WorksheetsAssurance1 part1
Total questions: 62
Worksheet time: 31mins
Which THREE of the following describe aspects of the expectations gap with respect to the external audit?
Users do not understand the meaning of the audit opinion
Users are not aware of the limitations of the audit process
Users do not appreciate that reasonable assurance is a low level of assurance
Users do not understand what the audit process involves.
The level of assurance given by an assurance engagement will depend on the type of engagement. Select the level of assurance you would expect to be given in the statutory audit
Absolute
Reasonable
Limited
Unlimited
Which THREE of the following are benefits of an assurance report on financial information?
An assurance report enhances the credibility of the information being reported on
An assurance report reduces the risk of management bias in the information being reported on
An assurance report draws the attention of the user to deficiencies in the information being reported on
An assurance report attests to the correctness of the information being reported on.
Which TWO of the following are elements of a general assurance engagement?
A three-party relationship
Sufficient appropriate evidence
Determination of materiality
An engagement letter
In respect of given subject matter state, which ONE of the following party must determine the suitable criteria?
Intended user
Responsible party.
Shareholder
Practitioner
Which ONE of the following statements is false?
A positive assurance conclusion gives a reasonable level of assurance
Reasonable assurance is a high level of assurance, which allows a conclusion to be expressed positively and negatively
A statutory audit gives reasonable assurance that the financial statements give a true and fair view in all material respects
A negative assurance conclusions givens a limited level of assurance
Which THREE of the following are benefits of assurance work?
Assurance may act as a deterrent to error of fraud
An independent, professional opinion
Testing as a result of sampling is cheaper for the responsible party
Additional confidence given to other related parties
Which of the following is the most appropriate definition of the external audit?
The external audit is performed by management to identify areas of deficiency within a company and to make recommendations to mitigate those deficiencies.
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.
The external audit is an exercise carried out in order to give an opinion on the effectiveness of a company's internal control system.
The external audit provides negative assurance on the truth and fairness of a company's financial statements.
According to the Companies Act 2006 in UK, which THREE of the following criteria can be used to decide the audit exemption?
Turnover <£10.2millions
Total assets <£5.2millions
Total assets <£5.1millions
Number of employees<50
Which THREE of the following are limitations of the provision of assurance?
The client's staffs may collude in fraud that can be deliberately hidden from the auditor
Most audit evidence is persuasive rather than conclusive
Assurance work is carried out by people independent of the entity
Assurance providers would not test every item in the subject matter
According to Company Act 2006 in UK, which THREE of the following statements are true?
In UK, Financial Reporting Council (FRC) is responsible for issuing auditing standards and guidance for auditing
An individual or firm is eligible for appointment as statutory auditor if the individual or firm is a member of a recognized supervisory body and is eligible for appointment under the rules of that body
Auditors in the UK are subject to both legal and professional requirements
A person who is an officer may act as a statutory auditor of a company.
ATC LLP, an assurance firm, has the following 4 clients among its client portfolio. For below clients, select the client which has low inherent risk.
Blue Ltd has lack of finance director
White Ltd has few unusual transactions.
Grey Ltd is planning to list on the local stock exchange within the next two years.
Green Ltd is currently facing financial difficulties and is seeking alternative forms of finance.
Which THREE of the following are benefits of an engagement letter in respect of assurance services?
Clearly defines the extent of the assurance provider's responsibilities
Confirms the scope of the engagement
Provides written confirmation of the acceptance of the engagement
Certifies the assurance provider's opinion.
Which TWO of the following are purposes of a letter of engagement?
Setting out the form of any report to be issued
Providing evidence on matters where other evidence is not expected to exist
Providing constructive suggestions to management concerning improvements in internal control
Documenting and confirming acceptance of the appointment
Which ONE of the following must be included in an audit engagement letter?
Arrangements concerning the use of experts
Basis on which fees are computed
The reporting framework
Obligations to make audit working papers available to other parties
Which TWO of the following are benefits of an engagement letter in respect of assurance services?
Confirms the scope of the engagement
Ensure that the audit is properly organized and managed
Ensure appropriate attention is devoted to important areas of the audit
Provides written confirmation of the acceptance of the engagement
Which ONE of the following might indicate that an assurance client could have lower than normal inherent or control risk?
Lots of transactions with related parties
Significant unusual transactions
Conservative accounting policies
Evidence of questionable integrity, doubtful accounting policies
Which ONE of the following procedures should be carried out before the audit firm has decided to accept appointment as auditor?
Set up and submit a letter of engagement to the directors of the company
Ensure that a resolution has been passed at the general meeting to appoint the new auditors
Ensure that the outgoing auditors' removal/resignation has been properly conducted
Communicate with the predecessor auditors to discover any reasons they should not accept appointment.
Which THREE of the following statements relating to engagement letter are false?
The engagement letter should be sent before acceptance of appointment
The engagement letter should be sent after the appointment and after the commencement of the audit
The engagement letter should be sent after the appointment but before the commencement of the audit.
The engagement letter should be sent after the commencement of the audit but before the signing of the auditor's report
Auditor must find the information about new client before accepting the client. Which THREE of the followings are sources of information about new clients?
Enquiries of other sources
Review of documents
Review of rules and standards
Implement the analytical procedures.
Which THREE of the following are not the responsibilities of the external auditor?
To obtain sufficient appropriate evidence regarding compliance with laws and regulations that have a direct effect on the financial statements only.
To obtain sufficient appropriate evidence regarding compliance with laws and regulations that have an indirect effect on the financial statements only
To prevent and detect all non-compliance with laws and regulations which affect the business
To obtain sufficient appropriate evidence regarding compliance with laws and regulations that have both a direct and indirect effect
AA LLP, a large assurance firm, has been asked to carry out recruitment services for its client, Laty plc, by recruiting senior accounting staff. Which TWO of the following threats to independence would arise if AA LLP agree to provide such services?
Self-review
Management.
Advocacy
Familiarity.
For the situation as follow: A client has offered the auditor an audit fee based on a percentage of reported profits. Which ONE of the following actions be taken by the auditor?
Accept with no safeguards
Accept with safeguards
Take legal advice
Reject.
ATC & Co is the statutory auditor of Blue Co, a public interest entity. Which of the following services is ATC & Co prohibited from providing to Blue Co under any circumstances?
Internal audit services
Assistance in the resolution of tax disputes
Preparing accounting records and financial statements
Valuation services
AAT & Co audits Grey Co. In accordance with ICAEW Code of Ethics which TWO of the following circumstances would constitute a threat to objectivity?
The best friend of the engagement partner owns a significant indirect financial interest in Grey Co
The audit manager of Grey Co owns a small number of shares in Grey Co
The husband of the audit partner owns shares in Grey Co
An employee of AAT & Co owns shares in Grey Co but is not part of the audit team
In respect of conflicts of interest, Which TWO of the following statements are true?
Where adequate safeguards are available the parties involved do not need to be informed of the conflict of interest
Where a conflict of interest exists between two audit clients, the auditor must cease to act for one party
If the effects of a conflict of interest can be mitigated by safeguards these should be recorded.
Where a conflict of interest exists between two audit clients, the auditor can consider to cease to act for one party.
Which THREE of the following are areas in which a self-interest threat might arise?
Where there is close business relationship between the auditor and the client
Where the auditor prepares and audits the financial statements
Where the auditor has a financial interest in the client
Where there are a significant amount of overdue fees
Where the audit firm provides internal audit services and significant reliance is to be placed on the internal audit work for the purposes of the external audit.
Blue Ltd is applying to its bank for a business loan, and as part of its application it is required to submit a business plan and forecast financial statements. Believing that it would add credibility to its application, it has engaged Yellow LLP to provide an assurance report on the forecast financial statements. George Cameron, the chief executive of Blue Ltd, has proposed that a fee only be payable to Yellow LLP if the loan application is successful.
Advocacy threat
Self-interest threat
Intimidation threat.
Familiarity threat
A private company has requested that its auditor prepare a valuation report on a prospective acquisition target in order to help it obtain finance for the acquisition from its bank. Which TWO of the following threats may arise if the auditor agrees to take on this assignment?
Self-review threat
Familiarity threat
Advocacy threat.
Self-interest threat
Which THREE of the following situations is it appropriate to disclose confidential information?
when the client has granted permission
When there is a public duty to make disclosure
When there is a legal duty to make disclosure
In order to obtain audit evidence about an amount in the financial statements.
Which THREE of the following should an accountant take care not to do, in order to safeguard confidentiality?
Discuss client matters with friends of auditor
Leave audit files at a client's premises
Leave working papers in the car
Discuss client matters with colleagues in non-public places.
Which THREE of the following situations would the auditor be able to disclose confidential information about a client?
Disclosure is required by law
Disclosure is permitted by law but the auditor has not requested the client's permission.
The auditor suspects that the client has committed money-laundering offences
There is a professional duty or right to disclose, when not prohibited by law
Which TWO of the following are NOT the principal reasons why confidentiality is so important to accountants?
Accountants need their clients to be comfortable to make full disclosure of company affairs to them
It is a fundamental principle of all the major ethical code
It means that accountants can work for competitors.
Failure to keep information confidential reflects badly on the account.
Which TWO of the following would be an appropriate use of confidential information?
On a change of employment, using experience gained in a previous position.
Encouraging others to buy shares in a company on the basis of information obtained during the course of the audit
Providing a prospective auditor with information required by him in order for him to decide whether or not to accept the appointment.
Using information obtained on the audit of one client to influence the audit opinion given in respect of another client
Which two of the following are reasons why segregation of duties is important in an internal control system?
It improves efficiency
It improves the rate of detection of errors.
It is a way of assigning roles within a large organisation
It helps to prevent fraud.
The following is example of internal control which operates at Blue plc. Select the type of control activity which is illustrated in the following example: "There are two keys to the locked finance department safe: one held by the finance director and the other by the managing director".
Authorisation
Information processing
Physical control.
Segregation of duties
Most entities make use of IT systems for financial reporting and operational purposes. Controls operating in an IT environment can be split into general controls and application controls. Which ONE of the following is an application control?
Use of passwords
Testing of new systems
Disaster recovery plan
Authorisation of data for input.
Which ONE of the following statements is true regarding the audit committee?
An audit committee must comprise non-executive directors and executive directors
All companies are required to have an audit committee
Where there is no internal audit function the audit committee should consider the need for one on an annual basis.
The role and responsibilities of the audit committee are set out in statute
The following are examples of computer controls which operate in the payroll system at Hana Ltd. Which TWO of the following examples are the types of computer control which illustrate for application control?
Manual checks to ensure that timesheets are authorised before details are processed.
Approval of new applications by a sample of users and by magagement
Range checks on payroll processing.
Password protection limiting access to data
The following is example of internal control which operates at White plc: "The finance controller reconciles the payables ledger with supplier statements on a monthly basis". Select the type of control activity which is illustrated.
Performance review
Information processing.
Physical control
Segregation of duties
Which ONE of the following methods of recording an accounting and controls system is a series of questions used to determine whether controls exist which meet specific control objectives?
Narrative notes
Questionnaire
Diagrams
Flowcharts
ISA 315 Identifying and assessing the risks of material misstatement through understanding the entity and its environment sets out the five components of internal control. Which THREE of the following are set out as a component of internal control within ISA 315?
Monitoring of controls
Control activities
The information system relevant to financial reporting
Human resource policies and practices.
An effective system of internal control requires segregation of basic functions. Which TWO of the following functions should ideally be segregated?
Budgetary control
Preparation of financial statements
Custody or handling of assets
Recording of transactions
Which THREE of the following are true in respect of the limitations of any system of internal control?
Standard controls may not be designed to deal with unusual transactions
The effectiveness of many controls rely on the integrity of those applying them
Internal controls are only applied to material items
The cost of implementing controls may be more expensive than the cost of any potential risk arising
Which TWO of the following statements are true regarding the controls in a small company?
The external auditor will assess the attitudes, awareness and actions of management.
The external auditor can rely on the controls in a small company.
Segregation of duties is often adequate in a small company
Evidence of the operation of controls is more likely to be available in documentary form
ICAEW qualified auditors acting in the UK are subject to which two of the following?
ICAEW Code of Ethics
IESBA Code of Ethics
FRC's Ethical Standard
The Code of Ethics set by the Government
Which TWO of the following are fundamental principles as stated in the ICAEW code of ethics?
Independence
Confidentiality
Objectivity
Professional skepticism
Which THREE of the following are valid reasons why independence and objectivity are important to the assurance profession?
Public interest in financial information
Credibility of published financial information
The public's expectations of accountants
Tradition
For each of the following statements in relation to guidance on professional ethics. Which ONE of the following statements is incorrect?
Principles-based guidance is more flexible than rules-based guidance
Ethical guidance from ICAEW is in the form of rules rather than principles.
It is in the public interest for accountants to follow a professional ethics framework
Rules-based codes offer a more straightforward ethical framework, as they cover specific situations
Which TWO of the following statements are true regarding the two main approaches to a code of professional ethics: rules-based ethical code and a principles-based code?
Ethical guidance from ICAEW is in the form of rules rather than principles
Principles-based guidance may permit multiple correct responses in a given situation.
Rules-based codes offer a more straightforward ethical framework, as they cover specific situations.
A rules-based code requires a professional accountant to identify, evaluate and address threats to compliance with fundamental ethical principles
For each of the following examples, select one example which illustrated for inherent risk.
Management fails to meet up regularly for board meetings
Directors' pay is related to company profitability
Senior management regularly override the system of controls
The organization has a high turnover of staff in the accounts department
Which three of the following constitute analytical procedures?
Consideration of anticipated results of the entity, from budgets or forecasts of the auditor
Consideration of whether a balance has been classified appropriately
Consideration of comparable information for prior periods
Consideration of relationships between elements of financial information that are expected to conform to a predicted pattern
Which TWO of the following are true of the auditor's objectives in relation to fraud, in line with ISA 240, The auditor's responsibilities relating to fraud in an audit of financial statements?
The auditor must identify and assess the risks of material misstatement due to fraud.
The auditor is not responsible for the prevention of fraud and error but is responsible for detection
The auditor must obtain evidence regarding the risks of material misstatement due to fraud.
The auditor must only obtain evidence regarding the risks of material misstatement due to error
What are the two elements of the risk of material misstatement at the assertion level?
Sampling risk
Inherent risk
Detection risk
Control risk
Which TWO of the following are not the purposes of planning the audit?
To identify clearly the management's responsibility
To facilitate delegation of work to audit team members
To determine the scope of the engagement
To ensure appropriate attention is devoted to different areas of the audit
Which THREE of the following statements are true with respect to analytical procedures?
Analytical procedures are compulsory procedures in the planning phase of the financial statement audit.
Analytical procedures can be used throughout the audit
Analytical procedures must be used at the review stage of the audit.
Analytical procedures can be used in testing of controls.
Which THREE of the following would be found in the overall audit strategy document?
Consequent, nature, timing and extent of procedures
Detailed plan of audit procedures
Calculation of preliminary materiality thresholds
The accounting policies adopted by the entity and changes in those policies
The auditor of AAT Co wishes to bring audit risk to acceptable audit risk. Which TWO of the following actions could the auditor take to achieve this?
Reduce control risk
Reduce risk of material misstatement
Assign more experienced staff to the engagement team
Increase sample sizes
Which TWO of the following statements in respect of risk are true?
Identifying business risks is part of the company's risk assessment processes
Inherent and control risks are components of audit risk
Auditors can impact on inherent risk to bring audit risk to an acceptable audit risk
Auditors can impact on control risk to bring audit risk to an acceptable audit risk
During the planning stages of the final audit, the auditor believes that the probability of giving an inappropriate audit opinion is too high. Which ONE of the following should the auditor amend the audit plan to resolve this issue?
Decrease the inherent risk
Decrease the control risk
Increase the sample size
Increase the materiality level
When gaining an understanding of the specific business operations of an audit client which ONE of the following matters would an auditor need to consider?
Products or services and markets of the client's business.
Accounting principles and industry specific practices relevant to the client's business
Acquisitions or disposals of the client's business activities
Leasing of property, plant or equipment for use in the client's business
Which TWO of the following procedures must be used by the auditor to obtain an understanding of the entity and its environment in accordance with ISA 315 Identifying and assessing the risks of material misstatement through understanding the entity and its environment?
Reperformance
Analytical procedures
Inquiry
Confirmation
