WorksheetsAssurance1 part2
Total questions: 62
Worksheet time: 31mins
The auditor of Grey Co has set overall materiality level at $200,000. Which ONE of the following could be the performance materiality set for the financial statements for Grey Co?
$220,000
$250,000
$200,000
$100,000
White Ltd's quick ratio has fallen from 1.8:1 to 1.6:1. Which TWO of the following might help to explain this decline?
Credit control has been poor
Current liabilities have increased.
The allowance for receivables has been reduced
The entity has purchased a number of inventories for cash.
Which TWO of the following statements correctly describe the auditors' responsibilities in accordance with ISA 240 The auditor's responsibilities relating to fraud in an audit of financial statements?
The auditor performs the audit with the aim of deterring fraud
The auditor must only obtain evidence regarding the risks of material misstatement due to error
The auditor is responsible for obtaining reasonable assurance that the financial statements are free from material misstatement whether caused by fraud or error.
The auditor is not responsible for the prevention and detection of fraud and error.
Linda has obtained a list of items which make up the cash and cash equivalents balance (£3,556) in the financial statements of Baker Ltd. Materiality has been set at £3,800. Which ONE of the following items should not be tested by Linda?
Current account balance (overdrawn) £5,600
Petty cash float £750
Special directors' cash account £794
Special managers' cash account £500
Which THREE of the following are assertions used by the auditor about account balances at the period end?
Occurrence
Existence
Accuracy, valuation and allocation
Completeness
Which TWO of the following are valid comments about the quality of assurance evidence?
Evidence in the form of documents or written representation are more reliable than oral representations
Evidence from external sources is more reliable than evidence obtained from the entity's records
Evidence from internal sources is more reliable when related internal controls operate ineffectively
Evidence from internal sources is more reliable than evidence created by the assurance provider
The following are items that might be included in an auditor's report. Which TWO of the following are reported on by exception only?
Whether the financial statements are in agreement with the accounting records and returns
Whether details of directors' emoluments and other benefits have been correctly disclosed in the financial statements.
Whether the financial statements give a true and fair view of the state of the company's affairs at the end of the financial year
Information in the strategic report and the directors' report is consistent with the financial statements
The auditor of Grey Co has concluded that Grey Co is not a going concern. The financial statements have been prepared on a going concern basis and management has refused to change them. What form of audit opinion will be issued by the auditor?
A qualified 'except for' opinion due to material misstatement
A qualified 'except for' opinion due to insufficient appropriate audit evidence
An adverse opinion
A disclaimer
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?
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
The auditor concludes that the financial statements include misstatements which are both material and pervasive to the financial statements
The auditor concludes that the financial statements include misstatements which are material but not pervasive to the financial statements
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.
The financial statements of Green Co include a receivables balance of $30,000 which the auditors do not believe will be recovered. Materiality has been set at $90,000. There are no other unadjusted misstatements. What form of audit opinion would be issued by the auditor?
Qualified opinion due to overstatement of receivables
Adverse opinion
Disclaimer of opinion
Unmodified opinion.
ISA 700 Forming an opinion and reporting on financial statements sets out the basic elements of an auditor's report. Which THREE of the following must be included in an unmodified auditor's report?
Addressee
Introductory paragraph
Auditors' responsibilities
Deficiencies of internal controls
Which ONE of the following statements regarding tests of controls is true?
Tests of controls are designed to detect material misstatements in the financial statements
Tests of controls are used to collect audit evidence about effectiveness of internal control
Tests of controls are implemented after implementing the substantive procedures
Tests of controls must be used in auditing financial statements of all clients.
Which TWO of the following describe manifestations of the expectations gap?
Users discovering that the directors refuse to cooperate in providing the auditor with evidence he requests
Users blaming the auditors for a fraud discovered in a company subsequent to an audit
Users believing that the amounts in the financial statements are stated precisely
Users believing that the audit firm must not sell other services to the audited entity
The majority of the books and records of Green Co have been destroyed by a flood and the auditor has no other realistic means of obtaining sufficient, appropriate audit evidence. Which form of opinion will the auditor issue?
Qualified opinion on the basis that sufficient appropriate evidence is not available
A disclaimer of opinion
An adverse opinion
Unmodified opinion with an emphasis of matter paragraph explaining the circumstances of the flood
If sales for the year are compared to the budget, which ONE of the type of procedures is used to illustrate?
Test of control
Substantive procedure.
Both a test of control and a substantive procedure
Neither a test of control nor a substantive procedure
Green plc is required to apply ISA 701, Communicating Key Audit Matters in the Independent Auditor's report. Which ONE of the following could be key audit matters?
Significant transactions or events
Areas of significant auditor judgement.
Areas in relation to which the auditor expresses a separate opinion
Areas of low audit risk
The auditor of Blue Co has concluded that the use of the going concern assumption is appropriate and that the material uncertainty has been adequately disclosed. What is the impact of this conclusion on the auditor's report?
Qualified opinion
Adverse opinion
Unmodified opinion without an emphasis of matter paragraph
Unmodified opinion with an emphasis of matter paragraph.
The auditor may wish to draw the users' attention to a matter which is not presented or disclosed in the financial statements but which is relevant to the users' understanding of the auditor's report. How would this affect the auditor's report?
The auditor's report would not be affected as the auditor's report only refers to matters presented or disclosed in the financial statements
An emphasis of matter paragraph would be included
The audit opinion would be qualified
An other matters paragraph would be included
The following is example of internal control which operates at Castle plc: "The finance controller conducts a monthly review of authorization controls over dispatch notes". Select the type of control activity which is illustrated.
Performance review
Information processing
Physical control
Segregation of duties
When audit inventory, auditor detected that inventory is overstated. The overstatement is material but not pervasive to the financial statements. Management has refused to make an adjustment to the financial statements. What form of modified opinion should the auditor issue?
Qualified opinion due to a material misstatement
Qualified opinion due to insufficient appropriate evidence on which to base an opinion
Adverse opinion
Disclaimer of opinion
Which ONE of the following best describes the concept of assurance? Assurance refers to:
An assurance firm's satisfaction as to the reliability of an assertion being made by one party for the use of another party
An assurance firm's high level of satisfaction as to the reliability of an assertion being made by one party for the use of another party
A user's satisfaction as to the reliability of an assertion being made by another party
An assurance firm's limited level of satisfaction as to the reliability of an assertion being made by one party for the use of another party
Which TWO of the following are benefits of an engagement letter in respect of assurance services?
Facilitate review of work
Defines the extent of the assurance provider's responsibilities
Ensure that the audit is properly organized and managed
Provides written confirmation of the acceptance of the engagement
Which THREE of the following procedures should be carried out after 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
Communicate with the predecessor auditors to discover any reasons they should not accept appointment
Ensure that the outgoing auditors' removal/resignation has been properly conducted
When gaining an understanding of the investment 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
Acquisitions or disposals of the client's business activities
Leasing of property, plant or equipment for use in the client's business
Accounting principles and industry specific practices relevant to the client's business
Which ONE of the following correctly describes the period for which client identification documents must be kept under money laundering regulations?
For a minimum of five years and until six years have elapsed since the relationship with the client has ceased
For a minimum of six years and until five years have elapsed since the relationship with the client has ceased
For a minimum of seven years and until five years have elapsed since the relationship with the client has ceased
For a minimum of five years and until five years have elapsed since the relationship with the client has ceased
Grey Ltd's quick ratio has fallen from 1.9:1 to 1.6:1. Which TWO of the following might help to explain this decline?
Credit control has been poor
The entity has purchased a property for cash
The entity has purchased a batch of inventory for cash
The allowance for receivables has been reduced
The auditor of Blue Co has identified an unexpectedly high deviation rate when carrying out tests of control on a sample of sales invoices. Which TWO of the following would be a satisfactory course of action?
Ignore the deviations as they only affect some of the items tested
Extend the sample size
Replace the sample
Perform alternative substantive procedure
The following is example of internal control which operates at Navy plc: "The finance director compares monthly expenditure on consumables to budgeted expenditure". Select the type of control activity which is illustrated.
Performance review
Information processing
Physical control
Segregation of duties
Which THREE of the following threats to independence might arise on the current audit when an audit team member is involved in employment negotiations with an audit client during the course of the audit?
Self-interest
Self-review
Intimidation
Familiarity
Application controls relate to procedures used to initiate, record, process and report transactions and other financial data. Which two of the following are application controls?
Complete testing procedures
Approval of changes by computer users and management
Document counts
Batch reconciliations
Which of the following is NOT a benefit of establishing an audit committee?
Reduced external audit fees, as the presence of the audit committee reduces audit risk and consequently, the amount of audit procedures required
Greater external audit independence, as the audit committee can be responsible for appointing the external auditors
Reduced opportunity of fraud, as the audit committee can advise the executive directors on managing the risks in the financial reporting process
Monitor and review the effectiveness the effectiveness of the company's internal audit function.
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.
