels operated by each company offer similar facilities to each other at a similar price.

Which of the following is the principal ethical issue that you may need to consider when deciding whether or not to tender for the audit of Dulce


a)

  1. Conflict of interest

b)

  1. Honestly

c)

  1. Objectivity

d)

  1. Professional competence and due care

18.

From a review of the information in audit planning, your audit assistant has highlighted some of the potential risks to independence in respect of the audit an client: "Tax fee of taxation service to be based on a percentage of tax saved". Which of the following options best identifies the valid threats to independence?


a)

  1. Self-interest

b)

  1. Self review

c)

  1. Intimidation

d)

  1. Advocacy

19.

 From a review of the information in audit planning, your audit assistant has highlighted some of the potential risks to Independence in respect of the audit an client: "Firm to represent the client in a dispute with the tax authorities". Which of the following options best identifies the valid threats to independence?


a)

  1. Self-interest

b)

  1. Self review

c)

  1. Intimidation

d)

  1. Advocacy

20.

 Which of the following statements best reflects the auditor's duty of confidentiality

a)

  1. Auditors may only disclose matters to third parties without their client's consent if the public interest or national security is involved.

b)

  1. Auditors may disclose matters to third parties without their client's consent if it is in the public interest, and they must do so if there is a statutory duty to do so.

c)

  1. Auditors may disclose any matters in relation to criminal activities to the police or taxation authorities, if requested to do so by the police or a tax inspector

d)

  1. Auditors must never, under any circumstances, disclose any matters of which they become aware during the course of the audit to third parties, without the permission of the client.

21.

There are a lot of reasons which affect to the assurance engagement quality. Which THREE of the following reasons affect to assurance engagement quality?


a)

  1. The auditor may not have adequate understanding of the client's business

b)

  1. The chief accountant of a company which is a supplier of audited entity could be incompetent

c)

  1. The client could be negligent

d)

  1. The auditor may perform the right work to an adequate standard

e)

  1. The supervisor of assurance engagement may fail to communicate the issues arising to the engagement partner

22.

Reasons affecting to audit quality could come from which of the following parties?


a)

  1. Audit engagement partner

b)

  1. Related party

c)

  1. Third party

d)

  1. Individual auditor

e)

  1. Client

23.

 Which of the followings is/are NOT quality control actions/procedures in engagement performance phase


a)

  1. Consultant

b)

  1. Review

c)

  1. supervision

d)

  1. direction

e)

  1. Reperformance

24.

Who is responsible for direction of engagement performance?


a)

  1. Auditor and auditor assistant

b)

  1. Engagement partner

c)

  1. Board of management of the audited entity

d)

  1. Board of director of the audited entity

e)

  1. Members of audit committee of audited entity

25.

 Which of the following statements is false relating to review actions in the audit firm

a)

  1. Engagement quality control review (EQCR) is performed by a suitably qualified partner or other person in the firm not otherwise involved in the engagement

b)

  1. A 'hot review' is a review carried out by a partner not otherwise involved in the engagement or an external consultant

c)

Engagement quality control review (EQCR) is performed by engagement partner

d)

  1. The review is the obligatory procedure according to law and regulations

26.

Which of the following is the quality control procedure of audit firms


a)

  1. Inquiry the employees of audited entity about the reasons of figures differences

b)

  1. Allocate experienced and competent staff to the engagement

c)

  1. Observe the business operations of audited entity and assess the risk

d)

  1. All work performed by junior staffs must be review by a higher-level staff

e)

  1. Reperform the control activities of audited entity which auditor suspected that they are Ineffective

27.

How many elements of an audit quality control system?

a)

4

b)

5

c)

6

d)

7

28.

Which ONE of the followings is NOT a main element of a firm's quality control system

a)

  1. Ethical requirements

b)

Acceptance and continuance of client relationships and specific engagements

c)

  1. Risk assessment process

d)

  1. Monitoring

e)

  1. Engagement performance

29.

Which of the following purposes are purposes of cold reviews?

a)

  1. Take remedial actions

b)

  1. Concentrates on significant judgements made and conclusions reached in formulating the auditor's report

c)

  1. Identify systemic deficiencies

d)

Ensure to compliance with IFRS, UK GAAP, ISA

30.

 The audit firm shall establish monitoring process designed to provide it with reasonable assurance that the policies and procedures relating to system of quality control are relevant, adequate, and operating effectively. Which ONE of the following statements relating to monitoring of quality control partner is true


a)

  1. The quality control partner must test the quality control procedures at least annually to ensure the firm is in compliance

b)

  1. The quality control partner must test the quality control procedures at least quarterly to ensure the firm is in compliance

c)

  1. The quality control partner must test the quality control procedures at least monthly to ensure the firm is in compliance

d)

The quality control partner must test the quality control procedures at least weekly to ensure the firm is in compliance

31.

Which TWO of the following would be used in understanding the entity in accordance with ISA 315?

a)

  1. The results of a review of events after the date of the financial statements.

b)

  1. Nature of the entity, including selection and application of accounting policies

c)

  1. Objectives and strategies related to the business risks

d)

  1. The results of tests of details

32.

Which THREE of the following would normally be included in the overall audit strategy?


a)

  1. Detailed plan of audit procedures

b)

  1. Confirmation of management's responsibility for the financial statements

c)

  1. The results of initial analytical procedures

d)

  1. Details of economic factors and industry conditions

e)

  1. Identification of specific audit risks

33.

 Which THREE of the following statements about materiality are incorrect?


a)

  1. Once established, the materiality level initially set cannot be revised during the course of the audit

b)

  1. Information is material if its omission or misstatement could influence the economic decisions of users of the financial statements.

c)

  1. Materiality should only be calculated at the planning stage of the audit

d)

  1. Materiality is always based on revenue

e)

  1. Materiality is based on the auditor's experience and judgment

34.

Which THREE of the following statements in respect of risk are true?


a)

  1. Risk of material misstatement is organized by inherent and control risks


b)

  1. Inherent and control risks are components of audit risk

c)

  1. Identifying business risks is part of the company's risk assessment processes

d)

  1. Auditors can impact on inherent risk to bring audit risk to an acceptable audit risk

e)

  1. Auditors should provide suggestions for companies to overcome business risks

35.

The auditor of Yexmarine Co assessed that risk of material misstatement is high and wishes to reduce audit risk. Which TWO of the following actions could the auditor take to achieve this?


a)

  1. Assign more experienced staff to the engagement team

b)

Increase sample sizes

c)

  1. Reduce inherent risk

d)

  1. Reduce control risk

36.

If you want to gain an understanding of the specific business operations of the audited entity, which ONE of the following matters would an auditor need to consider?


a)

Acquisitions or disposals of the client's business activities

b)

  1. Accounting principles and industry specific practices relevant to the client's business 

c)

  1. Products or services and markets of the client's business

d)

  1. Leasing of property, plant or equipment for use in the client's business

37.

When implementing the analytical procedures on the financial statements of Yexmarine Co, you have identified that the entity's quick ratio has fallen from 1.8/1 to 1.2/1. Which ONE of the following might help to explain this decline


a)

  1. The entity has purchased a batch of inventory for cash

b)

  1. The entity has purchased a property for cash

c)

  1. The allowance for receivables has been reduced

d)

  1. Credit control has been poor

e)

  1. Inventory levels have fallen

38.

The extracted data from financial statements of Yexmarine as follow:Revenue: $6,00000; Total assets: $9,000,000; Profit before tax $600,000. At planning phase, auditor have auditor have assessed the ROMM at low level decided base on total assets to define overall materiality level. Which ONE of the following could be suitable materiality level set for the financial

statements for the company?


a)

  1. 180,000

b)

  1. 90,000

c)

  1. 48,000

d)

  1. $24,000

39.

Which of the following controls of a sales system ensure that all goods despatched are completely and accurately invoiced


a)

  1. Sales invoices are matched to customer orders

b)

  1. Sales invoices are sequentially numbered

c)

  1. Good despatched notes are matched to sales invoices

40.

Which of the following procedures are TESTS OF CONTROL an auditor should perform in testing the inventory cycle of their client whilst attending the inventory count?

(1) Observe whether the client's staff are following the inventory count instructions

(2) Review inventory present in the warehouse for evidence of damage or obsolescence

(3) Obtain a sample of the last goods received notes and goods despatched notes and follow through to ensure inclusion in the correct accounting period 

(4) Inspect and review management's inventory count instructions


a)

  1. 3 and 4

b)

  1. 1 and 2

c)

  1. 1 and 4

d)

2 and 3

41.

One of the control objectives of the sales system of B Co is to ensure that goods and services are sold to credit-worthy customers. Which of the following control activities would assist B Co in achieving this objective?


a)

  1. The aged-debt listing is reviewed by the finance director on a monthly basis

b)

  1. Overdue debts are chased each month by the credit controller

c)

Credit limits are checked before sales orders are accepted

d)

  1. All sales orders are based on authorised price lists

42.

Which of the following controls helps to ensure that payroll payments are only made to bona fide employees?

(1) Personnel records maintained for all employees 

(2) Comparison of bank transfer listing with payroll

(3) Segregation of duties between staff involved in human resources and payroll functions

(4) Reperformance of the calculation of a sample of payroll deductions


a)

  1. (3) and (4)

b)

  1. (2) and (4)

c)

  1. (1) and (3)

d)

  1. (1) and (2)

43.

B Co maintains perpetual inventory records. Which of the following control activities would

contribute to the auditor's confidence that inventory recorded in the financial statements exists?

(1) Procedures to identify obsolete and damaged inventory

(2) Physical safeguards to protect inventory from theft

(3) Sequential numbering of goods dispatched notes

(4) Reconciliation of inventory records to results of inventory counts


a)

  1. (2) and (4)

b)

  1. (2) and (3)

c)

  1. (1) and (3)  

d)

  1. (1) and (2)

44.

Which of the following is not a test of control?


a)

Agreement of the cost of non-current asset additions to purchase documentation

b)

  1. Examination of purchase invoices for evidence of mathematical accuracy checks

c)

  1. Review of monthly bank reconciliations performed by the audit client

d)

  1. Inspection of purchase order documentation to confirm that it has been authorised

45.

Which of the following substantive procedures provides evidence over the EXISTENCE of

non-current assets?


a)

  1. For assets disposed of, agree the sale proceeds to supporting documentation and cash book


b)

  1. Review the repairs and maintenance expense account to identify any items of a capital nature

c)

Select a sample of assets included in the non-current asset register and physically verify them at the client premises

46.

Which of the following statements is/are true with respect to analytical procedures?

(1) Analytical procedures can be used throughout the audit.

(2) Analytical procedures must be used as risk assessment procedures.


a)

  1. Neither (1) nor (2)

b)

  1. (1) and (2)

c)

  1. (2) only

d)

  1. (1) only

47.

Which two of the following would be classified as substantive procedures?

(1) Tests of cont 

(2) Walk-through tests

(3) Analytical procedures

(4) Tests of details


a)

  1. (3) and (4)

b)

  1. (2) and (3)

c)

  1. (1) and (4)

d)

  1. (1) and (2)

48.

 The auditor of G Co is performing audit procedures to confirm the company's ownership of

motor vehicles. Which of the following would provide the most persuasive evidence of this?


a)

Checking that the motor vehicles are recorded in the non-current asset register

b)

Inspection of vehicle registration documents

c)

Physical inspection of the motor vehicles

49.

Which of the following audit procedures would provide the auditor with evidence of completeness of inventory


a)

  1. Vouching the cost of a sample of inventory items to suppliers' invoices

b)

  1. Reviewing the physical condition of inventory when attending the inventory count

c)

  1. Tracing test counts performed at the inventory count to the detailed inventory listing

50.

Which of the following assertions about classes of transactions and events for the period under audit is defined below. 'Amounts and other data relating to recorded transactions and events have been recorded appropriately'

a)

Classification

b)

Occurrence

c)

Accuracy

d)

Cut-off

51.

Which of the following must be included in an auditor's report?

a)

  1. A statement that the auditor is independent of the entity and has fulfilled their ethical responsibilities

b)

  1. Description of the meaning of materiality

c)

  1. Title indicating the report is that of the independent auditor

d)

  1. A statement that the auditor believes the audit evidence obtained is sufficient and appropriate

52.

According to ISA 701, which of the following should be included in the 'Key Audit Matters' paragraph in the auditor's report


a)

  1. All matters which are considered to be material to the financial statements

b)

  1. All matters which were communicated to those charged with governance

c)

  1. Matters which result in a modification to the audit opinion

d)

  1. Matters which required significant auditor attention

53.

Events after the reporting date are categorised as either being an adjusting event and a non-adjusting event. An adjusting event provides evidence of conditions that existed at the reporting date. Which of the following should be classified as adjusting event


a)

  1. Announcing a plan to discontinue an operation

b)

  1. Commencing a court case arising out of events after the reporting period

c)

  1. Major purchases of assets

d)

Bankruptcy of a major customer

54.

Events after the reporting date are categorised as either being an adjusting event and a non-adjusting event. Non-adjusting events are not incorporated into the financial statements, although they may be disclosed. Which of the following should be classified as a non-adjusting event


a)

  1. The insolvency of a customer with a debt owing at the end of the reporting period which is still outstanding

b)

  1. Discovery of fraud or error affecting the financial statement

c)

  1. Sale of inventory held at the end of the reporting period for less than cost

d)

  1. A fire destroying some of the company's inventory (the company's going concern status is not affected)

55.

ISA 700 Forming an opinion and reporting on financial statements sets out the basic elements of an auditor's report. Which of the following is not included in an unmodified auditor's report?


a)

  1. Deficiencies of internal controls

b)

  1. Audit opinion

c)

  1. Auditors' responsibilities

d)

Management's responsibility for the financial statements

56.

 ISA 705 Modification to the opinion in the independent auditor's report identifies three possible types of modification. In which of the following circumstances would a disclaimer of opinion be issued

a)

  1. The auditor has not been able to obtain sufficient appropriate audit evidence on which to base an opinion and has concluded that the possible effects of any undetected misstatements could be both material and pervasive.

b)

  1. The auditor has not been able to obtain sufficient appropriate audit evidence on which to base an opinion but has concluded that the possible effects of any undetected misstatements could be material but not pervasive

c)

  1. The auditor concludes that the financial statements include misstatements which are both material and pervasive to the financial statements.

d)

The auditor concludes that the financial statements include misstatements which are material but not pervasive to the financial statements

57.

The statement of financial position of R Co includes a material amount of $200,000 in respect of costs capitalised in the year as development expenditure. The auditor has concluded that these costs are research expenditure. If the auditor is to issue an unmodified opinion which financial statements will require adjustment?


a)

  1. Neither the statement of financial position nor the statement of profit or loss

b)

  1. Statement of financial position and statement of profit or loss

c)

  1. Statement of profit or loss only

d)

  1. Statement of financial position only

58.

The fiscal year of Green Ltd is 30 June 20X9. Your audit firm was appointed as auditor of Green Ltd on 15 July 20X9, therefore auditor did not attend the inventory count which was carried out on 30 June 20X9. No alternative audit procedures could be performed in this case. The inventory balance of Green at reporting date 30 June 20X9 is $250,000. The draft financial statements show a profit before tax of $1.7 million. Which of the following is the most appropriate form of audit opinion that auditor should issue if the issue remains unresolved?


a)

  1. An unmodified opinion

b)

An unmodified opinion with an "Emphasis of matter paragraph"

c)

A qualified opinion and the reason for the modification should be outlined in the paragraph "Basis for qualified opinion"

d)

An Adverse opinion and an explanation of circumstances in the "Basis for adverse opinion section

59.

The directors have now agreed to include going concern disclosures, while continuing to use the going concern basis of accounting. You agree with the client's management that the going concern basis of accounting is appropriate under the circumstances. You have reviewed the draft disclosures and believe they are correct and adequate. Indicate which form of audit opinion would be appropriate and how the going concern issue would be disclosed in the auditor's report


a)

  1. A qualified opinion describe the nature of the going concern uncertainty in the "Basis for qualified Opinion" section

b)

  1. An adverse opinion and describe the nature of the going concern uncertainty in the "Basis for Adverse Opinion" section

c)

  1. An unmodified opinion and describe the nature of the going concern uncertainty in the "Key Audit Matters" section

d)

An unmodified opinion and describe the nature of the going concern uncertainty in the "Material Uncertainty Related to Going Concern" section

60.

 Maison's computerised wages program is backed up daily, however for a period of two months the wages records and back-ups have been corrupted, and therefore cannot be accessed. Wages and salaries for these two months are $1.1m. Profit before tax is $10m. Based on the above information Which of the following correctly summarises the effect of the issue relating to the wages balance in the financial statements of Maison


a)

  1. Immaterial misstatement related to wages and salaries

b)

  1. Material misstatement related to "Profit may be overstated

c)

  1. Material misstatement related to "Liabilities to tax authorities may be understated

d)

  1. Material misstatement related to "proper accounting records have not been kept

61.

Which of the following could be key audit matters as required in ISA701 "Communicating Key Audit Matters in the Independent Auditor's Report


a)

  1. The matter is deemed to be fundamental to the users understanding of the financial statements

b)

  1. Areas in relation to which the auditor express a separate opinion

c)

  1. Areas of high audit risk

62.

You are senior auditor of ABC Ltd. The director of XEA have requested you to assist them with the preparation of the statutory financial statements.

Which of the following threats does this situation create?

a)

Familiarity


b)

Self-review


c)

Self-interest


63.

Your firm has been the external auditor of Dulce Ltd (Dulce) for a number of years. Lois Janson has been the engagement partner for approximately 6 years. Dulce is in the process of becoming a listed company and its director have requested that Lois Janson continue as the engagement partner once the company listed.

Which ethical issues arising when your firm accept the director’s request?


a)

Integrity


b)

Familiarity


c)

Self-review


d)

Self-interest


64.

Yummee is your audit client. At Yummee’s most recent board meeting, the audit fee was discussed. The board members of Ymmee express their concern over the audit fee, because the company made loss for the year. The board members would like to know whether the audit can be performed on a contingent fee basis”

According to the Code, should the audit fee be calculated based on contingent fee basis?


a)

yes

b)

no

65.

 “Auditors should comply with relevant laws and regulations and avoid any action that discredits the profession”. Which of the following principles of IESBA’s code of ethics does this statement mention to?

a)

  Professional behaviour


b)

 Confidentiality


c)

   Professional competence and due care

d)

 Objectivity

e)

Integrity


66.

Which of the following statement explain for “self-interest” threat?

a)

 The auditors may be intimidated by a dominant or aggressive atmosphere at the client.

b)

 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.

c)

  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.

d)

 When carrying out the audit, the auditors, review work that their own firm has undertaken previously, e.g. preparing accounts or making a valuation

e)

The auditors’ own personal interest in client which could influcence the auditor’s independence.


67.

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

(5)  Familiarity


a)

2,4,5


b)

1,2,5


c)

1,2,4


d)

1, 2,3


e)

 (1) only


68.

During the external audit of Yummee Ltd you discover that the director have accounted for research costs inappropriately resulting in a material misstatement in Yummee’s financial statements. Your firm plans to issue a modified audit opinion if the misstatement is not corrected. During a conversation with your firm’s audit partner, Yummee’s managing director, Hazel Blue, indicated that it is the directors’ intention to seek the removal of your firm as external auditors if your firm issues a modified audit opinion in respect of this matter.

What kind of threat is External auditor facing in this case?


a)

 Familiarity


b)

Intimidation


c)

   Self-review


d)

Self-interest 


69.

Your firm is Yexmarine’s external auditor. Yexmarine’s director has suggested that the external audit fee should be renegotiated with at least 22% of the fee being based on the profit after tax of the company as they feel this will align the interests of your firm and Yexmarine.

Fees based on the outcome or results of work performed are known as …?


a)

  Bonus


b)

Awards


c)

Contingent fees


d)

Self-interest


70.

Your firm’s largest client in the term of fee income is Yexmarine plc. Your firm has acted for this client for 16 years and, in addition to the statutory audit, provides a range of non-audit services, including tax planning (for the company and its individual directors) and consultancy work in respect of Yexmarine’s acquisition policy. The finance director of Yexmarine plc retired in May this year and was succeeded by a former member of your firm’s staff who had managed the audit of Yexmarine plc for the preceding four year.

Which of the followings is not the ethical and professional issues raised by the situation described above?


a)

Familiarity


b)

Advocacy


c)

Self-review

d)

Self-interest

71.

Your firm’s largest client in the term of fee income is Yexmarine plc. Your firm has acted for this client for 16 years and, in addition to the statutory audit, provides a range of non-audit services, including tax planning (for the company and its individual directors) and consultancy work in respect of Yexmarine’s acquisition policy. The finance director of Yexmarine plc retired in May this year and was succeeded by a former member of your firm’s staff who had managed the audit of Yexmarine plc for the preceding four year.

Which of the following are the measures (procedures/safeguards/actions) which should be implemented by your firm in order to mitigate any threats to objectivity which might arise?

(1)  Regular review should be performed to ensure that regular fees are below recommended threshold.

(2)  Assess the composition of the audit team in the light if this (may need to remove team members who have a close associated with this ex-employee).

(3)  Quality control procedures should be in place to ensure a healthy professional scepticism at all times.

(4)  The use of different teams with separate reporting lines


a)

All above measures


b)

2 and 3


c)

1 and 2


d)

 1 only


72.

Which of the following is true of safeguards against threats to the ethical principles?

a)

  Seeking advice on the threat from a third party is an appropriate safeguard in some circumstances


b)

A safeguard is only considered to be effective if completely eliminates the threat to compliance with the ethical principles.


c)

The action is only considered to be a safeguard if it is found to be effective

d)

A safeguard is any specific or considered action that could be taken by the professional accountant in relation to an identified threat.


73.

ISA 220 Quality Control for an Audit of Financial Statements requires the firm to establish a system of quality control to ensure the firm complies with professional standards and issues reports that are appropriate in the circumstances

a)

The above statement is incorrect


b)

The above statement is correct


74.

For Quality Control for an Audit of Financial Statements Policies and procedures should be established which address:

a)

All of the above


b)

 Human resources, Engagement performance, Monitoring.


c)

Acceptance and continuance of client relationships and specific engagements


d)

  Relevant ethical requirements


e)

 Leadership responsibilities for quality within the firm


75.

The engagement partner should ensure that the engagement team collectively have the competence and capabilities to perform the audit in accordance with professional standards. This includes:

a)

All of the above


b)

 the ability to apply judgment and an understanding of the firm’s quality control policies and procedures.


c)

knowledge of relevant industries in which the client operates


d)

knowledge of professional standards


76.

Engagement performance comprises direction, supervision, consultant, documentation and review of the engagement.

a)

true

b)

false

77.

Engagement performance “direction” involves informing team members of:

a)

All of the above


b)

Problems that may arise, The detailed approach to the performance of the engagement.


c)

  The nature of the business, Risks


d)

   Their responsibilities, Objectives of the work to be performed


78.

Engagement performance “Supervision” includes:

a)

  All of the above


b)

 Addressing significant matters arising and modifying the planned approach accordingly


c)

Considering the competence of the team


d)

Tracking the progress of the audit to ensure the timetable can be met


79.

Engagement performance “Review” responsibilities include consideration of whether:

a)

All of the above


b)

    The work performed supports the conclusions reached


c)

 Appropriate consultations have taken place


d)

The work has been performed in accordance with professional standards


80.

  Listed entities and other high-risk clients should be subject to an engagement quality control review.

a)

true

b)

false

81.

Engagement Quality Control Review (EQCR) includes:

a)

All of the above


b)

Evaluation of conclusions reached in forming the audit opinion.


c)

Review of the financial statements and proposed auditor’s report.


d)

Discussion of significant matters with the engagement partner.


82.

Which of the following statements is false relating to review actions in the audit firm?

a)

 A ‘hot review’ is a review carried out by a partner not otherwise involved in the engagement or an external consultant.


b)

Engagement quality control review (EQCR) is performed by engagement partner.

c)

The review is an obligatory procedure according to law and regulations.


d)

 The review will help to assess the sufficiency and appropriateness of obtained audit evidence.


83.

Which of the following statements are true relating to review actions in the audit firm?


a)

  1. The review will help to assess the sufficiency and appropriateness of obtained audit evidence.

b)

The review is NOT an obligatory procedure according to law and regulations.

c)

  1. Engagement quality control review (EQCR) is performed by a suitably qualified partner who is NOT involved in the engagement.

d)

A ‘hot review’ is a review carried out by an independent partner after the auditor’s report is signed.

84.

Which THREE of the following procedures should be carried out after the audit firm has decided to accept nomination as auditor?


a)

  1. Ensure that the outgoing auditors’ removal/resignation has been properly conducted.

b)

  1. Communicate with the outgoing auditors to discover any reasons they should not accept appointments.

c)

  1. Set up and submit a letter of engagement to the directors of the company.

d)

  1. Ensure that the new auditors ’appointment is valid.

85.

The terms of engagement are recorded in a written audit engagement letter and should include:

  1. 1 The objective and scope of the audit of the financial statements

  2. 2 The responsibilities of the auditor

  3. 3 The responsibilities of management

  4. 4 Identification of the applicable financial reporting framework for the preparation of the financial statements

  5. 5 Reference to the expected form and content of any reports to be issued by the auditor.

a)

None


b)

 (I) (II) and (V) only


c)

  (I) (II) and (IV) only


d)

All of the above


86.

The content of the engagement letter should be agreed with the client before any engagement related work commences.

a)

true

b)

false

87.

Auditors perform client screening to define the level of risk. Which of the following might indicate that an audit client could have lower level of risk?

a)

Evidence of questionable integrity, doubtful accounting policies


b)

Conservative, prudent accounting policies


c)

The existence of an internal audit department


d)

 Lots of unusual transactions


88.

Your firm has received a nomination to act as Milk’s external auditor. Tim is director of Milk. Your firm’s client acceptance procedures have identified a recent newspaper article, which reported details of court proceedings relating to a fraud committed by Tim.

Which of the following issues should be considered when deciding whether to accept the appointment as external auditor of Milk.

a)

All these above.


b)

Unreliable management representation


c)

Poor control environment.


d)

Consideration of management’s integrity


89.

Which of the following is the purpose of planning the audit?


a)

To ensure the audit is completed within budget and time restraints.


b)

To facilitate the direction, supervision, and review of work.


c)

To determine the scope of the engagement.


d)

To clearly identify the management’s responsibility.


90.

According to ISA 315 “Identifying and Assessing the Risks of Material Misstatement”, Which of the following are elements of business risk?


a)

Sampling risk


b)

Compliance risk


c)

Operational risk


d)

Financial risk


91.

According to ISA 315, in the planning phase, Auditor must understand the entity and its environment to assess the risks of material misstatement at the financial statement level and at the assertion level. Which of the following statements in respect of risk is false?


a)

Auditors should provide suggestions for companies to overcome business risks.


b)

 Inherent and control risks are components of audit risk.


c)

. Identifying business risks is part of the company's risk assessment processes.


d)

Risk of material misstatement is organized by inherent and control risks.


92.

You are planning for the audit of the financial statements of Yexmarine Co, a non-listed company, for the year ended 31 September 20X2. You realized the unusual transactions and suspected that there are overtrading operations. Which TWO of the following options are signs of overtrading?


a)

Payables decreasing.


b)

Cash decreasing.


c)

Non - current assets decreasing.


d)

Receivables increasing.


93.

You are planning for the audit of the financial statements of Yexmarine Co, a non-listed company, for the year ended 31 September 20X2. The extracted data from financial statements of Yexmarine Co as follows:

Revenue: $5,560,000

Total assets: $8,680,000

Profit before tax: $480,000

At the planning phase, the auditor assessed the ROMM at a low level and auditor decided based on profit before tax to define overall materiality level. Which ONE of the following could be suitable materiality level set for the financial statements for Yexmarine Co?


a)

$86,800


b)

$20,000


c)

$24,000


d)

$48,000


94.

.In order to identify the risks of material misstatement in the financial statements the auditor is required to obtain an understanding of:

a)

Relevant auditing standards


b)

their clients’ internal controls


c)

their clients’ environments


d)

their clients


95.

According to the audit risk model: When inherent risk is high and control risk is high, detection risk will be _____ and the level of substantive procedures required will be _____.

Which of the following fills the blanks to complete the sentence correctly?


a)

low, decreased


b)

low, increased


c)

high, decreased


d)

 high, increased


96.

This is the audit risk that an assertion about a class of transaction, account balance or disclosure is susceptible to a misstatement that could be material, either individually or when aggreated with other misstatements before consideration of any related controls.

a)

Detection risk


b)

Audit risk


c)

Control risk


d)

Inherent risk


97.

Which of the following is NOT true regarding Performance Materiality? 

a)

Setting performance materiality ensures that auditors can find other smaller errors in the FSs


b)

The aim of performance materiality is to compensate for any unforseen circumstances of risks that may appear during the audit.


c)

The aim of performance materiality is to reduce the risk that the total of errors in balances, transactions, and disclosures does not in total exceed overall materiality.


d)

Performance materiality is used for testing individual transactions, account balances and disclosures.


e)

Performance materiality levels are higher than the materiality for the financial statements as a whole.


98.

The auditor of A Co wishes to reduce audit risk. Which of the following actions could the auditor take to achieve this?

(1) Increase sample sizes

(2) Reduce control risk

(3) Assign more experienced staff to the engagement team 


a)

  (2) and (3)


b)

(1) and (3) 


c)

 (2) only


d)

 (1) only


99.

Which of the following would NOT contribute to inherent risk?

a)

The company intents to IPO next year


b)

Complex transactions


c)

A new computerized accounting system


d)

Poor supervision of accounting staff


100.

Which of the following examples illustrates Detection Risk?

a)

Sample sizes have been calculated incorrectly by the auditor and are too small


b)

Senior management regularly override the internal control system

c)

 The company operates in a slow-moving, stable industry

d)

Director’s pay related to company’s profitability


101.

 In which TWO of the following circumstances leading you to undertake full substantive testing? 


a)

There is a lack of evidence that controls are in operation. 


b)

It is cost – effective to test controls. 


c)

 The controls are evaluated and the result shows that the controls are strong.

d)

The auditor’s initial assessment is that controls are not strong. 


102.

Which of the following factors that the external audit should consider in the assessment of inherent risk when planning the audit of the financial statement of Yexmarine Co, ltd. 


a)

Complexity of tax rules.  


b)

Control activities over grants and donations.

c)

 Accounting treatment of grants and revenue grants. 


d)

Significance of cash donation and complexity of regulation. 


103.

Subsequent events procedures should be performed between the date of the financial statements and WHICH DATE?

a)

The date the financial statements are issued 


b)

The date of the auditor’s report 


c)

The date of approval of the financial statements 


d)

The date the subsequent events review is performed 


104.

Which of the following statements, relating to the auditor’s responsibilities regarding subsequent events, if any, is/are correct? 

(1) Auditors do not have a responsibility to perform procedures to identify subsequent events after the date of the auditor’s report 

(2) Where a material adjusting subsequent event is identified after the financial statements are issued, but prior to approval by the shareholders, the auditor should include a qualified opinion in their audit report if management refuses to adjust the financial statements for the event 


a)

. Neither 1 nor 2 


b)

Both 1 and 2 


c)

2 only 


d)

1 only 


105.

 The financial statements of ABC have been produced on the going concern basis but the auditor believes that there is no realistic chance of the company surviving for more than a few months. The notes refer to going concern matters but the directors refuse to change the basis on which the FS have been prepared. Which of the following correctly describes the auditor’s report?


a)

A disclaimer of opinion. 


b)

An adverse opinion 


c)

An unmodified opinion and a separate section headed “ Material uncertainty related to going concern” 


d)

A qualified opinion 


106.

Which of the following statements about OTHER MATTERS paragraph in an auditor’s report is true?

a)

It is used to draw attention to matters that is appropriately disclosed in the FS.

b)

 It is alternative name for “Emphasis of matter” paragraph (EOM)

c)

 It may be used to refer to information in the director’s report that conflicts with the FS 


d)

It may be used to draw attention to matters of most significance to the audit

107.

the auditor of ABC Co believes that trade receivables are materially misstated because some amounts appear to be irrecoverable. The directors have refused to adjust the FS 

What form of audit opinion should the auditor give? 


a)

A qualified opinion on the basis of a material misstatement. 


b)

An unmodified opinion 


c)

An adverse opinion on the basis of a material misstatement 


d)

Qualified opinion on the basis of insufficient audit evidence on the recoverability of the debts 


108.

In the auditor’s judgment, management’s use of the going concern basis of accounting is appropriate and the material uncertainty has been adequately disclosed in a note to the FS What form of auditor’s report should be issued? 


a)

An adverse opinion.


b)

A qualified opinion on the basis of insufficient audit evidence about the company’s ability to continue trading 


c)

An unmodified opinion with a “Material uncertainty relating to going concern” section 


d)

A qualified opinion with a “Material uncertainty relating to going concern’” section

109.
a)

cdab

b)

abcd

c)

dacb

d)

bdca

110.

In the auditor’s judgment, management’s use of going concern basis of accounting is appropriate but the material uncertainty has NOT been adequately disclosed in a note to financial statements. What form of auditor’s report should be issued?


a)

A qualified opinion on the basis of material misstatement.  


b)

A qualified opinion on the basis of insufficient audit evidence   


c)

An adverse opinion  


d)

An unqualified opinion with “Material uncertainty relating to going concern” section


111.

 Auditor has discovered a $5,000 calculation error in the depreciation expense for the year. The directors have refused to adjust the financial statements. The carrying amount of non-current assets is $1m and draft profit for the year is $150,000 What is the most appropriate form of audit opinion? 


a)

Unmodified  


b)

Unmodified opinion with an emphasis of matter paragraph to draw attention to  the error


c)

Qualified opinion on basis of material misstatement

d)

Qualified opinion on basis of insufficient evidence

112.

 Which of the following is NOT a form of audit opinion in an auditor’s report?


a)

Unmodified


b)

 Emphasis of matter

c)

Qualified  


d)

Disclaimer  


113.

Which of the following is NOT part of the financial statements on which an auditor reports?


a)

Cash flow statement  


b)

 Director’s report  


c)

Statement of financial position  


d)

Notes to the financial statements  


114.

On 25 Jan 20X8, a company’s warehouse is destroyed by fire How should this be treated in the financial statements for the year ended 31 December 20X7?


a)

Only explain the event in a note to the financial statements. 

b)

No adjustment or disclosure is required  


c)

Only adjust the financial statements to write off the warehouse

d)

 Adjust the financial statements to write off the warehouse and explain the event in a note to the financial statements  


115.

On 25 Jan 20X8, a customer who owed a material amount went into liquidation and announced that there would be no payments to creditors. How should this be treated in the financial statements for the year ended 31 December 20X7

a)

Only adjust the FS to write off the receivable balance. 

b)

 Adjust the FS to write off the receivable balance in the FS and explain the event in a note to FS

c)

No adjustment or disclosure is required

d)

Only explain the event in a note to FS  


116.

After the FS with an unmodified audit opinion have been issued to members, the auditor becomes aware that they contain a material misstatement. What should be the auditor’s next step?


a)

No action is needed because the audit has been completed

b)

Carry out audit procedures on the necessary amendments

c)

Seek legal advice 


d)

Discuss how management intends to address the matter 

117.

Which of the following is a necessary characteristic of a non-adjusting event?

a)

It relates to conditions that existed at reporting date

b)

It relates to evidence which existed before the reporting date

c)

 It relates to events which occurred before the reporting date

d)

It relates to conditions that arose after the reporting date

118.

Which of the following actions would NOT be an appropriate response to management’s refusal to provide a requested written representation?


a)

 Discuss the matter with management. 


b)

Seek legal advice  


c)

 Determine the possible effect this may have on the auditor’s report

d)

Revaluate the integrity of management 


119.

Which of the following are the key element of an assurance engagement:

(1) Three-party relationship:

(2) A subject matter

(3) Suitable criteria:

(4) An assurance file


a)

  1. (2) and (3) only

b)

  1. (2), (3), and (4)

c)

  1. (1), (2), (3), and (4)

d)

  1. (1), (2), and (3)

120.

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?


a)

  1. Sampling is used to identify a representative number from each population, but still …

b)

Audit is designed to ensure that accounts are free from material misstatements.

c)

  1. Judgment involved in the use of accounting policies and estimates.

d)

All transactions must be reviewed.

121.

Which ONE of the following is NOT type of assurance engagements regarding other information?


a)

  1. Report on historical financial information

b)

  1. Report on effectiveness of internal controls for external financial purposes.

c)

  1. Report on key performance indicators.

d)

  1. Report on prospective financial information.

122.

The 'expectation gap' is the possible difference between an auditor's actual responsibilities and those assumed by readers of an auditor's report? Which TWO of the following are the main misunderstandings in respect of the audit made by users of financial statements?


a)

  1. Auditors may not find material frauds.

b)

  1. Frauds involving collusion are harder to detect.

c)

  1. Auditors check all transactions.

d)

  1. Auditor certifies accounts in report as being correct.

123.

 Which of the following is NOT a provision of the UK Corporate Governance Code?


a)

  1. All directors should be subject to annual re-election

b)

  1. Executive director remuneration should be linked to corporate and individual performance

c)

  1. All members of the board, excluding the chairman, should be independent non-executive directors

d)

  1. There should be a clear division of responsibilities between the leadership of the board and the leadership...

124.

 Which of the following is NOT describe what you understand by the terms 'reasonable assurance'


a)

  1. Not absolute level of assurance

b)

  1. High level of assurance.

c)

  1. Conclusion expressed positively.

d)

  1. Objective is a reduction in assurance engagement risk to a level that is acceptable in the circumstances...

125.

 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?

a)

  1. Audit firm is responsible for detecting fraud and error at Yexmarine.

b)

  1. Management's Yexmarine is responsible for detection fraud through implementing and monitoring the int...

c)

  1. Responsibilities set out in engagement letter.

d)

  1. Auditor has no responsibilities as such to detect fraud.

126.

During your firm's external audit of Yexmarine Ltd (Yexmarine), a pharmaceutical 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 ONE of the following the auditor might NOT have to take FIRST in this circumstance regarding ISA 250 "Consideration with laws and regulations in audit of financial statements"?

a)

  1. Make a statement of circumstances on resignation immediately due to this material non-compliance with…

b)

  1. Obtain the written representation provided by Yexmarine's management.

c)

  1. Inspecting the correspondence with relevant licensing authorities.

d)

  1. Auditors should undertake audit procedures to identify non-compliance with laws and regulations that mig...

127.

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 


a)

  1. Issue a modified audit report because any transactions arising from special purpose subsidiaries of Yex...

b)

  1. Review the accounting records before and after the year end for any large amounts and analyze with reas...

c)

  1. Enquiry of directors as to whether have been any material transactions with related parties.

d)

  1. Obtain a list of current known related parties and discuss the list of related parties as disclosed by the di...

128.

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 Xexmarine. Sebastian, is your partner's wife. Sebastian were very

impressed with one of the audit managers she met and have asked if he could some 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?


a)

  1. Intimidation

b)

  1. Advocacy

c)

  1. Self-review

d)

  1. Self-interest

129.

Yexmarine is your audit client which develops software packages. Mr Brat, director of Yexmarine has proposed a potential business opportunity to your auditing firm. The proposal is that Yexmarine 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 Brat proposal?


a)

  1. Intimidation

b)

  1. Familiarity

c)

  1. Advocacy

d)

  1. Self-interest

130.

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? 


a)

  1. A post-issuance review to be conducted by an external accountant or regulatory body

b)

  1. Separate engagement teams to provide the audit and non-audit services

c)

  1. A pre-issuance review to be conducted by an independent professional accountant

d)

  1. Disclosure to those charged with governance of the client that its fees represent more than 15% of the au...

131.

Which TWO of the following reasons affect to assurance engagement quality


a)

  1. The chief accountant of a company which is a supplier of audited entity could be incompetent

b)

  1. The client could be negligent

c)

  1. The auditor may perform the right work to an adequate standard

d)

  1. The supervisor of assurance engagement may fail to communicate the issues arising to the engagement...

132.

Which THREE of the following parties affect to audit quality?


a)

  1. The engagement partner

b)

  1. The third party

c)

  1. The client

d)

  1. The individual auditor

133.

Which ONE of the following actions is NOT a quality control action in engagement performance phase?


a)

  1. Observation

b)

  1. Consultation

c)

  1. Documentation and review

d)

  1. Direction

134.

Which of the following statements is false relating to review actions in the audit firm?


a)

  1. A hot review' is a review carried out by a partner not otherwise involved in the engagement or an external..

b)

  1. Engagement quality control review (EQCR) is performed by engagement partner

c)

  1. The review is the obligatory procedure according to law and regulations

d)

  1. The review will help to assess the sufficiency and appropriateness of obtained audit evidence.

135.

Which ONE of the followings is NOT a main element of a firm's quality control system?


a)

  1. Acceptance and continuance of client relationships and specific engagements

b)

  1. Risk assessment process

c)

  1. Monitoring

d)

  1. Engagement performance

136.

Which THREE of the following clients have high inherent risk


a)

  1. Blue Ltd has poor recent or forecast performance

b)

  1. White Ltd has few unusual transactions

c)

  1. Green Ltd has significant unexplained transactions

d)

  1. Grey Ltd has evidence of questionable integrity of management

137.

Which of the following statements explain the "self-interest" threat?*


a)

The auditors may be intimidated by a dominant or aggressive atmosphere at the client.

b)

If the auditors are involved with the client for a long time, they may become unduly sympathetic towards

c)

If the auditors get involved in disputes concerning the client, they may end up acting for or against the cli…

d)

When carrying out the audit, the auditors, review work that their own firm has undertaken previously,

e)

  1. The auditors' own personal interest in clients which could influence the auditor's independence.

138.

You have been invited to tender for the audit of Yexmarine plc, a company that owns and operates 40 hotels in the south west of England. You have not previously acted for Yexmarine, but you are the current auditors of Milk Ltd, a company that owns and operates hotels in 30 out of 35 towns in which Yexmarine operates. The hotels operated by each company offer

similar facilities to each other at a similar price 

Which of the following is not procedures you may need to implement in the event that your

tender was successful.


a)

  1. Use Milk's engagement partner as Yexmarien's engagement partner as he has experience …

b)

  1. Use Chinese walls

c)

  1. Use different partners and teams

d)

  1. Obtain informed consent of both clients

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