WorksheetsAssurence
Total questions: 90
Worksheet time: 23hrs 30mins
1. Which THREE of the following describe aspects of the expectation 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 assurances.
Users do not understand what the audit process involves.
The level of assurances 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
If type of engagement is report on prospective financial information
Absolute
Reasonable
Limited
Unlimited
Which THREE of the following are benefits of an assurances 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 the 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. a three-party relationship
B. sufficient appropriate evidence
C. determination of materiality
D. an engagement letter
In respect of a 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 given 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 recommendation to mitigate those deficiencies
The external audit is an exercise carried out by auditors in order to give an opinion on whether the financial statement 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 the UK, which THREE of the following criteria can be used to decide the audit exemption?
Turnover < £10.2 millions
Total assets <£5.2 millions
Total assets. <£5.1 millions
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 the Companies Act 2006 in the 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 of 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
ATCLLP, an assurance firm, has the following 4 clients among its client porfolio. For
below clients, select the client which has low inherent risk
Blue Ltd has lack of finance director
White Ltd has few unusual transaction
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
Providers written confirmation of the acceptance of the engagement
Certifies the assurance provider’s opinion
Which THREE of the following are the purpose 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?
Arrangement concerning the use of experts
Basic 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?
Setup 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
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 TREE of the following 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 a 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 on the financial statements
Audit risk can be split into three components: inherent risk, control risk and dectection risk. 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 procedure?
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
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 assets 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 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 risk. Which TWO of the following actions could the auditor take to archive 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 of services and markets of the client’s business
Accounting principles and industry specific practices relevant to the client’s business
Acquisitions of disposal of the client’s business activities
Leasing of property, plant of 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
The auditor of Grey Co has set the 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
$250,000
$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 auditors' 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 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 of 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 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 in sufficient 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 misstatement 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 misstatement could be both material and pervasive
The financial statements of Green Co include a receivables balance of $30,000 which the auditor does 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 of 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
Auditor’s responsibilities
Deficiencies of internal controls
Which ONE of the following statements regarding test of controls is true?
Tests of controls are designed to detect material misstatement 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 expectation 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 ether services to the audited entity
The majority of the books and records of Green Co have been destroyed by a flood and the
auditors have no other realistic means of obtaining sufficient, appropriate audit evidence.
Which form of opinion will the auditor issue?
Qualified opinion on the basic 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
Two types of procedures used in gathering evidence are tests of controls and substantive procedures. Sometimes, a specific procedure can serve as both a test of control and substantive procedure. If sales for the year are compared to the budget, which ONE of the type of procedures is issued to illustrate?
Test of control
Substantive procedure
Both a test of control and 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 expressed a separate opinion
Areas of low audit risk
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 errors
It is a way of assigning roles within a large organisation
It helps to prevent fraud
The following is an example of internal control which operates at Blue pIC. Select the type of control activity which is illustrated in the following example: “There are two keys to keys to the locked finance department safer 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 purpose. 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 and audit committee
Where there is no internal audit function the audit committee should consider the need for one on an annual basic
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 sytem 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 management
Range checked on payroll processing
Password protection limiting access to data
The following is example of internal control which operates at White plc: “The finance controller reconcilies 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
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 of 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 action 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
Confidential
Objectivity
Professional skepticism
Which THREE of the following are valid reasons why independence and objectivity are important to assurance profession?
Public interest in financial information
Credibility of published financial information
The public’s expectations of accountants
Tradition
For each of following statements in relation to guidance on processional 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
There are two main approaches to a code of professional ethics; rules based ethical code and a principle-based code. Which TWO of the following statements are true?
Ethical guidance from ICAEW is in the form of rules rather than principles
Principles-based guidance may permit multiple correct response in a given situation
Rules-based codes offer a more straightforward ethical framework, as they cover specific situations
A rule-based code requires a professional accountant to identify, evaluate and address threats to compliance with fundamental ethical principles
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
The auditor of Blue Co has set performance materiality at $200,000. Which ONE of the following could be the materiality level set for the financial statements as a whole for Blue Co?
$210,000
$200,000
$100,000
$120,000
Which TWO of the following are true in respect of related party transactions?
Related party transactions must be completely disclosed in the financial statements
Related party transactions tend to be low-risk to the auditor
There may be a significant control risk in relation to related party transactions
Disclosure of related party transactions is unlikely to be material to the financial statements
Which TWO of the following statements regarding tests of controls is true?
Tests of controls are designed to detect material misstatements in the financial statements
When the auditor believes controls are operating effectively,
Tests of controls are used to collect audit evidence about effectiveness of internal control
Tests of controls must be used in auditing financial statements of all clients
Auditors obtain evidence using procedures set out in ISA (UK) 500, Audit Evidence. When audit the financial statements of Blue Ltd, the auditor is present while a sales order is being processed to test if the controls are carried out. Which ONE of the following procedures is being used?
Inspection
Observation
Inquiry
Re-performance
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.
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
For each of the following statements in relation to guidance on professional ethics. Which THREE of the following statements are true?
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
Ethical guidance from ICAEW is in the form of rules rather than principles
Principles-based guidance is more flexible than rules-based guidance
The auditor of White Co is performing audit procedures to confirm the completeness of recording the motor vehicles. Which ONE of the following would provide the most persuasive evidence of this?
Inspection of vehicle registration documents
Review of vehicle insurance documentation
Physical inspection of the motor vehicle
Checking that the motor vehicles are recorded in the non-current asset registed
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 illustrate
Performance review
Information processing
Physical control
Segregation of duties
Which TWO of the following represent weakness of a system of internal controls?
Lack of controls over the purchases system
Lack of understanding of the purposes of controls
Lack of staff to ensure segregation of duties
The nossibility that staff members will collude in fraud
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 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
Where there are a significant amount of overdue fees
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 are limitations of the provision of assurance?
Some items in the subject matter may be estimates
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
When gaining an understanding of the financing operations of an audit client which ONE of the following matters would an auditor need to consider?
Accounting principles and industry specific practices relevant to the client’s business
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
Which THREE of the following statements in respect of risk are true?
Auditors can impact on inherent risk to bring audit risk to an acceptable audit risk
Auditors cannot impact on inherent risk to bring audit risk to an acceptable audit risk
Identifying business risks is part of the company’s risk assessment processes
Inherent and control risks are components of audit risk
Which ONE of the following statements regarding analytical procedures is correct?
Analytical procedures are only used as risk assessment procedures
Analytical procedures must be used as part of the overall review of the financial statements
Analytical procedures may be used as part of the overall review of the financial statements
Analytical procedures must be used at the implementing phase
In the financial statement audit of independent auditor, which TWO of the following would ordinarily be contained in the overall audit strategy?
The results of audit risk assessment
The contract between the audit firm and the client
List of staff to be involved with the audit
Detailed plan of audit procedures to be carried out
For each of the following statements in relation to guidance on professional ethics. Which THREE of the following statements are true?
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
Ethical guidance from ICAEW is in the form of rules rather than principle
Principles-based guidance is more flexible than rules-based guidance.
Which THREE of the following would be found in the overall audit strategy document?
Timetable
Calculation of preliminary materiality thresholds
Detailed plan of audit procedures
Budget and fee
When audit inventory, auditor detected that inventory is overstate. 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
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?
Increase the materiality level
Decrease the inherent risk
Decrease the control risk
Decrease the detection risk
Which TWO of the following are not elements of a general assurance engagement?
A three-party relationship
Sufficient appropriate evidence
Determination of materiality
An engagement letter
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 <£5.1millions
Turnover <£10.1millions
Number of employees <50
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
