ASSURANCE CERTIFICATE LEVEL

A combination of Manual & Suggested Answers up to May-June 2019 With (ISA)s Reference

CHAPTER- 04: PROCESS OF ASSURANCE: EVIDENCE AND REPORTING

Q-1: What is the objective of an assurance engagement? (Page-63) & (Chapter – One, Q-15)

Ans: The objective of an assurance engagement is to enable practitioners to express an opinion whether the
subject of the assurance engagement is in all material respect in accordance with the identified criteria.

Q-2: What is audit evidence? (Page-70) & (Chapter – 11, Q-1)

Audit evidence: Audit evidence means all the information used by the auditor in arriving at the conclusions
on which the audit opinion is based.

Q-3: What are the types of potentially tests by auditors carry out to gather evidence? (Page-63)

Ans: There are two types of potential test which will carry out by auditors:
(1) Tests of controls
(2) Substantive procedures.

Q-4: What do you know about control test and substantive test? (Page-63)

Test of controls: Audit procedures performed to obtain audit evidence about the effectiveness of controls in
preventing, or detecting and correcting material misstatements at the assertion level.

Substantive procedures: Audit procedures performed to detect material misstatements at the assertion level.

Q-5: What are the types of substantive test? (Page-63)

Ans: There are two types of substantive test:

(a) Tests of detail of classes of transactions, account balances and disclosures.
(b) Substantive analytical procedures.

Q-6: What are the logics for test of control? (Page-63 & 64)

Ans: The following logics used for test of control:

a. The directors set up systems of internal controls to ensure they report correctly to the shareholders.
b. The auditors are required to conclude whether the financial statements give a true and fair view.
c. The auditors evaluate the control system.
d. The auditors test the control system.

Q-7: Discuss the attributes of evidence as per ISA 500 or what is sufficiency and appropriateness?
(Page-64 & 165)

Ans: ISA 500 states that audit evidence must be sufficient and appropriate. Sufficiency and appropriateness
are interrelated and apply to both tests of controls and substantive procedures.

Sufficiency is the measure of the quantity of audit evidence.

Appropriateness is the measure of the qualitative or reliability of audit evidence.

Q-8: What things affect the quality of audit evidence required? (Page-64)

Ans: The quantity of audit evidence required is affected by the level of risk in the area being audited. It is also
affected the quality of evidence obtained. If the evidence is high quality the auditors may need less than, if it
were poor quality.

Chapter – 4(Process of assurance: evidence and reporting) Page 1

 ASSURANCE CERTIFICATE LEVEL
A combination of Manual & Suggested Answers up to May-June 2019 With (ISA)s Reference

Q-9: List the sources of audit evidence? / How can you gather reliable audit evidence? / What are the
generalized indicators that may help auditors to assess the quality of audit evidence? (Page-64& 165)

Ans: We can gather reliable audit evidence by following ways:

(i) External: Audit evidence from external sources is more reliable than that obtained from the entity’s
records.
(ii) Entity: Evidence obtained from the entity’s records is more reliable when related control systems
operate effectively.
(iii) Auditor: Evidence obtained directly by auditors is more reliable than that obtained indirectly or by
inference.
(iv) Written: Evidence in the form of documents or written representations is more reliable than oral
representations.
(v) Originals: Original documents are more reliable than photocopies or facsimiles.

Q-10: Definition: Financial statement assertions (Page-64)

Financial statement assertions: The representations by management, explicit or otherwise, that are
embodied in the financial statements.

Q-11: Write management assertions under different categories? (Page-65)

Ans: The assertions used by the auditor under different categories are mentioned below:

(1) Assertions about classes of transactions and events for the period under audit:
(a) Occurrence: All transactions and events that should have been recorded have occurred and
pertain to the entity.
(b) Completeness: All transactions and events that should have been recorded have been
recorded.
(c) Accuracy: All transactions and events relating to amount and other data should have been
recorded appropriately.
(d) Cut-off: All transactions and events should have been recorded in the correct accounting
period.
(e) Classification: All transaction and events should have been recorded in the proper accounts.

(2) Assertions about account balances at the period end:

(a) Existence: Assets, liabilities and equity interests exist.
(b) Completeness: All assets, liabilities and equity interests that should have been recorded have
been recorded.
(c) Rights and obligations: The entity holds or controls the rights to assets and liabilities are the
obligations of the entity.
(d) Valuation and allocation: All assets, liabilities and equity interests are included in the
financial statements at appropriate amounts and any resulting valuation or allocation
adjustments are appropriately recorded.

(3) Assertions about presentation and disclosure:

(a) Occurrence and rights and obligations: All disclosed events, transactions and other matters
should have occurred and pertain to the entity.
(b) Completeness: All disclosures that should have been included in the financial statements
have been included.
(c) Accuracy and valuation: Financial and other information are disclosed fairly and
appropriate amounts.
(d) Classification and understandability: Financial information is appropriately presented and
described, and disclosures are clearly expressed.

Chapter – 4(Process of assurance: evidence and reporting) Page 2

 ASSURANCE CERTIFICATE LEVEL
A combination of Manual & Suggested Answers up to May-June 2019 With (ISA)s Reference

Q-12: Give few examples of substantive test procedures. (Page-66)

Ans: The auditor must always carry out substantive procedures on material items. The following substantive
procedures:
(a) Agreeing the financial statements to the underlying accounting records.
(b) Examining material journal entries.
(c) Examining other adjustments made in preparing the financial statements.

Q-13: When analytical procedures & test of details are appropriate to be used? (Page-66)
Ans: Substantive procedures fall into two categories:
(1) Analytical procedures: Analytical procedures tend to be appropriate for large volumes of predictable
transactions (for example, wages and salaries).
(2) Test of detail: Test of detail may be appropriate to gain information about account balance (for
example, inventories or trade receivables) particularly verifying the assertions of existence and
valuation.

Q-14: When test of details rather than analytical procedures are more appropriate? (Page-66)

Ans: Test of details rather than analytical procedures are more appropriate with regard to matters which have
been identified as significant risks.

Q-15: Recite the opinion paragraph of audit opinion? (Page-69)

Ans: See Assurance Manual, Certificate level, page No: 69

Q-16: What two things the auditors are required to state as explicit opinions in their audit report?
(Page-67)

Ans: The following two things are required to state as explicit opinion in the audit report:
1. In respect of the state of the company’s affairs at the end of the financial year.
2. In respect of the company’s profit or loss for the financial year.

Q-17: What are the matters with which the auditors imply satisfaction in an unqualified report under
the Companies Act 1994? (Page-68)

Ans: The following are matters with which the auditors imply satisfaction in an unqualified report under the
companies’ Act 1994. The company has kept proper books of account with respect to:

(1) Adequate accounting records have been kept.

(2) Returns adequate for the audit have been received from branches not visited.
(3) The financial statements are in agreement with the accounting records and returns.
(4) All information and explanations have been received as the auditors think necessary and they have
had access at all times to the company’s books, accounts and vouchers.
(5) Details of directors’ emoluments and other benefits have been correctly disclosed in the financial
statements.
(6) Particulars of loan and other transactions in favour of directors and others have been correctly
disclosed in the financial statements.

Q-18: What basic elements, according to ISA 700, the audit report for single financial statement should
include? (Page-68)
Ans: According to ISA 700, the audit report for single financial statement should include the following basic
elements, usually in the following layout.
(a) Title
(b) Addressee
(c) Opinion Paragraph
(d) Basis for opinion

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 ASSURANCE CERTIFICATE LEVEL
A combination of Manual & Suggested Answers up to May-June 2019 With (ISA)s Reference

(e) Other Information (if any)

(f) Key audit matters (if any)
(g) Emphasis of matter (if any)
(h) Other matter (if any)
(i) Management responsibility
(j) Auditors’ responsibility
(k) Other reporting responsibilities (Legal and regulatory requirements)
(l) Name of the engagement partner
(m) Signature of the auditor
(n) Auditor’s address
(o) Date of the report

Q-19: Write a draft auditor’s report as per ISA 700? (Page-69, 70 & 71)

Ans: See Assurance Manual Certificate level Page-69, 70 & 71

Q-20: What is expectation gap? (Page-72)

Expectation gap: Expectations gap meaning that there is a gap between what the assurance providers
understands he is doing and what the user of the information believes he (assurance provider) is doing.

Q-21: Discuss the issue based on which expectation gap take place? Or Give three examples of
misunderstanding which contribute to the expectation gap. Or what are the misunderstandings in the
following cases? (Page-72)
• The nature of audited financial statement
• Type and extent of work undertaken by the auditors
• Level of assurance provided by the auditors

Ans: The issue based on which expectation gap take place are given below:
(1) Misunderstanding of the nature of audited financial statements, for example that:
(a) The balance sheet provides a fair valuation of the reporting entity.
(b) The amounts in the financial statements are stated accordingly.
(c) The audited financial statements will guarantee that the entity concerned will continue to exist.
(2) Misunderstanding as to the type and extent of work undertaken by auditors, for example that:
(a) All items in financial statements are tested.
(b) Auditors will uncover all errors.
(c) Auditors should detect all fraud.
(3) Misunderstanding about the level of assurance provided by auditors, for example that:
(a) The auditors provide absolute assurance that the figures in the financial statements are correct

Q-22: What components must have in an assurance report according to ISAE (International Standards
on Assurance Engagements)? (Page-72)

Ans: The following components must have in an assurance report according to ISAE:
A title that clearly indicates the report is in an independent assurance report.
An addressee.
An identification and description of the subject matter.
Identification of the criteria.
A statement to identify the responsible party.
A statement that the engagement was performed on accordance with International Standards on
Assurance Engagements (ISAEs)
A summary of work perform.
The practitioner’s conclusion.
The assurance report date.
The name of the firm or practitioner.

Chapter – 4(Process of assurance: evidence and reporting) Page 4

 ASSURANCE CERTIFICATE LEVEL
A combination of Manual & Suggested Answers up to May-June 2019 With (ISA)s Reference

Q-23: What is the by-product of an audit? What does it cover? (Page-73)

Ans: The assurance provider also may sometimes issue reports to the party that has engaged them as well as
the main report to users of the assurance material. So for example, in an audit, the auditors will sometimes
issue a report to the directors or management as a by-product of the audit. One major issue that such a report
might cover is internal control weaknesses.
All Self-test, Interactive Question & Worked Example should be done from the manual.

Previous year’s question:

May-June’ 2010
11 (b) Name six financial statement assertions (Q-11)

Nov-Dec’ 2010
4. (a) What are the matters with which the auditors imply satisfaction in an unqualified report under the
Companies Act 1994? (Q-17) What basic elements, according to ISA 700, the audit report should include?
(Q-18)

(b) Which three of the following are implied opinions given in the audit report? (Page- 73)
• All information and explanations required for the audit have been received.
• Proper accounting records have been kept.
• The director’s reports is consistent with the financial statements
• The financial statements have been prepared in accordance with the Companies Act 1994.
• The preparation of the financial statements is the responsibility of the company’s management.

May-June’ 2012
2. Audit evidence is necessary to support the auditor’s opinion and report. It is cumulative in nature and is
primarily obtained from audit procedures performed during the course of the audit.
a. Discuss the attributes of evidence as per ISA 500 (Q-7) and list the sources of audit evidence. (Q-9)

8. An accountant evaluates financial records based on assertions imbedded in the financial statements.
a. What are the management assertions under different categories? (Q-10 & 11)

Nov-Dece’ 2012
1. a. What do you mean by the term ‘Sufficient and Appropriate audit evidence’? State various factors that
help the auditor to ascertain as to what is sufficient and appropriate audit evidence. (Q-7)

2. An auditor's report is considered an essential tool when reporting financial information to users, particularly
in business. Some have even stated that financial information without an auditor's report is essentially
unreliable" for investment purposes.

a. What is Audit Opinion? (Below) How is an unqualified opinion written in an audit report? (Q-18)

Ans: An audit opinion refers to a certification of a financial statement is provided by the independent
accountants involved in auditing by examining company’s books and records. The audit opinion is about
whether or not the financial statements present an accurate reflection of the organization’s financial condition.

b. What two things the auditors are required to state as explicit opinions in their audit report? (Q-16)
c. What matters the auditors are required to state by exception as implied opinions in their audit report? (Q-
17)
d. Who should the auditors address to in their audit report of a company according to ISA 700? (Below)

Ans: The auditor’s report shall be addressed as required by the circumstances of the engagement. The
auditor’s report is normally addressed to those for whom the report is prepared, often either to the
shareholders or to those charged with governance of the entity whose financial statements are being audited.

Chapter – 4(Process of assurance: evidence and reporting) Page 5

 ASSURANCE CERTIFICATE LEVEL
A combination of Manual & Suggested Answers up to May-June 2019 With (ISA)s Reference

Nov-Dece’ 2014
1. ISA 500 indicates that the reliability of audit evidence is influenced by its source and by its nature, and is
dependent on the individual circumstances under which it is obtained. As per ISA 505, depending on the
circumstances of the audit, audit evidence in the form of external confirmation received directly by the auditor
from parties is considered to be more reliable than evidence generated internally by the entity.

a. What are the generalized principles mentioned in the International Standards of Auditing (ISA) as regards
to greater reliability of audit evidence? (Q-9)

3. b. How should auditor evaluate whether substantial doubt about going concern exists or not? (Below) Can
you identify and list down what are the indicators of substantial doubt? (Below)In such situation what audit
evidences should be collected and preserved in the working file? (Below)

Ans: Auditor should evaluate whether substantial doubt about going concern exists or not for a reasonable
period of time by following ways:
a) Identify conditions or events that in aggregate indicate substantial doubt about the entity’s ability to
continue as going concern.
b) To obtain additional information and audit evidence to support information that mitigates the auditor’s
doubt.

Indicators of substantial doubt may include:

a) Negative trends: Working capital deficiency, adverse key ratios
b) Internal matters: Work stoppages, Uneconomical long term commitments
c) External matters: Legal proceedings, loss of license, patent or franchise
d) Other indications of financial difficulty: Default on loan agreement, discontinuance of dividends

Audit documentation:
When substantial doubt about going concern exists, the audit documentation should contain:
a) The events that arise to the substantial doubt
b) The commitments of management plans
c) The audit procedures performed and evidence obtained to evaluate those elements
d) The auditor’s conclusion:
If substantial doubt remains, the auditor should adequate disclosure in the report

May - June’ 2016

3. Financial statement can be said as the collection of the collection of many assertions of management. That
is way, the auditor attempts to collect evidence as to the correctness of the assertions. The ISA require that the
auditor should use assertions for classes of transactions, account balance, and presentation and disclosures in
sufficient details to from a basis for the assessment of risk of material misstatement and the design and further
audit procedures.
a. In the context as described above, define financial statement assertion. (Q-10)

Nov-Dec’ 2016
1. c. The content of the audit report is regulated by ISA 700 and also by relevant Bangladeshi law. In this
context, what are the basic elements of an audit report? Write sequentially. (Q-22)

Nov-Dece’ 2017
1. d. In an audit engagement, the engagement team does so many things following the defined methodology
the Engagement Partner approves. All these are done and finally a suitable report is issued as per prescription
of International Standards on Auditing. You are required to draft an unqualified audit report as per ISA 700
applicable for a company. (Q-19)

Chapter – 4(Process of assurance: evidence and reporting) Page 6

 ASSURANCE CERTIFICATE LEVEL
A combination of Manual & Suggested Answers up to May-June 2019 With (ISA)s Reference

Nov-Dec’ 2017
2.b) What will be the tests of Controls in recording wages and salaries and any deductions thereof. (Q-13)

Nov-Dec’ 2018
8. Auditors, while performing an audit engagement, would collect as much as possible quality audit evidences
to be able to draw appropriate opinion. To that end, ISA 500 prescribes for auditors to collect sufficient
appropriate audit evidence.
(a) Appropriateness is the indicator of quality and reliability of the audit evidence. What are the
generalized indicators that may help auditors to assess the quality of audit evidence? (Q-9)

9. What do you understand by Financial Statement Assertions? Give a description of the assertions applicable
to classes of transactions, account balances and disclosures to provide a basis for designing and performing
further audit procedures. (Q-10 & 11)

May-June’ 2019
2. b) What is expectation gap? Identify and discuss briefly three indicators that create expectation
gap in the minds of the assurance users. (Q-20 & 21)

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Chapter – 4(Process of assurance: evidence and reporting) Page 7