T NG H P

Multiple choice questions
1 Is the following statement regarding stewardship true or false?

Directors are stewards of the investment made by shareholders in a company.
A True
B False
2 Which two of the following are elements of an assurance engagement?

(1) A three-party relationship
(2) Suitable criteria
(3) Determination of materiality
(4) An engagement letter
A (1) and (2) only
B (1) and (3) only
C (2) and (3) only
D (1) and (4) only
3 What is the correct order of the following stages involved in the development of an
ISA?
(1) Distribution of exposure draft for public comment
(2) Consideration of comments received as a result of the exposure draft
(3) Approval by IAASB members
(4) Establishment of task force to develop draft standard
(5) Discussion of proposed standard at a public meeting
A (1), (5), (4), (3), (2)
B (3), (4), (1), (2), (5)
C (4), (5), (1), (2), (3)
D (5), (4), (2), (1), (3)
4 Who normally appoints the external auditors of a company?

A Directors
B Shareholders
C Audit committee
D Senior management (1 mark)
5 Which of the following is the most appropriate definition of the external audit?
A 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.
B The external audit is an exercise carried out in order to give an opinion on the
effectiveness of a company's internal control system.
C The external audit is performed by management to identify areas of deficiency
within a company and to make recommendations to mitigate those
deficiencies.
D The external audit provides negative assurance on the truth and fairness of a
company's financial statements.
6 The level of assurance provided by an external audit is absolute.
Is this statement true or false?
A True
B False
7 Which of the following is/are not a statutory right of the auditors of a limited liability
company?
(1) A right to attend all directors' meetings and receive all notices and
communications relating to such meetings.
(2) A right to speak at general meetings on any part of the business that concerns
them as auditors.
(3) A right to attend any general meeting and receive all notices and
A (1) only
B (1) and (3)
C (2) only
D (2) and (3)
8 Is the following statement true or false?

In an effective system of corporate governance the directors take
responsibility for risk management strategies within the business.
A True
B False
9 Which of the following are recognised threats to independence and objectivity as

identified in ACCA's Code of Ethics and Conduct?
(1) Familiarity
(2) Self-interest
(3) Integrity
(4) Advocacy
A (1), (2), (3) and (4)
B (1), (2) and (4)
C (2), (3) and (4)
D (2) and (4) only
10 In which of the following situations would the auditor be able to disclose confidential
information about a client?
(1) Disclosure is required by law.
(2) Disclosure is permitted by law but the auditor has not requested
the client's permission. (3) The auditor suspects that the client has
committed money-laundering offences.
A (1) and (2) only
B (1) and (3) only
C (2) and (3) only
D (1), (2) and (3)
11 Andrew Jones has been the key audit partner of X Co, a public interest entity,
for seven years. For how long must he be rotated off the audit as a minimum to
comply with ACCA's Code of Ethics and Conduct?
A 1 year
B 2 years
C 3 years
D 4 years
12 AAB & Co is the statutory auditor of Y Co, a public interest entity.

Which of the following services is AAB & Co prohibited from providing to Y Co under
any circumstances?
A Provision of bookkeeping services
B Assistance in the resolution of tax disputes
C Internal audit services
D Valuation services where the valuation will have a material effect on the
financial statements
13 Who is ultimately responsible for a company's system of internal controls?

A External auditors
B Board of directors
C Internal auditors
D Audit committee
14 Every company must have an audit committee.

A True
B False
15 Which of the following statements is true regarding the audit committee?

A An audit committee must comprise at least four independent non-executive
directors.
B Where there is no internal audit function the audit committee should
consider the need for one on an annual basis.
C The role and responsibilities of the audit committee are set out in statute
16 Which of the following are valid disadvantages of having an audit committee?

A It can undermine the authority of the board of directors.
B The internal audit function may communicate directly with the audit
committee rather than with management.
C It may be difficult to find non-executive directors with the relevant
experience.
17 AB & Co audits DEF Co. In accordance with ACCA Code of Ethics and Conduct
which two of the following circumstances would constitute a threat to
objectivity?
(1) An employee of AB & Co owns shares in DEF Co but is not part of the
audit team
(2) The best friend of the engagement partner owns a significant indirect
financial interest in DEF Co
(3) The audit manager of DEF Co owns a small number of shares in DEF
Co
(4) The husband of the audit partner owns shares in DEF Co
A (1) and (2)
B (1) and (4)
C (2) and (3)
D (3) and (4)
18 Which of the following internal audit assignments is described below?
The examination of the economy, efficiency and effectiveness of activities and
processes.
A Regulatory compliance audit
B Value for money audit
C Financial audit
D IT audit
19 Which two of the following characteristics apply to internal audit?

(1) The purpose is to improve the company's operations.
(2) Reports to shareholders on whether the financial statements give a
true and fair view of affairs. (3) Auditors may be employees of the
company.
(4) Evidence is collected in accordance with relevant ISAs.
A (1) and (3)
B (2) and (4)
C (1) and (4)
D (2) and (3)
20 Which type of risk is the internal auditor normally responsible for monitoring?
A Audit risk
B Business risk
C Audit risk and business risk
D Neither audit risk nor business risk
21 Which of the following internal audit assignments aims to monitor

management's performance and ensure that company policy is followed?
A Value for money
B Fraud investigation
C Financial
D Operational
22 The format of the internal audit report is governed by statute.

A True
B False
23 Which of the following is a limitation of the internal audit function?

A The internal audit report is not circulated to the members.
B Internal audit assignments are designed to meet the needs of the business.
C Internal auditors may be employees of the company.
D Internal auditors may report to an audit committee.
24 Is the following statement about outsourcing the internal audit function true or false?
One of the advantages of outsourcing the internal audit function is that
the company will not need to exercise any controls over the outsourced
department.
A True
B False
25 Which of the following activities should the internal audit function not be involved in?
A Monitoring of management's performance
B Reviewing adequacy of management information for decision-making purposes
C Taking responsibility for the implementation of a new sales ledger system
D Assessing compliance with regulation relevant to the business
26 The role of the internal audit function in risk management is to identify risk
and implement strategies to minimise risks.
A True
B False
27 Which of the following is not a benefit of establishing an audit committee?

A Reduced opportunity of fraud, as the audit committee can advise the executive
directors on managing the risks in the financial reporting process.
B Greater external audit independence, as the audit committee can be responsible
for appointing the external auditors
C Reduced external audit fees, as the presence of the audit committee reduces audit
risk and consequently, the amount of audit procedures required.
28 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?
(1) Self-review threat
(2) Advocacy threat
(3) Familiarity threat
(4) Self-interest threat
A (1) and (2)
B (1) and (3)
C (2) and (4)
D (3) and (4)
29 Which of the following statements best reflects the auditor's duty of confidentiality?
A Auditors must never, under any circumstances, disclose any matters of
which they become aware during the course of the audit to third parties,
without the permission of the client.
B Auditors may disclose any matters in relation to criminal activities
to the police or taxation authorities, if requested to do so by the police
or a tax inspector.
C Auditors may disclose matters to third parties without their client's consent
if it is in the public interest, and they must do so if there is a statutory
duty to do so.
D Auditors may only disclose matters to third parties without their client's consent
if the public interest or national security is involved.
30 Which two of the following are fundamental principles as stated in the ACCA's Code of
Ethics and Conduct?
(1) Objectivity
(2) Independence
(3) Confidentiality
(4) Professional scepticism
A (1) and (4)
B (1) and (2)
C (2) and (3)
D (1) and (3)
31 Which of the following statements relate to review engagements?

(1) Subject matter is plausible
(2) Reasonable assurance
(3) Nothing has come to our attention which would indicate that the
subject matter contains material misstatements
(4) Positive assurance
A (1) and (3)
B (2) and (4)
C (2) and (3)
D (1) and (4)
31 Multiple choice questions 74 mins
1 When gaining an understanding of the specific business operations of an audit client
which of the following matters would an auditor need to consider?
A Accounting principles and industry specific practices relevant
to the client's business
B Acquisitions or disposals of the client's business activities
C Leasing of property, plant or equipment for use in the client's business
D Products or services and markets of the client's business
2 Which of the following statements about materiality are correct?

(1) Information is material if its omission or misstatement could influence the
economic decisions of users of the financial statements.
(2) Materiality is based on the auditor's experience and judgement.
(3) Materiality is always based on revenue.
(4) Materiality should only be calculated at the planning stage of the audit.
A (1), (2) and (3)
B (1), (3) and (4)
C (1) and (2)
D (2) and (4)
3 Which of the following procedures must the auditor use 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?
(1) Analytical procedures
(2) Inquiry
(3) Confirmation
(4) Reperformance
A (1), (2) and (3)
B (1) and (2)
C (2), (3) and (4)
D (1) and (4)
4 What are the two elements of the risk of material misstatement at the assertion level?
A Inherent risk and detection risk
B Audit risk and detection risk
C Inherent risk and control risk
D Detection risk and control risk
5 What are the purposes of planning the audit?

(1) To ensure appropriate attention is devoted to different areas of the audit
(2) To identify potential problem areas
(3) To facilitate delegation of work to audit team members
(4) To ensure the audit is completed within budget and time restraints
A (1), (2), (3) and (4)
B (1), (3) and (4)
C (1), (2) and (3)
D (2) and (3)
6 Which of the following factors influence the form and content of audit working papers?
(1) Risks of material misstatement
(2) Exceptions identified
(3) Nature of the package used for documentation
(4) Cost to the audit
A (1), (2) and (4)
B (1), (3) and (4)
C (1) and (2)
D (2) and (4)
7 Performance materiality levels are higher than the materiality for the
financial statements as a whole. Is this statement true or false?
A True
B False
8 'Audit risk' represents the risk that the auditor will give an inappropriate opinion
on the financial statements when the financial statements are materially misstated.
Which of the following categories of risk can be controlled by the auditor?
Category of risk:
(1) Control risk
(2) Detection risk
(3) Sampling risk
A (1) and (2)
B (2) only
C (1) and (3)
D (2) and (3)
9 Which of the following statements are correct with regard to the relationship between
the audit plan and the audit strategy for an external audit engagement?
(1) The audit plan should be developed before the audit strategy is established.
(2) The audit plan and the audit strategy should be established and
developed at the same time. (3) The overall audit strategy should be
more detailed than the audit plan.
(4) The audit strategy should be established before the audit plan is developed.
A (1) and (3)
B (2) only
C (3) and (4)
D (4) only
10 The definition of the risk of material misstatement is 'Inherent Risk × Control

Risk × Detection Risk'. Is this statement true or false?
A True
B False
11 Which of the following would normally be included in the audit plan?

A Reporting objectives
B Industry-specific financial reporting requirements
C Nature, timing, and the extent of planned risk assessment procedures
12 Is the following statement regarding the interim audit true or false?
The higher the risk of material misstatement the more likely it is that the
auditor will decide to perform substantive procedures during the interim audit
rather than at the period end.
A True
B False
13 The auditor of Z Co has set performance materiality at $100,000. Which of the

following could be the materiality level set for the financial statements as a
whole for Z Co?
A $80,000
B $95,000
C $100,000
D $120,000
14 Which of the following statements is/are true with respect to analytical procedures?
(1) Analytical procedures can be used throughout the audit.
(2) Analytical procedures must be used as risk assessment procedures.
A (1) only
B (2) only
C (1) and (2)
D Neither (1) nor (2)
15 Who is responsible for the prevention and detection of fraud?

A Internal auditors
B External auditors
C Those charged with governance and management
D The audit committee
16 Which of the following is an appropriate response to the risks of material

misstatement at the assertion level?
A Emphasising the need to maintain professional scepticism
B Increasing supervision on the audit
C Increasing sample sizes for inspecting recorded assets where assets are more
susceptible to theft
D Making changes to the nature of the audit procedures
17 The auditor of A Co wishes to reduce audit risk. Which of the following actions
could the auditor take to achieve this?
(1) Increase sample sizes
(2) Reduce control risk
(3) Assign more experienced staff to the engagement team
A (1) only
B (2) only
C (1) and (3)
D (2) and (3)
18 Which of the following correctly describes the auditors' responsibilities in
accordance with ISA 240 The auditor's responsibilities relating to fraud in an
audit of financial statements?
A The auditor is responsible for the prevention and detection of fraud and error .
B The auditor is not responsible for the prevention of fraud and error but is responsible
for detection.
C The auditor is responsible for obtaining reasonable assurance that the financial
statements are free from material misstatement whether caused by fraud or error.
D The auditor is responsible for detecting all errors and should attempt to detect fraud
where information comes to light as a result of standard audit procedures. (2 marks)
19 Is the following statement true or false regarding the retention of working

papers? ACCA recommends that working papers should be retained for a
minimum period of five years.
A True
B False
20 When determining whether the preconditions for an audit are present the auditor
obtains management's agreement that it acknowledges and understands its
responsibilities. Which of the following is not included in the agreement obtained
by the auditor?
A Management's responsibility for preparing the financial statements
B Management's responsibility for internal control to enable the preparation of financial
statements which are free from material misstatement
C Management's responsibility to provide the auditor with all information relevant to the
preparation of the financial statements
D Management's responsibility to prevent and detect fraud
21 Which of the following must be included in an audit engagement letter?

A Arrangements concerning the use of experts
B Obligations to make audit working papers available to other parties
C Expected form and content of any reports
D Basis on which fees are computed
22 It is not the auditor's responsibility to ensure that the entity complies with relevant
laws and regulations. Is this statement true or false?
A True
B False
23 F Co owns a chain of four restaurants, and is subject to national regulation
concerning hygiene in the food preparation process. Non-compliance can result in
a large fine, or closure of the restaurant concerned.
As F Co's external auditor, what is your responsibility regarding the company's
compliance with the hygiene regulations?
A Actively prevent and detect non-compliance with the regulations
B Perform specific audit procedures to identify possible non-compliance
C Obtain sufficient appropriate audit evidence about F Co's compliance with
the regulations
D Nothing – the food hygiene regulations do not have a direct effect on the
24 In accordance with ISA 250 Consideration of laws and regulations in an audit of
financial statements what are the responsibilities of the external auditor?
A To obtain sufficient appropriate evidence regarding compliance with laws and
regulations that have both a direct and indirect effect on the financial
statements
B To obtain sufficient appropriate evidence regarding compliance with laws and
regulations that have a direct effect on the financial statements only
C To obtain sufficient appropriate evidence regarding compliance with laws and
regulations that have an indirect effect on the financial statements only
regulations which affect the business
25 Auditors usually carry out their audit work at different stages known as the interim
audit and the final audit. Which of the following statements, if any, is/are correct?
(1) Carrying out tests of control on the company's sales day books would normally
be undertaken during an interim audit.
(2) Review of aged receivables ledger to identify balances requiring write down
or allowance would normally be undertaken during a final audit.
A Neither (1) or (2)
B Both (1) and (2)
C (1) only
D (2) only
26 During the planning stages of the final audit, the auditor believes that the
probability of giving an inappropriate audit opinion is too high.
How should the auditor amend the audit plan to resolve this issue?
A Increase the materiality level
B Decrease the inherent risk
C Decrease the detection risk
1 Is the following statement regarding the assurance provided by an internal control system true
or false?
An effective internal control system provides the auditor with absolute assurance that
control objectives have been achieved.
A True
B False
2 Which 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?
A Internal control questionnaire
B Internal control evaluation questionnaire
C Flowchart (1 mark)
3 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?
(1) Records of program changes
(2) Virus checks
(3) Batch reconciliations
(4) Document counts
A (1) and (2)
B (1) and (4)
C (2) and (3)
D (3) and (4)
4 General IT controls are policies and procedures that relate to many applications and
support the effective functioning of application controls.
Which two of the following are general IT controls?
(1) Testing procedures using test data
(2) One for one checking
(3) Disaster recovery procedures
(4) Hash totals
A (1) and (3)
B (1) and (4)
C (2) and (3)
D (2) and (4)
5 One of the control objectives of the sales system of B Co is to ensure that goods and
services are sold to credit-worthy customers.
Which of the following control activities would assist B Co in achieving this
objective?
A All sales orders are based on authorised price lists.
B Credit limits are checked before sales orders are accepted.
C Overdue debts are chased each month by the credit controller.
D The aged-debt listing is reviewed by the finance director on a monthly
basis.
6 A control objective of the purchases system of D Co is to ensure that all liabilities for
purchases are valid obligations of the company.
Which of the following control activities would help to ensure that this objective is
achieved?
A Reconciliation of the payables control account to the purchase ledger
B Matching of suppliers' invoices to purchase orders and goods received notes
C Checking of the mathematical accuracy of the supplier invoice
D Sequential numbering of goods received notes
7 Which of the following controls helps to ensure that payroll payments are only
made to bona fide employees?
(1) Personnel records maintained for all employees
(2) Comparison of bank transfer listing with payroll
(3) Segregation of duties between staff involved in human
resources and payroll functions (4) Reperformance of the
calculation of a sample of payroll deductions
A (1) and (2)
B (1) and (3)
C (2) and (4)
D (3) and (4)
8 B Co maintains perpetual inventory records.

Which of the following control activities would contribute to the auditor's
confidence that inventory recorded in the financial statements exists?
(1) Procedures to identify obsolete and damaged inventory
(2) Physical safeguards to protect inventory from theft
(3) Sequential numbering of goods dispatched notes
(4) Reconciliation of inventory records to results of inventory counts
A (1) and (2)
B (1) and (3)
C (2) and (3)
D (2) and (4)
9 C Co ensures that two individuals are always present when the post is opened. Which
control objective does this help to achieve?
A That cash is banked on a regular basis .
B That cash and cheques are accurately recorded in the general ledger.
C That cash and cheques are not misappropriated.
10 Which control objective would be satisfied by the authorisation of capital expenditure by the
board?
A To ensure that investment in non-current assets is made for
valid business purposes
B To ensure that expenditure is correctly classified as capital
expenditure
C To ensure that all non-current assets are recognised in the non-current asset
register
D To ensure that non-current assets are valued correctly
11 Is the following statement regarding tests of control true or false?

Tests of control are designed to detect material misstatements in the financial statements.
A True
B False
12 Which of the following is not a test of control?
A Inspection of purchase order documentation to confirm that
it has been authorised
B Review of monthly bank reconciliations performed by the
audit client
C Examination of purchase invoices for evidence of mathematical accuracy
checks
D Agreement of the cost of non-current asset additions to purchase
documentation
13 S Co ensures that all goods received are valid business purchases by matching all
deliveries to an authorised order before issuing a goods received note.
Which of the following would be an appropriate test of control to confirm
that the control is operating effectively?
A For a sample of orders check that there is a matching goods received note
B Check that the numerical sequence of purchase orders is complete
C For a sample of goods received notes check that there is an authorised
purchase order
D Check that the numerical sequence of goods received notes is complete
14 The sales invoices of Z Co are matched to dispatch notes with any mismatched items
investigated before they are recorded in the sales day book.
Which of the following control objectives does this help to achieve?
A It ensures that sales and receivables are valid and accurate .
B It ensures that all goods dispatched are recognised as sales and receivables.
C It ensures that all goods ordered by customers are dispatched.
D It ensures that customers do not exceed their credit limits
15 Which of the following controls would be designed to ensure accuracy over input of
data?
A A range check
B A sequence check
C Password protection
D Authorisation
16 The auditor of Q Co has identified that Q Co does not match dispatch notes to sales
invoices as part of the controls in the sales system.
What is the potential consequence of this deficiency?
A Customer orders may not be fulfilled accurately.
B Sales and trade receivables may be overstated.
C Sales and trade receivables may be understated.
D Sales invoices may be posted inaccurately in the receivables control
account
17 The external auditor has identified a deficiency in the internal controls of S Co.
Which of the following factors would indicate that the deficiency is a
significant deficiency in accordance with ISA 265 Communicating
deficiencies in internal control to those charged with governance
and management?
(1) The likelihood of the deficiency leading to material misstatement is low
(2) There is a risk of fraud
(3) The number of transactions affected by the deficiency is low
(4) The deficiency interacts with other deficiencies identified
A (1) and (2)
B (1) and (3)
C (2) and (4)
D (3) and (4)
18 Which of the following statements is true regarding the controls in a small company?
(1) The external auditor will never be able to rely on the
controls in a small company.
(2) Segregation of duties may be inadequate due to staff
numbers.
(3) Evidence of the operation of controls is more likely to be
available in documentary form.
(4) The external auditor will assess the attitudes, awareness and
actions of management.
A (1) and (3)
B (1) and (4)
C (2) and (3)
D (2) and (4)
19 Is the following statement regarding internal control questionnaires true or false?

Internal control questionnaires are used to determine whether there are
controls which prevent or detect specified errors or omissions.
A True
B False
20 During the course of the audit the auditor may identify deficiencies in internal
control which must be reported to management.
Which of the following statements is correct regarding the report to
management sent by the auditor?
(1) The report must include a description of the deficiencies and an
explanation of their potential effects.
(2) The report includes an explanation of the purpose of the audit.
(3) The report states that the results of the audit work have enabled the auditor to
express an opinion on the operating effectiveness of internal control.
A (1) and (2) only
B (1) and (3) only
C (2) and (3) only
D (1), (2) and (3)
21 Is the following statement regarding the auditor's responsibility to report

deficiencies in internal controls true or false?
All deficiencies in internal controls should be reported to management must be reported in
writing.
A True
B False
22 Fellaini Co operates a large department store and has a large internal audit
department in place. The management of Fellaini Co are keen to increase the
range of assignments that internal audit undertake.
Which of the following assignments could the internal audit department of Fellaini Co be
asked to perform by management?
A Internal audit department members could undertake 'mystery shopper' reviews, where
they enter the store as a customer, purchase goods and rate the overall shopping
experience
B Internal audit could be asked to assist the external auditors by requesting bank
confirmation letters
C Internal audit could be asked to implement a new payroll package for the payroll
department
D Internal audit could be asked to assist the finance department with the preparation of the
year end financial statements
23 Application controls are manual or automated procedures that operate over
accounting applications to ensure that all transactions are complete and
accurate.
(1) Password protection of programs
(2) Batch controls
(4) Regular back up of programs
A (1) and (4)
B (3) and (4)
C (1) and (2)
D (2) and (3)
24 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 of the following is not set out as a component of internal control within ISA
315?
A Control environment
B The information system relevant to financial reporting
C Human resource policies and practices
1 Which two of the following would be classified as substantive procedures?

(1) Tests of control
(2) Walk-through tests
(4) Tests of details
A (1) and (2)
B (1) and (4)
C (2) and (3)
D (3) and (4)
2 Is the following statement true or false regarding directional testing?

An audit procedure which tests for the understatement of a class of
expenditure will simultaneously test for the overstatement of the related
liability.
A True
B False
3 The draft financial statements of T Co show the following information:

$'000
Revenue 420
Cost of sales 270
Gross profit 150
Trade receivables 160
Trade payables 130
What is the receivables collection period?
A 139 days (160/420)*365
B 175 days
C 758 days
D 958 days
4 Is the following statement regarding audit sampling true or false?

Audit sampling is the application of audit procedures to less than 100% of
items within a population of audit relevance such that all sampling units have
a chance of selection.
A True
B False
5 The auditor of L 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?
(1) Extend the sample size
(2) Replace the sample
(3) Ignore the deviations as they only affect some of the items tested
(4) Perform alternative substantive procedures
A (1) and (3)
B (1) and (4)
C (2) and (3)
D (2) and (4)
6 The auditor of P Co is planning the audit work on trade receivables.

Which of the following procedures could not be performed by using computer-assisted
audit techniques?
A Selection of a sample of receivables for confirmation
B Calculation of receivables days
C Production of receivables' confirmation letters
D Evaluation of the adequacy of the allowance for irrecoverable receivables
7 Computer assisted audit techniques include test data and audit software.
In respect of which of the following activities would the use of audit software be most
relevant?
A Tests of online passwords
B Testing of computerised in-put controls on sales invoices
C Totalling of the purchase ledger
D Testing controls over computerised credit-limits
8 Is the following statement regarding audit software true or false?

Audit software is used to assist with substantive procedures.
A True
B False
9 Which of the following statements is true regarding an auditor's expert?

(1) The expert must be a partner or member of staff of the audit firm.
(2) Provided that the auditor has assessed the expert to be competent audit
evidence provided by the expert can be relied upon.
(3) Unless required to do so by law or regulation the auditor must not refer to the
expert in an auditor's report which contains an unmodified opinion.
A (1) only
B (2) only
C (3) only
D (1), (2) and (3)
10 X Co has an internal audit function. The external auditor has concluded that the
internal audit function does not apply a systematic and disciplined approach to its
work.
How does this affect the extent to which the external auditor can rely on the work of the
internal audit function?
A The external auditor must not use the work of the internal audit function.
B The external auditor can use the work of the internal audit function provided the
individuals have been assessed as competent .
C The external auditor can use the work of the internal audit function provided the
organisational status of the function supports its objectivity.
D The external auditor can use work performed by the internal audit function which relates
to low risk areas of the external audit only.
11 Is the following statement regarding the use of internal audit work by the external auditor
true or false?
The external auditor must reperform some of the work carried out by the
internal audit function if the work of the internal auditor is to be relied on.
A True
B False
12 The auditor of G Co is performing audit procedures to confirm the company's

ownership of motor vehicles. Which of the following would provide the most
persuasive evidence of this?
A Physical inspection of the motor vehicles
B Inspection of vehicle registration documents
C Checking that the motor vehicles are recorded in the non-current asset register
D Review of vehicle insurance documentation
13 Which of the following audit procedures would provide the auditor with
evidence of completeness of inventory?
A Tracing test counts performed at the inventory count to the detailed
inventory listing
B Reviewing the physical condition of inventory when attending the
inventory count
C Casting the inventory listing
D Vouching the cost of a sample of inventory items to suppliers' invoices
14 Which two of the following statements are true regarding the auditor's attendance at the
inventory count?
(1) It is the auditor's responsibility to organise the inventory count.
(2) The auditor observes client staff to determine whether inventory count
procedures are being followed.
(3) The auditor reviews procedures for identifying damaged, obsolete and slow-
moving inventory.
(4) If the results of the auditors' test counts are not satisfactory, the auditor should
arrange for the inventory to be recounted.
A (1) and (2)
B (1) and (4)
C (2) and (3)
D (3) and (4)
15 The auditor of Q Co has performed purchases cut-off procedures and has identified
that in two material instances goods received prior to the inventory count have
not been included on the schedule of 'goods received not invoiced'. At the period
end purchase invoices have not been received. What is the auditor's conclusion
based on this evidence?
A Inventory is overstated and liabilities are understated.
B Inventory is understated and liabilities are understated.
C Inventory is overstated and liabilities are overstated.
D Inventory is understated and liabilities are overstated.
16 Which of the following statements is/are true regarding direct confirmation of
accounts receivable?
(1) Responses from the customer must be returned directly to the client.
(2) Under the positive method the customer only replies if the amount stated is
agrees with the customer's records.
A (1) only
B (2) only
C (1) and (2)
17 The key audit risk associated with trade payables is understatement.

Which of the following procedures would provide the most reliable evidence
of the completeness of amounts due?
A Tracing of amounts due per the payables ledger to purchase invoices
B Matching of purchase invoices to goods received notes
C Reconciliation of year-end supplier statements
D Reconciliation of the payables ledger with the payables ledger control
account
18 Is the following statement true or false in respect of litigation and claims?

When the auditor believes that litigation or claims may exist the auditor seeks
to communicate directly with the client's legal advisers through a letter of
inquiry.
A True
B False
19 The auditor of Z Co is auditing share capital. Z Co employs an independent registrar

to deal with its share registration work.
Which of the following is the most reliable evidence of the validity of the
issued share capital stated in the financial statements?
A The balance on the share capital account in the general ledger
B A certificate of share capital in issue from the registrar
C Z Co's incorporation documentation
D Details of share capital recorded on the previous year's audit file
20 The auditor of F Co is auditing bank and cash at 31 December 20X4 and has identified
a significant number of remittances recorded in the cash book on the last day of
the year which do not appear on the bank statement until late January 20X5.
Which of the following steps would the auditor take to help determine
whether F Co is involved in window dressing?
A Request copies of the cheques from the bank and agree the amounts of the cheques
to the entries in the cash book
B Agree the bank statement balance to the balance according to the bank confirmation
letter
C Examine the paying-in slips for the remittances to determine the date that they
were actually paid in to the bank
21 The auditor is performing the audit of a charity whose main source of income is derived from
street
collections.
Which of the following controls would provide the auditor with evidence of completeness of
income?
(1) Numerical controls over collection boxes
(2) Sealing of collection boxes at the end of each shift
(3) Matching of paying-in slip details to the bank statement
A (1) and (2)
B (1) and (3)
C (2) and (3)
22 Is the following statement regarding audit considerations when the entity has used a service
organisation
true or false?
The user auditor may request a report from the service auditor which includes a description of the
system at
the service organisation and details the design of the controls.
A True
B False
23 The auditor of M Co has agreed a sample of non-current assets selected by physical inspection
back to the
non-current asset register.
For which of the following assertions does this test provide assurance?
A Completeness
B Existence
C Rights and obligations
D Accuracy and valuation
24 Which of the following techniques is generally accepted to be the most efficient to obtain
evidence regarding
the existence of bank balances?
A Reperformance
B Confirmation
C Analytical procedures
D Observation
25 Which of the following assertions about classes of transactions and events for the period under
audit is
defined below:
'Amounts and other data relating to recorded transactions and events have been recorded
appropriately'.
A Cut-off
B Accuracy
C Occurrence
D Classification
26 Is the following statement regarding audit evidence true or false?
Appropriateness is the measure of the quality of audit evidence.
A True
B False
27 As the audit senior on the year-end audit of Z Co, you have instructed the audit junior to obtain
and inspect
supporting sales contracts for large sales transactions.
Which of the following assertions are you seeking to test with this audit procedure?
A Cut-off
B Accuracy
C Occurrence
D Completeness
28 Is the following statement regarding direct confirmation of accounts receivable true or false?
The verification of trade receivables by direct confirmation provides evidence that the debts are
recoverable.
A True
B False
29 Which of the following sampling methods correctly describes systematic sampling?
A A sampling method which is a type of value-weighted selection in which sample size, selection
and
evaluation results in a conclusion in monetary amounts
B A sampling method which involves having a constant sampling interval, the starting point for
testing
is determined randomly
C A sampling method in which the auditor selects a block(s) of contiguous items from within the
population
30 An audit junior has been assigned to the audit of bank and cash balances of Howard Co. He has
obtained the
following audit evidence:
(1) Bank reconciliation carried out by the cashier
(2) Bank confirmation report from Howard's bankers
(3) Verbal confirmation from the directors that the overdraft limit is to be increased
(4) Cash count carried out by the audit junior
What is the order of reliability of the audit evidence starting with the most reliable first?
A (4), (2), (1) and (3)
B (2), (1), (4) and (3)
C (4), (3), (2) and (1)
D (2), (4), (1) and (3)
31 When placing reliance on the work of an expert is the following statement true or false?
In order to place reliance, the auditor is required to evaluate the work performed by the expert.
A True
B False
1 As part of the review stage of an audit, the auditor will consider subsequent events.
Up to which date does the auditor have an active responsibility to perform procedures designed to
identify
subsequent events?
A The reporting date
B The date of the auditor's report
C The date of issue of the financial statements
D The date of approval of the financial statements
2 Which of the following procedures will be performed by the auditor as part of a subsequent
events review?
(1) Request for written representations from management
(2) Review of minutes of board meetings held after the date of the financial statements
A (1) only
B (2) only
C (1) and (2)
3 Is the following statement regarding the purpose of subsequent events true or false?
The purpose of the subsequent events review performed by the auditor is to ensure that the effects
of all
subsequent events identified are reflected in the financial statements.
A True
B False
4 Is the following statement regarding the going concern assumption true or false?
Under the going concern assumption it is assumed that the business will never have cause to cease
trading.
A True
B False
5 Is the following statement regarding the auditor's responsibilities regarding going concern true
or false?
It is the auditor's responsibility to assess an entity's ability to continue as a going concern.
A True
B False
6 M Co has a year end of 31 December 20X4. The auditor has identified that management's
assessment of
M Co's ability to continue as a going concern covers the period to 30 June 20X5.
What action should the auditor take?
A Request that management extends the assessment period to 30 September 20X5
B Request that management extends the assessment period to 31 December 20X5
C Request that management extends the assessment period to 31 December 20X6
D No action is required provided the auditor is satisfied with management's assessment to 30 June
20X5
84 Questions
7 ISA 570 Going concern identifies events and conditions that may cast doubt about the going
concern
assumption.
Which of the following are identified by ISA 570 as financial factors?
(1) Loss of key customers
(2) Net liability position
(3) Substantial operating losses
(4) Shortages of key raw materials
A (1) and (2)
B (1) and (4)
C (2) and (3)
D (3) and (4) (2 marks)
8 Z Co has a year end of 30 June 20X4. Management has assessed the ability of the company to
continue as a
going concern based on the period to 30 June 20X5.
Which of the following procedures must the auditor perform to identify factors that may affect Z
Co's ability
to continue as a going concern beyond 30 June 20X5?
A Analysis of cash flow forecasts
B Review of board minutes
C Review of loan terms
D Inquiry of management
9 The auditor of S 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?
A Adverse opinion
B Qualified opinion
C Unmodified opinion without an emphasis of matter paragraph
D Unmodified opinion with an emphasis of matter paragraph
10 The auditor of Y Co has concluded that Y 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 An unmodified opinion
B A qualified 'except for' opinion due to material misstatement
C A qualified 'except for' opinion due to insufficient appropriate audit evidence
D An adverse opinion
11 T Co has a year end of 31 July 20X4. The auditor completed the audit work on 10 September
20X4 and the
auditor's report was signed on 30 September 20X4. The financial statements were issued on 1
November
20X4.
Which of the following would be the most appropriate date for the directors to sign the written
representations letter?
A 31 July 20X4
B 10 September 20X4
C 30 September 20X4
D 1 November 20X4
Questions 85
12 Is the following statement regarding written representations true or false?
Written representations by management regarding specific assertions in the financial statements
provide
sufficient appropriate audit evidence in their own right.
A True
B False
13 For which of the following matters must written representations be sought?
(1) That management has fulfilled its responsibility for the preparation of the financial statements
(2) That management has provided the auditor with all the information relevant to the audit
(3) That accounts receivable are recoverable
(4) That inventory is correctly valued at the lower of cost and net realisable value
A (1) and (2)
B (1) and (3)
C (2) and (4)
D (3)
14 Which of the following statements regarding analytical procedures is correct?
A Analytical procedures must be used as part of the overall review of the financial statements.
B Analytical procedures may be used as part of the overall review of the financial statements.
C Analytical procedures are only used as risk assessment procedures.
15 Misstatements can arise from error or fraud.
Which of the following statements is correct regarding the auditor's accumulation of identified
misstatements?
A The auditor must accumulate all misstatements identified during the audit.
B The auditor must only accumulate individually material misstatements identified during the
audit.
C The auditor must accumulate misstatements identified during the audit, other than those that are
clearly trivial.
16 ISA 700 Forming an opinion and reporting on financial statements sets out the basic elements
of an auditor's report.
Which of the following is not included in an unmodified auditor's report?
A Management's responsibility for the financial statements
B Auditors' responsibilities
C Audit opinion
D Deficiencies of internal controls
17 The auditor of Q Co has completed the audit and has concluded that sufficient appropriate
evidence has been obtained, which confirms that the financial statements are not materially
misstated.
Which form of audit opinion will the auditor issue?
A Adverse opinion
B Qualified opinion
C Unmodified opinion
D A disclaimer of opinion
18 ISA 705 Modification to the opinion in the independent auditor's report identifies three possible
types of modification.
In which of the following circumstances would a disclaimer of opinion be issued?
A The auditor concludes that the financial statements include misstatements which are material
but not
pervasive to the financial statements.
B The auditor concludes that the financial statements include misstatements which are both
material
and pervasive to the financial statements.
C 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 .
D 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.
19 The auditor of B Co has concluded that inventory is overstated as a number of lines have not
been valued at the lower of cost and net realisable value. 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?
A Adverse opinion
B Disclaimer of opinion
C Qualified opinion due to a material misstatement
D Qualified opinion due to insufficient appropriate evidence on which to base an opinion (2 marks)
20 The financial statements of Z Co include a receivables balance of $20,000 which the auditors
do not believe will be recovered. Materiality has been set at $100,000. There are no other
unadjusted misstatements.
What form of audit opinion would be issued by the auditor?
A Adverse opinion
B Unmodified opinion
C Disclaimer of opinion
D Qualified opinion due to overstatement of receivables (2 marks)
21 P Co is being sued by a customer for the supply of faulty products. At the year end the outcome
of the legal case is still uncertain. The directors have fully disclosed the matter as a contingent
liability and the auditors are satisfied with the treatment and the level of disclosure. The auditors
have concluded that the uncertainty is fundamental to the understanding of the financial
statements.
What form of audit opinion would the auditor give?
A Disclaimer
B Unmodified opinion with an emphasis of matter paragraph
D Qualified opinion
22 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?
A An emphasis of matter paragraph would be included.
B The audit opinion would be qualified.
C An other matters paragraph would be included.
D The auditor's report would not be affected as the auditor's report only refers to matters presented
or disclosed in the financial statements.
23 The majority of the books and records of Q 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?
A An adverse opinion
B A disclaimer of opinion
C Qualified opinion on the basis that sufficient appropriate evidence is not available
D Unmodified opinion with an emphasis of matter paragraph explaining the circumstances of the
flood
24 The statement of financial position of R Co includes a material amount of $200,000 in respect
of costs capitalised in the year as development expenditure. The auditor has concluded that these
costs are research expenditure.
If the auditor is to issue an unmodified opinion which financial statements will require adjustment?
A Statement of financial position only
B Statement of profit or loss only
C Statement of financial position and statement of profit or loss
D Neither the statement of financial position nor the statement of profit or loss (2 marks)
25 An emphasis of matter paragraph is used in an audit report to draw attention to a matter affecting
the financial statements.
Which two of the following are correct in relation to an Emphasis of Matter Paragraph in the
Auditor's
Report?
(1) It is used when there is a material uncertainty.
(2) It constitutes a modified audit opinion.
(3) The auditor's report is referred to as an unmodified report.
(4) The matter is deemed to be fundamental to the users understanding of the financial statements.
A (1) and (2)
B (1) and (4)
C (1) and (3)
D (2) and (4) (2 marks)
26 The audit of Giggs Co's financial statements for the year ended 31 October 20X4 has been
completed; the audit report and the financial statements have been signed but not yet issued.
The finance director of Giggs Co has just informed the audit team that he has received notification
that a material receivable balance has become irrecoverable and Giggs Co will not receive any of
the amounts owing.
What actions, if any, should the auditor now take to satisfy their responsibilities under ISA 560
Subsequent events?
A No actions required as the audit report and financial statements have already been signed
B Request management to adjust the financial statements, verify the adjustment and provide a new
audit report
C Request management to make disclosure of this event in the financial statements
D Request that management adjust for this event in the following year's financial statements as it
occurred in year ending 31 October 20X5
Multiple choice questions
1 Is the following statement regarding stewardship true or false?
Directors are stewards of the investment made by shareholders in a company.
A True
B False
2 Which two of the following are elements of an assurance engagement?

(1) A three-party relationship
(2) Suitable criteria
(3) Determination of materiality
(4) An engagement letter
A (1) and (2) only
B (1) and (3) only
C (2) and (3) only
D (1) and (4) only
3 What is the correct order of the following stages involved in the development of an
ISA?
(1) Distribution of exposure draft for public comment
(2) Consideration of comments received as a result of the exposure draft
(3) Approval by IAASB members
(4) Establishment of task force to develop draft standard
(5) Discussion of proposed standard at a public meeting
A (1), (5), (4), (3), (2)
B (3), (4), (1), (2), (5)
C (4), (5), (1), (2), (3)
D (5), (4), (2), (1), (3)
4 Who normally appoints the external auditors of a company?

A Directors
B Shareholders
C Audit committee
D Senior management (1 mark)
5 Which of the following is the most appropriate definition of the external audit?
A 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.
B The external audit is an exercise carried out in order to give an opinion on
the effectiveness of a company's internal control system.
C The external audit is performed by management to identify areas of deficiency
within a company and to make recommendations to mitigate those
deficiencies.
D The external audit provides negative assurance on the truth and fairness of a
company's financial statements.
6 The level of assurance provided by an external audit is absolute.
A True
B False
7 Which of the following is/are not a statutory right of the auditors of a limited liability
company?
(1) A right to attend all directors' meetings and receive all notices and
(2) A right to speak at general meetings on any part of the business that concerns
them as auditors.
(3) A right to attend any general meeting and receive all notices and
A (1) only
B (1) and (3)
C (2) only
D (2) and (3)
8 Is the following statement true or false?

In an effective system of corporate governance the directors take
responsibility for risk management strategies within the business.
A True
B False
9 Which of the following are recognised threats to independence and objectivity as

identified in ACCA's Code of Ethics and Conduct?
(1) Familiarity
(2) Self-interest
(3) Integrity
(4) Advocacy
A (1), (2), (3) and (4)
B (1), (2) and (4)
C (2), (3) and (4)
D (2) and (4) only
10 In which of the following situations would the auditor be able to disclose
confidential information about a client?
(1) Disclosure is required by law.
(2) Disclosure is permitted by law but the auditor has not
requested the client's permission. (3) The auditor suspects that the
client has committed money-laundering offences.
A (1) and (2) only
B (1) and (3) only
C (2) and (3) only
D (1), (2) and (3)
11 Andrew Jones has been the key audit partner of X Co, a public interest entity,
for seven years. For how long must he be rotated off the audit as a minimum to
comply with ACCA's Code of Ethics and Conduct?
A 1 year
B 2 years
C 3 years
D 4 years
12 AAB & Co is the statutory auditor of Y Co, a public interest entity.

Which of the following services is AAB & Co prohibited from providing to Y Co under
any circumstances?
A Provision of bookkeeping services
B Assistance in the resolution of tax disputes
C Internal audit services
D Valuation services where the valuation will have a material effect on
the financial statements
13 Who is ultimately responsible for a company's system of internal controls?

A External auditors
B Board of directors
C Internal auditors
D Audit committee
14 Every company must have an audit committee.

A True
B False
15 Which of the following statements is true regarding the audit committee?

A An audit committee must comprise at least four independent non-executive
directors.
B Where there is no internal audit function the audit committee should
consider the need for one on an annual basis.
C The role and responsibilities of the audit committee are set out in statute
16 Which of the following are valid disadvantages of having an audit committee?

A It can undermine the authority of the board of directors.
B The internal audit function may communicate directly with the audit
committee rather than with management.
C It may be difficult to find non-executive directors with the
relevant experience.
17 AB & Co audits DEF Co. In accordance with ACCA Code of Ethics and Conduct
which two of the following circumstances would constitute a threat to
objectivity?
(1) An employee of AB & Co owns shares in DEF Co but is not part of
the audit team
(2) The best friend of the engagement partner owns a significant indirect
financial interest in DEF Co
(3) The audit manager of DEF Co owns a small number of shares in DEF
Co
(4) The husband of the audit partner owns shares in DEF Co
A (1) and (2)
B (1) and (4)
C (2) and (3)
D (3) and (4)
18 Which of the following internal audit assignments is described below?
The examination of the economy, efficiency and effectiveness of activities and
processes.
A Regulatory compliance audit
B Value for money audit
C Financial audit
D IT audit
19 Which two of the following characteristics apply to internal audit?

(1) The purpose is to improve the company's operations.
(2) Reports to shareholders on whether the financial statements give a
true and fair view of affairs. (3) Auditors may be employees of the
company.
(4) Evidence is collected in accordance with relevant ISAs.
A (1) and (3)
B (2) and (4)
C (1) and (4)
D (2) and (3)
20 Which type of risk is the internal auditor normally responsible for monitoring?
A Audit risk
B Business risk
C Audit risk and business risk
D Neither audit risk nor business risk
21 Which of the following internal audit assignments aims to monitor

management's performance and ensure that company policy is followed?
A Value for money
B Fraud investigation
C Financial
D Operational
22 The format of the internal audit report is governed by statute.

A True
B False
23 Which of the following is a limitation of the internal audit function?

A The internal audit report is not circulated to the members.
B Internal audit assignments are designed to meet the needs of the business.
C Internal auditors may be employees of the company.
D Internal auditors may report to an audit committee.
24 Is the following statement about outsourcing the internal audit function true or false?
One of the advantages of outsourcing the internal audit function is that
the company will not need to exercise any controls over the
outsourced department.
A True
B False
25 Which of the following activities should the internal audit function not be involved
in?
A Monitoring of management's performance
B Reviewing adequacy of management information for decision-making purposes
C Taking responsibility for the implementation of a new sales ledger system
D Assessing compliance with regulation relevant to the business
26 The role of the internal audit function in risk management is to identify risk
and implement strategies to minimise risks.
A True
B False
27 Which of the following is not a benefit of establishing an audit committee?

A Reduced opportunity of fraud, as the audit committee can advise the executive
directors on managing the risks in the financial reporting process.
B Greater external audit independence, as the audit committee can be
responsible for appointing the external auditors
C Reduced external audit fees, as the presence of the audit committee reduces
audit risk and consequently, the amount of audit procedures required.
28 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?
(1) Self-review threat
(2) Advocacy threat
(3) Familiarity threat
(4) Self-interest threat
A (1) and (2)
B (1) and (3)
C (2) and (4)
D (3) and (4)
29 Which of the following statements best reflects the auditor's duty of confidentiality?
A Auditors must never, under any circumstances, disclose any matters of
which they become aware during the course of the audit to third parties,
without the permission of the client.
B Auditors may disclose any matters in relation to criminal activities
to the police or taxation authorities, if requested to do so by the
police or a tax inspector.
C Auditors may disclose matters to third parties without their client's
consent if it is in the public interest, and they must do so if there is
a statutory duty to do so.
D Auditors may only disclose matters to third parties without their client's consent
if the public interest or national security is involved.
30 Which two of the following are fundamental principles as stated in the ACCA's Code
of Ethics and Conduct?
(1) Objectivity
(2) Independence
(3) Confidentiality
(4) Professional scepticism
A (1) and (4)
B (1) and (2)
C (2) and (3)
D (1) and (3)
31 Which of the following statements relate to review engagements?

(1) Subject matter is plausible
(2) Reasonable assurance
(3) Nothing has come to our attention which would indicate that the
subject matter contains material misstatements
(4) Positive assurance
A (1) and (3)
B (2) and (4)
C (2) and (3)
D (1) and (4)
1 When gaining an understanding of the specific business operations of an audit client
which of the following matters would an auditor need to consider?
A Accounting principles and industry specific practices relevant
to the client's business
B Acquisitions or disposals of the client's business activities
C Leasing of property, plant or equipment for use in the client's business
D Products or services and markets of the client's business
2 Which of the following statements about materiality are correct?

(1) Information is material if its omission or misstatement could influence the
economic decisions of users of the financial statements.
(2) Materiality is based on the auditor's experience and judgement.
(3) Materiality is always based on revenue.
(4) Materiality should only be calculated at the planning stage of the audit.
A (1), (2) and (3)
B (1), (3) and (4)
C (1) and (2)
D (2) and (4)
3 Which of the following procedures must the auditor use 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?
(2) Inquiry
(3) Confirmation
(4) Reperformance
A (1), (2) and (3)
B (1) and (2)
C (2), (3) and (4)
D (1) and (4)
4 What are the two elements of the risk of material misstatement at the assertion level?
A Inherent risk and detection risk
B Audit risk and detection risk
C Inherent risk and control risk
D Detection risk and control risk
5 What are the purposes of planning the audit?

(1) To ensure appropriate attention is devoted to different areas of the audit
(2) To identify potential problem areas
(3) To facilitate delegation of work to audit team members
(4) To ensure the audit is completed within budget and time restraints
A (1), (2), (3) and (4)
B (1), (3) and (4)
C (1), (2) and (3)
D (2) and (3)
6 Which of the following factors influence the form and content of audit working
papers?
(1) Risks of material misstatement
(2) Exceptions identified
(3) Nature of the package used for documentation
(4) Cost to the audit
A (1), (2) and (4)
B (1), (3) and (4)
C (1) and (2)
D (2) and (4)
7 Performance materiality levels are higher than the materiality for the
financial statements as a whole. Is this statement true or false?
A True
B False
8 'Audit risk' represents the risk that the auditor will give an inappropriate opinion
on the financial statements when the financial statements are materially misstated.
Which of the following categories of risk can be controlled by the auditor?
Category of risk:
(1) Control risk
(2) Detection risk
(3) Sampling risk
A (1) and (2)
B (2) only
C (1) and (3)
D (2) and (3)
9 Which of the following statements are correct with regard to the relationship between
the audit plan and the audit strategy for an external audit engagement?
(1) The audit plan should be developed before the audit strategy is established.
(2) The audit plan and the audit strategy should be established and
developed at the same time. (3) The overall audit strategy should be
more detailed than the audit plan.
(4) The audit strategy should be established before the audit plan is developed.
A (1) and (3)
B (2) only
C (3) and (4)
D (4) only
10 The definition of the risk of material misstatement is 'Inherent Risk × Control

Risk × Detection Risk'. Is this statement true or false?
A True
B False
11 Which of the following would normally be included in the audit plan?

A Reporting objectives
B Industry-specific financial reporting requirements
C Nature, timing, and the extent of planned risk assessment procedures
12 Is the following statement regarding the interim audit true or false?
The higher the risk of material misstatement the more likely it is that the
auditor will decide to perform substantive procedures during the interim audit
rather than at the period end.
A True
B False
13 The auditor of Z Co has set performance materiality at $100,000. Which of the

following could be the materiality level set for the financial statements as a
whole for Z Co?
A $80,000
B $95,000
C $100,000
D $120,000
14 Which of the following statements is/are true with respect to analytical procedures?
(1) Analytical procedures can be used throughout the audit.
(2) Analytical procedures must be used as risk assessment procedures.
A (1) only
B (2) only
C (1) and (2)
15 Who is responsible for the prevention and detection of fraud?

A Internal auditors
B External auditors
C Those charged with governance and management
D The audit committee
16 Which of the following is an appropriate response to the risks of material

misstatement at the assertion level?
A Emphasising the need to maintain professional scepticism
B Increasing supervision on the audit
C Increasing sample sizes for inspecting recorded assets where assets are
more susceptible to theft
D Making changes to the nature of the audit procedures
17 The auditor of A Co wishes to reduce audit risk. Which of the following actions
could the auditor take to achieve this?
(1) Increase sample sizes
(2) Reduce control risk
(3) Assign more experienced staff to the engagement team
A (1) only
B (2) only
C (1) and (3)
D (2) and (3)
18 Which of the following correctly describes the auditors' responsibilities in

accordance with ISA 240 The auditor's responsibilities relating to fraud in an
audit of financial statements?
A The auditor is responsible for the prevention and detection of fraud and error .
B The auditor is not responsible for the prevention of fraud and error but is responsible
for detection.
C The auditor is responsible for obtaining reasonable assurance that the financial
statements are free from material misstatement whether caused by fraud or
error.
D The auditor is responsible for detecting all errors and should attempt to detect fraud
where information comes to light as a result of standard audit procedures. (2 marks)
19 Is the following statement true or false regarding the retention of working

papers? ACCA recommends that working papers should be retained for a
minimum period of five years.
A True
B False
20 When determining whether the preconditions for an audit are present the auditor
obtains management's agreement that it acknowledges and understands its
responsibilities. Which of the following is not included in the agreement obtained
by the auditor?
A Management's responsibility for preparing the financial statements
B Management's responsibility for internal control to enable the preparation of
financial statements which are free from material misstatement
C Management's responsibility to provide the auditor with all information relevant to the
preparation of the financial statements
D Management's responsibility to prevent and detect fraud
21 Which of the following must be included in an audit engagement letter?

A Arrangements concerning the use of experts
B Obligations to make audit working papers available to other parties
C Expected form and content of any reports
D Basis on which fees are computed
22 It is not the auditor's responsibility to ensure that the entity complies with relevant
laws and regulations. Is this statement true or false?
A True
B False
23 F Co owns a chain of four restaurants, and is subject to national regulation

concerning hygiene in the food preparation process. Non-compliance can result
in a large fine, or closure of the restaurant concerned.
As F Co's external auditor, what is your responsibility regarding the
company's compliance with the hygiene regulations?
A Actively prevent and detect non-compliance with the regulations
B Perform specific audit procedures to identify possible non-compliance
C Obtain sufficient appropriate audit evidence about F Co's compliance with
the regulations
D Nothing – the food hygiene regulations do not have a direct effect on the
24 In accordance with ISA 250 Consideration of laws and regulations in an audit of
financial statements what are the responsibilities of the external auditor?
A To obtain sufficient appropriate evidence regarding compliance with laws and
regulations that have both a direct and indirect effect on the financial
statements
B To obtain sufficient appropriate evidence regarding compliance with laws
and regulations that have a direct effect on the financial statements
only
C To obtain sufficient appropriate evidence regarding compliance with laws and
regulations that have an indirect effect on the financial statements only
regulations which affect the business
25 Auditors usually carry out their audit work at different stages known as the interim
audit and the final audit. Which of the following statements, if any, is/are
correct?
(1) Carrying out tests of control on the company's sales day books would normally
be undertaken during an interim audit.
(2) Review of aged receivables ledger to identify balances requiring write
down or allowance would normally be undertaken during a final audit.
A Neither (1) or (2)
B Both (1) and (2)
C (1) only
D (2) only
26 During the planning stages of the final audit, the auditor believes that the
probability of giving an inappropriate audit opinion is too high.
How should the auditor amend the audit plan to resolve this issue?
A Increase the materiality level
B Decrease the inherent risk
C Decrease the detection risk
1 Is the following statement regarding the assurance provided by an internal control system true
or false?
An effective internal control system provides the auditor with absolute assurance that
control objectives have been achieved.
A True
B False
2 Which 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?
A Internal control questionnaire
B Internal control evaluation questionnaire
C Flowchart (1 mark)
3 Application controls relate to procedures used to initiate, record, process and report
transactions and other financial data.
(1) Records of program changes
(2) Virus checks
(3) Batch reconciliations
(4) Document counts
A (1) and (2)
B (1) and (4)
C (2) and (3)
D (3) and (4)
4 General IT controls are policies and procedures that relate to many applications and
support the effective functioning of application controls.
Which two of the following are general IT controls?
(1) Testing procedures using test data
(3) Disaster recovery procedures
(4) Hash totals
A (1) and (3)
B (1) and (4)
C (2) and (3)
D (2) and (4)
5 One of the control objectives of the sales system of B Co is to ensure that goods and
services are sold to credit-worthy customers.
Which of the following control activities would assist B Co in achieving this
objective?
A All sales orders are based on authorised price lists.
B Credit limits are checked before sales orders are accepted.
C Overdue debts are chased each month by the credit controller.
D The aged-debt listing is reviewed by the finance director on a monthly
basis.
6 A control objective of the purchases system of D Co is to ensure that all liabilities
for purchases are valid obligations of the company.
Which of the following control activities would help to ensure that this objective is
achieved?
A Reconciliation of the payables control account to the purchase ledger
B Matching of suppliers' invoices to purchase orders and goods received notes
C Checking of the mathematical accuracy of the supplier invoice
D Sequential numbering of goods received notes
7 Which of the following controls helps to ensure that payroll payments are
only made to bona fide employees?
(1) Personnel records maintained for all employees
(2) Comparison of bank transfer listing with payroll
(3) Segregation of duties between staff involved in human
resources and payroll functions (4) Reperformance of the
calculation of a sample of payroll deductions
A (1) and (2)
B (1) and (3)
C (2) and (4)
D (3) and (4)
8 B Co maintains perpetual inventory records.

Which of the following control activities would contribute to the auditor's
confidence that inventory recorded in the financial statements exists?
(1) Procedures to identify obsolete and damaged inventory
(2) Physical safeguards to protect inventory from theft
(3) Sequential numbering of goods dispatched notes
(4) Reconciliation of inventory records to results of inventory counts
A (1) and (2)
B (1) and (3)
C (2) and (3)
D (2) and (4)
9 C Co ensures that two individuals are always present when the post is opened. Which
control objective does this help to achieve?
A That cash is banked on a regular basis .
B That cash and cheques are accurately recorded in the general ledger.
C That cash and cheques are not misappropriated.
10 Which control objective would be satisfied by the authorisation of capital expenditure by the
board?
A To ensure that investment in non-current assets is made
for valid business purposes
B To ensure that expenditure is correctly classified as capital
expenditure
C To ensure that all non-current assets are recognised in the non-current asset
register
D To ensure that non-current assets are valued correctly
11 Is the following statement regarding tests of control true or false?

Tests of control are designed to detect material misstatements in the financial
statements.
A True
B False
12 Which of the following is not a test of control?
A Inspection of purchase order documentation to confirm that
it has been authorised
B Review of monthly bank reconciliations performed by the
audit client
C Examination of purchase invoices for evidence of mathematical accuracy
checks
D Agreement of the cost of non-current asset additions to purchase
documentation
13 S Co ensures that all goods received are valid business purchases by matching all
deliveries to an authorised order before issuing a goods received note.
Which of the following would be an appropriate test of control to
confirm that the control is operating effectively?
A For a sample of orders check that there is a matching goods received note
B Check that the numerical sequence of purchase orders is complete
C For a sample of goods received notes check that there is an authorised
purchase order
D Check that the numerical sequence of goods received notes is complete
14 The sales invoices of Z Co are matched to dispatch notes with any mismatched
items investigated before they are recorded in the sales day book.
Which of the following control objectives does this help to achieve?
A It ensures that sales and receivables are valid and accurate .
B It ensures that all goods dispatched are recognised as sales and receivables.
C It ensures that all goods ordered by customers are dispatched.
D It ensures that customers do not exceed their credit limits
15 Which of the following controls would be designed to ensure accuracy over input of
data?
A A range check
B A sequence check
C Password protection
D Authorisation
16 The auditor of Q Co has identified that Q Co does not match dispatch notes to sales
invoices as part of the controls in the sales system.
What is the potential consequence of this deficiency?
A Customer orders may not be fulfilled accurately.
B Sales and trade receivables may be overstated.
C Sales and trade receivables may be understated.
D Sales invoices may be posted inaccurately in the receivables control
account
17 The external auditor has identified a deficiency in the internal controls of S Co.
Which of the following factors would indicate that the deficiency is a
significant deficiency in accordance with ISA 265 Communicating
deficiencies in internal control to those charged with governance and
management?
(1) The likelihood of the deficiency leading to material misstatement is low
(2) There is a risk of fraud
(3) The number of transactions affected by the deficiency is low
(4) The deficiency interacts with other deficiencies identified
A (1) and (2)
B (1) and (3)
C (2) and (4)
D (3) and (4)
18 Which of the following statements is true regarding the controls in a small company?
(1) The external auditor will never be able to rely on the
controls in a small company.
(2) Segregation of duties may be inadequate due to staff
numbers.
(3) Evidence of the operation of controls is more likely to be
available in documentary form.
(4) The external auditor will assess the attitudes, awareness and
actions of management.
A (1) and (3)
B (1) and (4)
C (2) and (3)
D (2) and (4)
19 Is the following statement regarding internal control questionnaires true or false?

Internal control questionnaires are used to determine whether there are
controls which prevent or detect specified errors or omissions.
A True
B False
20 During the course of the audit the auditor may identify deficiencies in internal
control which must be reported to management.
Which of the following statements is correct regarding the report to
management sent by the auditor?
(1) The report must include a description of the deficiencies and an
explanation of their potential effects.
(2) The report includes an explanation of the purpose of the audit.
(3) The report states that the results of the audit work have enabled the auditor to
express an opinion on the operating effectiveness of internal control.
A (1) and (2) only
B (1) and (3) only
C (2) and (3) only
D (1), (2) and (3)
21 Is the following statement regarding the auditor's responsibility to report

deficiencies in internal controls true or false?
All deficiencies in internal controls should be reported to management must be reported in
writing.
A True
B False
22 Fellaini Co operates a large department store and has a large internal audit
department in place. The management of Fellaini Co are keen to increase the
range of assignments that internal audit undertake.
Which of the following assignments could the internal audit department of Fellaini Co be
asked to perform by management?
A Internal audit department members could undertake 'mystery shopper' reviews, where
they enter the store as a customer, purchase goods and rate the overall shopping
experience
B Internal audit could be asked to assist the external auditors by requesting bank
confirmation letters
C Internal audit could be asked to implement a new payroll package for the payroll
department
D Internal audit could be asked to assist the finance department with the preparation of the
year end financial statements
23 Application controls are manual or automated procedures that operate over
accounting applications to ensure that all transactions are complete and
accurate.
(1) Password protection of programs
(2) Batch controls
(4) Regular back up of programs
A (1) and (4)
B (3) and (4)
C (1) and (2)
D (2) and (3)
24 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 of the following is not set out as a component of internal control within ISA
315?
A Control environment
B The information system relevant to financial reporting
C Human resource policies and practices
1 Which two of the following would be classified as substantive procedures?

(1) Tests of control
(2) Walk-through tests
(4) Tests of details
A (1) and (2)
B (1) and (4)
C (2) and (3)
D (3) and (4)
2 Is the following statement true or false regarding directional testing?

An audit procedure which tests for the understatement of a class of
expenditure will simultaneously test for the overstatement of the related
liability.
A True
B False
3 The draft financial statements of T Co show the following information:

$'000
Revenue 420
Cost of sales 270
Gross profit 150
Trade receivables 160
Trade payables 130
What is the receivables collection period?
A 139 days (160/420)*365
B 175 days
C 758 days
D 958 days
4 Is the following statement regarding audit sampling true or false?

Audit sampling is the application of audit procedures to less than 100% of
items within a population of audit relevance such that all sampling units
have a chance of selection.
A True
B False
5 The auditor of L 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?
(1) Extend the sample size
(2) Replace the sample
(3) Ignore the deviations as they only affect some of the items tested
(4) Perform alternative substantive procedures
A (1) and (3)
B (1) and (4)
C (2) and (3)
D (2) and (4)
6 The auditor of P Co is planning the audit work on trade receivables.

Which of the following procedures could not be performed by using computer-assisted
audit techniques?
A Selection of a sample of receivables for confirmation
B Calculation of receivables days
C Production of receivables' confirmation letters
D Evaluation of the adequacy of the allowance for irrecoverable
receivables
7 Computer assisted audit techniques include test data and audit software.
In respect of which of the following activities would the use of audit software be
most relevant?
A Tests of online passwords
B Testing of computerised in-put controls on sales invoices
C Totalling of the purchase ledger
D Testing controls over computerised credit-limits
8 Is the following statement regarding audit software true or false?

Audit software is used to assist with substantive procedures.
A True
B False
9 Which of the following statements is true regarding an auditor's expert?

(1) The expert must be a partner or member of staff of the audit firm.
(2) Provided that the auditor has assessed the expert to be competent audit
evidence provided by the expert can be relied upon.
(3) Unless required to do so by law or regulation the auditor must not refer to the
expert in an auditor's report which contains an unmodified opinion.
A (1) only
B (2) only
C (3) only
D (1), (2) and (3)
10 X Co has an internal audit function. The external auditor has concluded that the
internal audit function does not apply a systematic and disciplined approach to its
work.
How does this affect the extent to which the external auditor can rely on the work of the
internal audit function?
A The external auditor must not use the work of the internal audit function.
B The external auditor can use the work of the internal audit function provided the
individuals have been assessed as competent .
C The external auditor can use the work of the internal audit function provided the
organisational status of the function supports its objectivity.
D The external auditor can use work performed by the internal audit function which
relates to low risk areas of the external audit only.
11 Is the following statement regarding the use of internal audit work by the external
auditor true or false?
The external auditor must reperform some of the work carried out by the
internal audit function if the work of the internal auditor is to be relied on.
A True
B False
12 The auditor of G Co is performing audit procedures to confirm the company's

ownership of motor vehicles. Which of the following would provide the most
persuasive evidence of this?
A Physical inspection of the motor vehicles
B Inspection of vehicle registration documents
C Checking that the motor vehicles are recorded in the non-current asset register
D Review of vehicle insurance documentation
13 Which of the following audit procedures would provide the auditor with
evidence of completeness of inventory?
A Tracing test counts performed at the inventory count to the detailed
inventory listing
B Reviewing the physical condition of inventory when attending the
inventory count
C Casting the inventory listing
D Vouching the cost of a sample of inventory items to suppliers' invoices
14 Which two of the following statements are true regarding the auditor's attendance at the
inventory count?
(1) It is the auditor's responsibility to organise the inventory count.
(2) The auditor observes client staff to determine whether inventory count
procedures are being followed.
(3) The auditor reviews procedures for identifying damaged, obsolete and
slow-moving inventory.
(4) If the results of the auditors' test counts are not satisfactory, the auditor should
arrange for the inventory to be recounted.
A (1) and (2)
B (1) and (4)
C (2) and (3)
D (3) and (4)
15 The auditor of Q Co has performed purchases cut-off procedures and has identified
that in two material instances goods received prior to the inventory count have
not been included on the schedule of 'goods received not invoiced'. At the
period end purchase invoices have not been received. What is the auditor's
conclusion based on this evidence?
A Inventory is overstated and liabilities are understated.
B Inventory is understated and liabilities are understated.
C Inventory is overstated and liabilities are overstated.
D Inventory is understated and liabilities are overstated.
16 Which of the following statements is/are true regarding direct confirmation of
accounts receivable?
(1) Responses from the customer must be returned directly to the client.
(2) Under the positive method the customer only replies if the amount stated is
agrees with the customer's records.
A (1) only
B (2) only
C (1) and (2)
17 The key audit risk associated with trade payables is understatement.

Which of the following procedures would provide the most reliable evidence
of the completeness of amounts due?
A Tracing of amounts due per the payables ledger to purchase invoices
B Matching of purchase invoices to goods received notes
C Reconciliation of year-end supplier statements
D Reconciliation of the payables ledger with the payables ledger control
account
18 Is the following statement true or false in respect of litigation and claims?

When the auditor believes that litigation or claims may exist the auditor
seeks to communicate directly with the client's legal advisers through a
letter of inquiry.
A True
B False
19 The auditor of Z Co is auditing share capital. Z Co employs an independent

registrar to deal with its share registration work.
Which of the following is the most reliable evidence of the validity of the
issued share capital stated in the financial statements?
A The balance on the share capital account in the general ledger
B A certificate of share capital in issue from the registrar
C Z Co's incorporation documentation
D Details of share capital recorded on the previous year's audit file
20 The auditor of F Co is auditing bank and cash at 31 December 20X4 and has
identified a significant number of remittances recorded in the cash book on the
last day of the year which do not appear on the bank statement until late January
20X5.
Which of the following steps would the auditor take to help determine
whether F Co is involved in window dressing?
A Request copies of the cheques from the bank and agree the amounts of the
cheques to the entries in the cash book
B Agree the bank statement balance to the balance according to the bank confirmation
letter
C Examine the paying-in slips for the remittances to determine the date that
they were actually paid in to the bank
21 The auditor is performing the audit of a charity whose main source of income is derived from
street
collections.
Which of the following controls would provide the auditor with evidence of completeness of
income?
(1) Numerical controls over collection boxes
(2) Sealing of collection boxes at the end of each shift
(3) Matching of paying-in slip details to the bank statement
A (1) and (2)
B (1) and (3)
C (2) and (3)
22 Is the following statement regarding audit considerations when the entity has used a service
organisation
true or false?
The user auditor may request a report from the service auditor which includes a description of
the system at
the service organisation and details the design of the controls.
A True
B False
23 The auditor of M Co has agreed a sample of non-current assets selected by physical
inspection back to the
non-current asset register.
For which of the following assertions does this test provide assurance?
A Completeness
B Existence
C Rights and obligations
D Accuracy and valuation
24 Which of the following techniques is generally accepted to be the most efficient to obtain
evidence regarding
the existence of bank balances?
A Reperformance
B Confirmation
C Analytical procedures
D Observation
25 Which of the following assertions about classes of transactions and events for the period
under audit is
defined below:
'Amounts and other data relating to recorded transactions and events have been recorded
appropriately'.
A Cut-off
B Accuracy
C Occurrence
D Classification
26 Is the following statement regarding audit evidence true or false?
Appropriateness is the measure of the quality of audit evidence.
A True
B False
27 As the audit senior on the year-end audit of Z Co, you have instructed the audit junior to
obtain and inspect
supporting sales contracts for large sales transactions.
Which of the following assertions are you seeking to test with this audit procedure?
A Cut-off
B Accuracy
C Occurrence
D Completeness
28 Is the following statement regarding direct confirmation of accounts receivable true or false?
The verification of trade receivables by direct confirmation provides evidence that the debts are
recoverable.
A True
B False
29 Which of the following sampling methods correctly describes systematic sampling?
A A sampling method which is a type of value-weighted selection in which sample size,
selection and
evaluation results in a conclusion in monetary amounts
B A sampling method which involves having a constant sampling interval, the starting
point for testing
is determined randomly
C A sampling method in which the auditor selects a block(s) of contiguous items from within the
population
30 An audit junior has been assigned to the audit of bank and cash balances of Howard Co. He
has obtained the
following audit evidence:
(1) Bank reconciliation carried out by the cashier
(2) Bank confirmation report from Howard's bankers
(3) Verbal confirmation from the directors that the overdraft limit is to be increased
(4) Cash count carried out by the audit junior
What is the order of reliability of the audit evidence starting with the most reliable first?
A (4), (2), (1) and (3)
B (2), (1), (4) and (3)
C (4), (3), (2) and (1)
D (2), (4), (1) and (3)
31 When placing reliance on the work of an expert is the following statement true or false?
In order to place reliance, the auditor is required to evaluate the work performed by the expert.
A True
B False
1 As part of the review stage of an audit, the auditor will consider subsequent events.
Up to which date does the auditor have an active responsibility to perform procedures designed
to identify
subsequent events?
A The reporting date
B The date of the auditor's report
C The date of issue of the financial statements
D The date of approval of the financial statements
2 Which of the following procedures will be performed by the auditor as part of a subsequent
events review?
(1) Request for written representations from management
(2) Review of minutes of board meetings held after the date of the financial statements
A (1) only
B (2) only
C (1) and (2)
3 Is the following statement regarding the purpose of subsequent events true or false?
The purpose of the subsequent events review performed by the auditor is to ensure that the
effects of all
subsequent events identified are reflected in the financial statements.
A True
B False
4 Is the following statement regarding the going concern assumption true or false?
Under the going concern assumption it is assumed that the business will never have cause to
cease trading.
A True
B False
5 Is the following statement regarding the auditor's responsibilities regarding going concern true
or false?
It is the auditor's responsibility to assess an entity's ability to continue as a going concern.
A True
B False
6 M Co has a year end of 31 December 20X4. The auditor has identified that management's
assessment of
M Co's ability to continue as a going concern covers the period to 30 June 20X5.
What action should the auditor take?
A Request that management extends the assessment period to 30 September 20X5
B Request that management extends the assessment period to 31 December 20X5
C Request that management extends the assessment period to 31 December 20X6
D No action is required provided the auditor is satisfied with management's assessment to 30
June 20X5
84 Questions
7 ISA 570 Going concern identifies events and conditions that may cast doubt about the going
concern
assumption.
Which of the following are identified by ISA 570 as financial factors?
(1) Loss of key customers
(2) Net liability position
(3) Substantial operating losses
(4) Shortages of key raw materials
A (1) and (2)
B (1) and (4)
C (2) and (3)
D (3) and (4) (2 marks)
8 Z Co has a year end of 30 June 20X4. Management has assessed the ability of the company to
continue as a
going concern based on the period to 30 June 20X5.
Which of the following procedures must the auditor perform to identify factors that may affect Z
Co's ability
to continue as a going concern beyond 30 June 20X5?
A Analysis of cash flow forecasts
B Review of board minutes
C Review of loan terms
D Inquiry of management
9 The auditor of S 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?
A Adverse opinion
B Qualified opinion
D Unmodified opinion with an emphasis of matter paragraph
10 The auditor of Y Co has concluded that Y 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 An unmodified opinion
B A qualified 'except for' opinion due to material misstatement
C A qualified 'except for' opinion due to insufficient appropriate audit evidence
D An adverse opinion
11 T Co has a year end of 31 July 20X4. The auditor completed the audit work on 10 September
20X4 and the
auditor's report was signed on 30 September 20X4. The financial statements were issued on 1
November
20X4.
Which of the following would be the most appropriate date for the directors to sign the written
representations letter?
A 31 July 20X4
B 10 September 20X4
C 30 September 20X4
D 1 November 20X4
Questions 85
12 Is the following statement regarding written representations true or false?
Written representations by management regarding specific assertions in the financial statements
provide
sufficient appropriate audit evidence in their own right.
A True
B False
13 For which of the following matters must written representations be sought?
(1) That management has fulfilled its responsibility for the preparation of the financial
statements
(2) That management has provided the auditor with all the information relevant to the audit
(3) That accounts receivable are recoverable
(4) That inventory is correctly valued at the lower of cost and net realisable value
A (1) and (2)
B (1) and (3)
C (2) and (4)
D (3)
14 Which of the following statements regarding analytical procedures is correct?
A Analytical procedures must be used as part of the overall review of the financial
statements.
B Analytical procedures may be used as part of the overall review of the financial statements.
C Analytical procedures are only used as risk assessment procedures.
15 Misstatements can arise from error or fraud.
Which of the following statements is correct regarding the auditor's accumulation of identified
misstatements?
A The auditor must accumulate all misstatements identified during the audit.
B The auditor must only accumulate individually material misstatements identified during the
audit.
C The auditor must accumulate misstatements identified during the audit, other than those
that are clearly trivial.
16 ISA 700 Forming an opinion and reporting on financial statements sets out the basic elements
of an auditor's report.
Which of the following is not included in an unmodified auditor's report?
A Management's responsibility for the financial statements
B Auditors' responsibilities
C Audit opinion
D Deficiencies of internal controls
17 The auditor of Q Co has completed the audit and has concluded that sufficient appropriate
evidence has been obtained, which confirms that the financial statements are not materially
misstated.
Which form of audit opinion will the auditor issue?
A Adverse opinion
B Qualified opinion
C Unmodified opinion
D A disclaimer of opinion
18 ISA 705 Modification to the opinion in the independent auditor's report identifies three
possible types of modification.
In which of the following circumstances would a disclaimer of opinion be issued?
A The auditor concludes that the financial statements include misstatements which are material
but not
pervasive to the financial statements.
B The auditor concludes that the financial statements include misstatements which are both
material
and pervasive to the financial statements.
C 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 .
D 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.
19 The auditor of B Co has concluded that inventory is overstated as a number of lines have not
been valued at the lower of cost and net realisable value. The overstatement is material but not
pervasive to the financial statements. Management has refused to make an adjustment to the
What form of modified opinion should the auditor issue?
A Adverse opinion
B Disclaimer of opinion
C Qualified opinion due to a material misstatement
D Qualified opinion due to insufficient appropriate evidence on which to base an opinion (2
marks)
20 The financial statements of Z Co include a receivables balance of $20,000 which the auditors
do not believe will be recovered. Materiality has been set at $100,000. There are no other
unadjusted misstatements.
What form of audit opinion would be issued by the auditor?
A Adverse opinion
B Unmodified opinion
C Disclaimer of opinion
D Qualified opinion due to overstatement of receivables (2 marks)
21 P Co is being sued by a customer for the supply of faulty products. At the year end the
outcome of the legal case is still uncertain. The directors have fully disclosed the matter as a
contingent liability and the auditors are satisfied with the treatment and the level of disclosure.
The auditors have concluded that the uncertainty is fundamental to the understanding of the
What form of audit opinion would the auditor give?
A Disclaimer
B Unmodified opinion with an emphasis of matter paragraph
D Qualified opinion
22 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?
A An emphasis of matter paragraph would be included.
B The audit opinion would be qualified.
C An other matters paragraph would be included.
D The auditor's report would not be affected as the auditor's report only refers to matters
presented or disclosed in the financial statements.
23 The majority of the books and records of Q 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?
A An adverse opinion
B A disclaimer of opinion
C Qualified opinion on the basis that sufficient appropriate evidence is not available
D Unmodified opinion with an emphasis of matter paragraph explaining the circumstances of the
flood
24 The statement of financial position of R Co includes a material amount of $200,000 in respect
of costs capitalised in the year as development expenditure. The auditor has concluded that these
costs are research expenditure.
If the auditor is to issue an unmodified opinion which financial statements will require
adjustment?
A Statement of financial position only
B Statement of profit or loss only
C Statement of financial position and statement of profit or loss
D Neither the statement of financial position nor the statement of profit or loss (2 marks)
25 An emphasis of matter paragraph is used in an audit report to draw attention to a matter
affecting the financial statements.
Which two of the following are correct in relation to an Emphasis of Matter Paragraph in the
Auditor's
Report?
(1) It is used when there is a material uncertainty.
(2) It constitutes a modified audit opinion.
(3) The auditor's report is referred to as an unmodified report.
(4) The matter is deemed to be fundamental to the users understanding of the financial
statements.
A (1) and (2)
B (1) and (4)
C (1) and (3)
D (2) and (4) (2 marks)
26 The audit of Giggs Co's financial statements for the year ended 31 October 20X4 has been
completed; the audit report and the financial statements have been signed but not yet issued.
The finance director of Giggs Co has just informed the audit team that he has received
notification that a material receivable balance has become irrecoverable and Giggs Co will not
receive any of the amounts owing.
What actions, if any, should the auditor now take to satisfy their responsibilities under ISA 560
Subsequent events?
A No actions required as the audit report and financial statements have already been signed
B Request management to adjust the financial statements, verify the adjustment and
provide a new audit report
C Request management to make disclosure of this event in the financial statements
D Request that management adjust for this event in the following year's financial statements as it
occurred in year ending 31 October 20X5
Audit & Assurance Cô Hương Đặng. AOF
Review questions
1.
2.
3.
In any assurance engagement there are three parties involved: the
responsible party, the practitioner and the user.
In respect of given subject matter state which party: determines the
suitable criteria?
A User
1
B Practitioner
C Responsible party
4.
5.
6.
2
7.
8.
3
9.
10.
4
11.
12.
13.
5
14.
Every company must have an audit committee.
A True
B False
15.
Every company must have an internal audit department.
A True
B False
16.
6
17.
18.
19.
20.
21.
7
22.
23.
8
24.
25.
9
26.
27.
28.
10
29.
30.
11
31.
32.
33.
34.
12
35.
36.
37.
13
38.
39.
40.
14
41.
42.
15
43.
44.
45.
16
46.
47.
48.
17
49.
50.
51.
18
52.
53.
54.
19
55.
56.
57.
20
58.
59.
60.
21
61.
62.
63.
22
64.
65.
66.
23
67.
68.
69.
24
71.
25
Review questions
1.
hai yếu tố nào sau đây là yếu tố của một cam kết đảm bảo?
Mối quan hệ ba bên

Tiêu chí phù hợp
Xác định tính trọng yếu
Thư cam kết
2.
Ba yếu tố quan trọng của một cam kết đảm bảo chung bao gồm
Một người sử dụng
Một vấn đề cần xem xét
Tiêu chí phù hợp
Trong bất kỳ một cam kết đảm bảo nào, có ba bên tham gia: bên chịu trách nhiệm, người thực hiện
3. và người sử dụng. Liên quan đến vấn đề cụ thể đã cho, hãy cho biết bên nào: xác định các tiêu chí
phù hợp?
In any assurance engagement there are three parties involved: the
responsible party, the practitioner and the user.
In respect of given subject matter state which party: determines the
suitable criteria?
A User Người sử dụng
1
B Practitioner Người thực hiện

C Responsible party Bên chịu trách nhiệm
4.
bên chịu trách nhiệm
người thực hiện
người sử dụng
5.
6.
2
7.
8.
3
9.
10.
4
11.
12.
13.
5
14.
Every company must have an audit committee.
A True
B False
15.
Every company must have an internal audit department.
A True
B False
16.
6
17.
18.
19.
20.
21.
7
22.
23.
8
24.
25.
9
26.
27.
28.
10
29.
30.
11
31.
32.
33.
34.
12
35.
36.
37.
13
38.
39.
40.
14
41.
42.
15
43.
44.
45.
16
46.
47.
48.
17
49.
50.
51.
18
52.
53.
54.
19
55.
56.
57.
20
58.
59.
60.
21
61.
62.
63.
22
64.
65.
66.
23
67.
68.
69.
24
71.
25
Review questions
Section 1
1. Which of the following is limitation of the provision of audit engagement

A. The level of assurance provided by an external audit is reasonable assurance but
not absolute assurance.
B. Unqualified staff may be used on audit engagements.
C. Sampling is used in assurance work.
D. Audit work is carried out by people independent of the entity.
2. Which of the following are NOT benefit of an audit report on financial statement?
A. An audit report draw attention of the user to deficiencies in the information being
reported on
B. An audit report enhances the credibility of the information being reported on
C. An audit report attests to the correctness of the information being reported on
D. An audit report reduces the risk of management bias in the information being
reported on
3. The level of assurance provided by an assurance will depend on the type of

engagement. Which of the following level of assurance that a “review of financial
information” engagement would give?
A. Absolute assurance
B. Reasonable assurance
C. Limited assurance
D. Unlimited assurance
4. Which of the following statements is TRUE regarding assurance: (1) An audit

report give positive assurance; (2) A review engagement gives negative assurance.
A. Both statements are true
B. Both statements are false
C. Statement (1) is false
D. Statement (2) is false
5. The following is an extract from an independent auditor’s unmodified report on a
profit forecast: “Based on our examination of the evidence supporting the
assumptions, nothing has come to our attention which causes us to believe that
these assumptions do not provide a reasonable basis for the forecast”. Which one
of the following best describes the types of assurance provided by this statement?
A. High level of assurance expressed negatively
B. Limited level of assurance expressed negatively
C. Positive assurance expressed negatively
D. Negative assurance expressed positively
6. Which of the following is NOT TRUE regarding assurance?

A. A negative assurance conclusion gives a limited level of assurance
B. A statutory audit gives reasonable assurance that the financial statement give a
true and fair view
C. Reasonable assurance is absolute assurance of the correctness of the subject matter
7. Which of the following is NOT one of the five elements of an assurance engagement?
A. Suitable criteria
B. Sufficient, appropriate evidence
C. A written report in the appropriate form
D. A three party relationship consisting of a responsible party, users and subject
matter
8. In the context of a company, which concept means holding the directors who manage
the company responsible for explaining their actions to the shareholders who own the
company.
A. Stewardship
B. Accountability
C. Agency
D. None of the choices
9. A&A is the external auditor of Blue plc, a listed company. The directors of Blue have
requested that A&A carry out a review engagement assessing the effectiveness of its
coporate governance policies against the UK Corporate Goverance Code. Which of the
following is the most appropriate statement regarding subject matter, suitable criteria and
responsible party:
A. The subject matter is UK Corporate Goverance Code; The suitable criteria is
Blue’s corporate governace code; The responsible party is the directors of Blue
plc.
B. The subject matter is Blue’s corporate governace code; The suitable criteria is UK
Corporate Goverance Code; The responsible party is Blue plc.
C. The subject matter is UK Corporate Goverance Code; The suitable criteria is
Blue’s corporate governace code; The responsible party is Blue plc.
D. The subject matter is Blue’s corporate governace code; The suitable criteria is UK
Corporate Goverance Code; The responsible party is the directors of Blue plc
10. Negative assurance is associated with what sort of assurance engagement?

A. Reasonable assurance
B. Limited assurance
C. Absolute assurance
D. None of the choices
Section 2
1. “The auditor should be straightforward and honest in all professional and business
relationships”. Which of the following principles of ACCA’s code of ethics does
this statement mention to?
A. Objectivity
B. Integrity
C. Professional competence and due care
D. Professional behaviour
2. “Auditor should not allow bias, conflicts of interest or undue influence of others to
override professional or business judgements”. Which of the following principles
of ACCA’s code of ethics does this statement mention to?
A. Professional behaviour
B. Integrity
C. Objectivity
D. Confidentiality
3. “Auditors should comply with relevant laws and regulations and avoid any action
that discredits the profession”. Which of the following principles of ACCA’s code
of ethics does this statement mention to?
A. Integrity
B. Objectivity
C. Professional behaviour
D. Professional competence and due care
4. Which of the following statement explain for “self-interest” threat?

A. The auditors’ own personal interest in client which could influence the auditor’s
independence.
B. When carrying out the audit, the auditors, review work that their own firm has
undertaken previously, e.g. preparing accounts or making a valuation.
C. If the auditors get involved in disputes concerning the client, they may end up
acting for or against the client, which undermines the appearance of objectivity.
D. If the auditors are involved with the client for a long time, they may become
unduly sympathetic towards directors and management and thus too inclined to
trust their unsupported word.
5. Which of the following statement explain for “Intimidation” threat?

A. When carrying out the audit, the auditors, review work that their own firm has
undertaken previously, e.g. preparing accounts or making a valuation.
B. If the auditors get involved in disputes concerning the client, they may end up
acting for or against the client, which undermines the appearance of objectivity.
C. If the auditors are involved with the client for a long time, they may become
unduly sympathetic towards directors and management and thus too inclined to
trust their unsupported word.
D. The auditors may be intimidated by a dominant or aggressive atmosphere at the
client.
6. As part of your planning work you have identified a number of potential risks to
independence, that is “An audit client is about to do a share issue and has asked
you to let your other clients know so they can participate”. Which ethical threats
do the case relate to?
A. Self-interest
B. Self review
C. Advocacy
D. Intimidation
7. From a review of the information in audit planning, your audit assistant has
highlighted some of the potential risks to independence in respect of the audit an
client: “The audit senior was seconded to the client to cover for the financial
controller”. Which of the following options best identifies the valid threats to
independence?
A. Advocacy
B. Intimidation
C. Self-review
D. Self-interest
client: “The engagement partner has been asked to attend meetings with potential
investors”. Which of the following options best identifies the valid threats to
independence?
A. Advocacy
B. Intimidation
C. Self-review
D. Self-interest
9. The finance director has made offers to members of the audit team. Which of the
following offer can be accepted by audit team?
A. 5% discount if auditor purchase mobile phones which is product of the client
B. Weekend away.
C. Loan at normal rates as other clients.
D. 10% discount if auditor purchase mobile phones which is product of the client
client: “Fees are overdue in respect of last year's audit”. Which of the following
options best identifies the valid threats to independence?
A. Intimidation
B. Self-review
C. Self-interest
D. Advocacy
Section 3
1. Which of following could be used as benchmarking for calculating Materiality?

A. Profit before tax
B. Revenue
C. Total asset
D. All of the options are correct
2. Who is responsible for the prevention and detection of fraud?

A. Internal auditors
B. External auditors
C. Those charged with governance and management
D. The audit committee
3. Which of the following example illustrates Inherent Risk?

A. Senior management regularly override the internal control system
B. The Financial statement of the company contains a significant balance of
intangible assets.
C. The company has a high turnover staff in the accounting department
D. Audit staff are inexperienced

A. Senior management regularly override the internal control system
B. Audit staff are inexperienced
C. The company operates in a fast-moving, high-tech environment
D. The company has a high turnover staff in the accounting department
5. Which of the following is NOT true regarding Performance Materiality?

A. Performance materiality is used for testing individual transactions, account
balances and disclosures.
B. Performance materiality levels are higher than the materiality for the financial
statements as a whole.
C. The aim of performance materiality is to reduce the risk that the total of errors in
balances, transactions, and disclosures does not in total exceed overall materiality.
D. The aim of performance materiality is to compensate for any unforseen
circumstances of risks that may appear during the audit.
6. The following statement is true of auditor’s objective in relation to fraud, in

accordance with ISA 240 The auditor's responsibilities relating to Fraud in an
Audit of Financial statement?
A. The auditor performs the audit with the aim of preventing and detecting fraud.
B. The auditor must identify and assess the risks of material misstatement due to
fraud and obtain evidence regarding the risks of material misstatements due to
fraud.
C. The auditor must only obtain evidence regarding the risks of material
misstatements due to errors
7. Which of the following statements is NOT true regarding “performance

materiality”?
A. The performance materiality level is affected by the auditor's understanding of the
entity and the nature and extent of misstatements identified in prior audits.
B. Performance materiality refers to the amounts set by the auditor at higher than the
materiality level for particular classes of transactions, account balances or
disclosures where the materiality level might otherwise mean that such items are
not tested.
C. Once the materiality for the financial statements as whole has been set, a lower
level of performance materiality is determined by the auditor using his or her
professional judgement.
D. Performance materiality is used to reduce the risk that the aggregate of
uncorrected and undetected misstatements exceeds materiality for the financial
statements as a whole to an acceptable level.
8. The following information is obtained when you are doing the audit planning for
the audit of Steel Ltd for the year end 31 December 20X9: One large customer,
Bobby, went into liquidation before the year end and Steel are not sure if they will
receive the $200,000 which they are owed by Bobby. Which of the following
summarizes the key audit concern arising from the matter described?
A. Valuation of trade receivable
B. Existence of trade receivables
C. Completeness of trade receivables
D. Occurrence of trade receivables
9. The auditor of A Co wishes to reduce audit risk. Which of the following actions
could the auditor take to achieve this? (1) Increase sample sizes; (2) Reduce
control risk; (3) Assign more experienced staff to the engagement team
A. (1) only
B. (2) only
C. (1) and (3)
D. (2) and (3)

A. The company operates in a slow-moving, stable industry
B. The company operates in high-regulated industry
C. The company has a high turnover staff in the accounting department
D. Sample sizes have been calculated incorrectly by the auditor and are too small
Section 4
1. The following test is carried out by an auditor: “Tracing non-current asset

which have been observed in use back to the non-current asset register” to
verify for which assertions?
A. Right and Obligation
B. Completeness
C. Classification
D. Existence
2. Which of the following assertions is NOT used by auditor about class of

transaction
A. Completeness
B. Occurrence
C. Right and obligation
D. Accuracy
3. Which of the following assertions are NOT relevant to the audit of tangible
non-current assets?
A. Presentation
B. Existence
C. Occurrence
D. Classification
4. Which of the following is NOT valid reason for preparing audit working
papers?
A. To help the audit team to plan and perform the audit
B. To provide evidence of the auditor's basis for a conclusion
C. To provide evidence that the audit was planned and performed in accordance
with ISAs
D. To enable the auditor to charge higher fee
5. Which of the following is likely to be kept on a permanent audit file?

A. Audit manager’s review notes
B. Supporting documents for recording of audited entity
C. Audit plan
D. Lease agreement
6. Which of the following statements is true?

A. Observation gives strong evidence of the matter being observed
B. Physical inspection of assets confirms the Rights and Obligations.
C. Inspection of a purchase invoices confirms the existence of inventory.
D. Inquiry of third parties give more reliable evidence than inquiries of entity
insiders.
7. The audit junior has been assigned to the audit of the bank and cash balances
of Blue Co. He has noted down the audit evidence he plans to obtain in
respect of the bank and cash balances. Which evidence would you expect to
be most reliable?
A. Cash count carried out by the audit junior himself
B. Bank reconciliation carried out by the cashier
C. Bank confirmation report from Blue Co's bank
D. Verbal confirmation from the directors that the overdraft limit is to be
increased
8. The following audit procedures are performed to obtain audit evidence

related to the legal claim. Which evidence would you expect to be most
reliable?
A. Review correspondence between the company and its lawyers regarding the
likely outcome of the case
B. Request a written representation from management supporting their
assertion that the claim will not be successful
C. Review the minutes of the disciplinary hearing to understand whether the
company has acted in accordance with employment legislation and its
internal rules
D. Send an enquiry letter to the Company's lawyers to obtain their view as to
the probability of the claim being successful
9. Which of the following is NOT TRUE in respect of business risks?

A. Management are responsible for identifying and controlling business risks
B. Business risk is the risk inherent to the company in its operations
C. Business risk is of no relevance to the auditor. The auditor is only concerned
with audit risk.
10. Which of the below factors influence the auditor's judgement regarding the
sufficiency of the evidence obtained?
A. The size of the account
B. The amount of time allocated to the audit
C. The materiality of the account
Section 5
1. Which one of the following is NOT part of an entity’s risk assessment

process?
A. Identifying business risks relevant to financial reporting objectives
B. Estimate the significance of the risk
C. Report the process to the auditors
D. Assessing the likelihood of their occurrence
E. Deciding on actions to address those risks
2. Following is the example of internal control which operate at Blue Ltd:

“There are two keys to the locked finance department safe: one held by the
finance director and the other by the managing director”. Which of the
following type of control activity does this example illustrate?
A. Information processing
B. Segregation of duty
C. Authorization
D. Physical control
3. Which of the following represent inherent limitations of a system of internal

controls?
A. Lack of controls over the sales system
B. Lack of understanding of the purposes of controls
C. Lack of staff to ensure segregation of duties
4. Which of the following areas would you consider to be most at risk of

material misstatement if goods received notes for raw material purchases are
not sequentially numbered?
A. Existence of inventory
B. Rights and obligations of inventory
C. Valuation of payables
D. Completeness of payables
5. Which of the following controls helps to ensure that payroll payments are
only made to bona fide employees?
A. Comparison of bank transfer listing with payroll.
B. Personnel records maintained for all employees, and segregation of duties
between staff involved in human resources and payroll functions.
C. Reperformance of the calculation of a sample of payroll deductions.
6. Blue Ltd operate a number of internal controls in its sales system. Assuming
that all controls are operating effectively, which of the following controls
most likely to ensure that customers are invoiced for goods despatched?
A. Require customers to sign for goods received
B. Use of pre-printed sequentially numbered sales order documentation
C. Matching of sales orders with despatch records
D. Matching of despatch records with sales invoice
7. The auditor of Grey Ltd has idendified the following deficiencies within the
purchase system: “Good inwards are not checked”. Which of the following
is the most likely consequence which might arise as a result of that
deficiency.
A. Payment to fictitious suppliers
B. Accepting inferior quality goods
C. False invoices could be paid
D. Services provided are not accurately recorded
8. The auditor of Green Ltd has idendified the following deficiencies within the
purchase system: “Purchase of goods from unauthorised suppliers”. Which
of the following is the most likely consequence which might arise as a result
of that deficiency?
A. Prompt payment discounts not obtained
B. Payment to fictitious suppliers
C. Purchase of inferior goods
9. The auditor of Green Ltd has idendified the following deficiencies within the
purchase system: “Invoices are not checked to original orders”. Which of the
following is the most likely consequence which might arise as a result of that
deficiency?
A. Accepting inferior quality goods
B. False invoices could be paid
C. Services provided are not accurately recorded
D. Prompt payment discounts not obtained
10. Following is the example of internal control which operate at Green Ltd:
“The chief accountant signs the bank reconciliation, which was prepared by
a member of his staff”. Which of the following type of control activity does
this example illustrate?
A. Authorization
B. Physical control
C. Information processing
D. Segregation of duty
Section 6
1. In order to gather audit evidence related to payroll expense, auditor performs

“examining purchases invoices for payment authorisation”. Which type of
the following could this procedure be classified?
A. Inspection
B. Enquiry and confirmation
C. Observation
D. Recalculation
2. Which of the following procedure are most appropriate to confirm the

valuation of trade receivables?
A. Review of sales invoice
B. Review of the receivables leger
C. Review aging report and recalculating the allowance for uncollectible
accounts
D. Review of the nominal ledger
3. Which of the following is substantive test: (1) Test of detailed; (2) Test of
operating effectiveness of control; (3) Substantive analytical procedures; (4)
Walkthrough test
A. (1) and (2) only
B. (1) and (3) only
C. (1), (3) and (4)
D. (1), (2), (3) and (4)
4. Which of the following is a substantive audit procedure for wages and salaries?
A. Inspect a sample of clock cards for evidence of authorization by a
responsible official
B. Recalculate a sample of payroll deductions such as employment taxes to
confirm accuracy
C. Attempt to access and make changes to the payroll master file using the log
on for a junior clerk
5. Which one of the following is the reason why the positive method of confirming
receivables with customers is generally preferred?
A. It requires replies to be sent to the client
B. It is carried out in the auditor’s name
C. It requires the customer to reply giving or confirming or disagreeing with the
balance
D. It only requires the customer to reply if he disagrees with the balance
6. In accordance with ISA 315 and ISA520, when are analytical procedures
compulsory in each of the following circumstances? (1) At the risk assessment
stage of the audit; (2) As a substantive procedure; (3) At the overall review stage of
the audit
A. (1) only
B. (1) and (2)
C. (1) and (3)

D. (1) and (2) and (3)
7. In the following circumstances “Damaged items of inventory have not been

written down to net realization value”, which one of the following assertion would
be affected?
A. Existence
B. Cut-off
C. Completeness
D. Accuracy, valuation and allocation
8. In the audit of a client where controls have been assessed as deficient. Which of
the following is the most appropriate approach which should be used by the
auditor?
A. Tests of controls only
B. Substantive tests only
C. A mix of tests of controls and substantive procedures
9. The auditor of Blue Co has agreed a sample of non-current assets selected by

physical inspection back to the non-current asset register. For which of the
following assertions does this test provide assurance?
A. Existence
B. Rights and obligations
C. Completeness
D. Accuracy and valuation
10. Which of the following audit procedures to prove the assertion of valuation of
inventory?
A. Perform purchase cut-off and sales cut-off test
B. Attending inventory count and carrying out sample count on a number of
items
C. Comparing cost on a number of inventory items to sales invoices subsequent
to the year end
Section 7
1. When audit the financial statements of Blue Ltd, auditor detected that a
material amount of $350,000 research expenditure was capitalized in the
year as development expenditure. If the auditor is to issue an unmodified
opinion which financial statements will require adjustment?
A. Statement of profit or loss only
B. Statement of financial position only
C. Statement of financial position and statement of profit or loss
D. Neither the statement of financial position nor the statement of profit or loss
2. According to ISA 700, Which of the following is not included in an

unmodified auditor's report?
A. Audit opinion
B. Management's responsibility for the financial statements
C. Auditors' responsibilities
D. Deficiencies of internal controls
3. Which two of the following are correct in relation to an Emphasis of Matter

Paragraph in the Auditor's Report? (1) It is used when there is a material
uncertainty; (2) It constitutes a modified audit opinion; (3) The auditor's
report is referred to as an unmodified report; (4) The matter is deemed to be
fundamental to the users understanding of the financial statements.
A. (2) and (4)
B. (1) and (2)
C. (1) and (4)
D. (1) and (3)
4. When auditing the financial statements of client A, you discovered that client A
overstated the cost of NCA $16,000 and that client don‟t want to adjust this
statement. A‟s draft financial statements show profit before tax of $650,000. What
form of audit opinion would the auditor give if the issue remains unresolved?
A. A disclaimer of opinion
B. Unmodified opinion
C. Qualified („except for‟) opinion
D. Adverse opinion
5. When auditing the financial statements of Blue Ltd, you discovered that there is
a significant uncertainty related to outcome of a lawsuit against the company by
Blue. However, this information has been properly disclosed on notes to the FSs of
Blue. What form of audit opinion would the auditor give?
A. A disclaimer of opinion
B. Unmodified opinion with an emphasis of matter paragraph
C. Unmodified opinion without an emphasis of matter paragraph
D. Qualified („except for‟) opinion
6. When auditing the consolidate financial statements of Vengroups, you

discovered that they have omitted to consolidate an entire subsidiary,
representing half of the group‟s results. The Director of Vengroups refused
to make auditor's adjustment. What form of audit opinion would the auditor
give if the issue remains unresolved?
A. Unmodified opinion
B. Qualified („except for‟) opinion
C. A disclaimer of opinion
D. Adverse opinion
7. According to ISA701 “Communicating Key Audit Matters in the

Independent Auditor‟s Report”, which of the following could be key audit
matters?
A. Significant transactions or events
B. Areas of high audit risk
C. Areas in relation to which the auditor express a separate opinion
D. The matter is deemed to be fundamental to the users understanding of the
8. The auditor has discovered a $6,000 calculation error in the depreciation

expense for the year. The directors have refused to alter the financial
statements. Draft profit before tax for the year is $170,000. What is the most
appropriate form of audit opinion
A. Unmodified opinion
B. Unmodified with an emphasis of matter paragraph to draw attention to the
error
C. Qualified opinion on the basis of a misstatement
D. Qualified opinion on the basis of insufficient evidence
9. When auditing the financial statements of Blue Ltd, auditor realised that,
management‟s use of the going concern basis of the accounting is
appropriate and the material uncertainty has been adequately disclosed in a
note to the financial statements. What form of auditor‟s report should be
issued?
A. An unmodified opinion with a “Material uncertainty relating to going
concern” section
B. A qualified opinion with a “Material uncertainty relating to going concern”
section
C. A qualified opinion on the basis of insufficient audit evidence about the
company‟s ability to continue trading
D. An adverse opinion
10.Which of the following must be included in an auditor‟s report? : (1) A

statement that the auditor believes the audit evidence obtained is sufficient
and appropriate; (2) Title indicating the report is that of the independent
auditor; (3) Description of the meaning of materiality; (4) Auditor‟s
responsibilities for the audit of financial statement
A. (1) and (3) only
B. (2) and (4) only
C. (1),( 2), (3) and (4)
D. (1),(2) and (3) only

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Multiple choice questions

1 Is the following statement regarding stewardship true or false?

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

4 Who normally appoints the external auditors of a company?

8 Is the following statement true or false?

9 Which of the following are recognised threats to independence and objectivity as

12 AAB & Co is the statutory auditor of Y Co, a public interest entity.

13 Who is ultimately responsible for a company's system of internal controls?

14 Every company must have an audit committee.

15 Which of the following statements is true regarding the audit committee?

16 Which of the following are valid disadvantages of having an audit committee?

19 Which two of the following characteristics apply to internal audit?

21 Which of the following internal audit assignments aims to monitor

22 The format of the internal audit report is governed by statute.

23 Which of the following is a limitation of the internal audit function?

27 Which of the following is not a benefit of establishing an audit committee?

31 Which of the following statements relate to review engagements?

2 Which of the following statements about materiality are correct?

5 What are the purposes of planning the audit?

10 The definition of the risk of material misstatement is 'Inherent Risk × Control

11 Which of the following would normally be included in the audit plan?

13 The auditor of Z Co has set performance materiality at $100,000. Which of the

15 Who is responsible for the prevention and detection of fraud?

16 Which of the following is an appropriate response to the risks of material

19 Is the following statement true or false regarding the retention of working

21 Which of the following must be included in an audit engagement letter?

2 Which of the following methods of recording an accounting and controls system is a

8 B Co maintains perpetual inventory records.

11 Is the following statement regarding tests of control true or false?

19 Is the following statement regarding internal control questionnaires true or false?

21 Is the following statement regarding the auditor's responsibility to report

79 Multiple choice questions 83 mins

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

2 Is the following statement true or false regarding directional testing?

3 The draft financial statements of T Co show the following information:

4 Is the following statement regarding audit sampling true or false?

6 The auditor of P Co is planning the audit work on trade receivables.

8 Is the following statement regarding audit software true or false?

9 Which of the following statements is true regarding an auditor's expert?

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

17 The key audit risk associated with trade payables is understatement.

18 Is the following statement true or false in respect of litigation and claims?

19 The auditor of Z Co is auditing share capital. Z Co employs an independent registrar

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

4 Who normally appoints the external auditors of a company?

8 Is the following statement true or false?

9 Which of the following are recognised threats to independence and objectivity as

12 AAB & Co is the statutory auditor of Y Co, a public interest entity.

13 Who is ultimately responsible for a company's system of internal controls?

14 Every company must have an audit committee.

15 Which of the following statements is true regarding the audit committee?

16 Which of the following are valid disadvantages of having an audit committee?

19 Which two of the following characteristics apply to internal audit?

21 Which of the following internal audit assignments aims to monitor

22 The format of the internal audit report is governed by statute.

23 Which of the following is a limitation of the internal audit function?

27 Which of the following is not a benefit of establishing an audit committee?

31 Which of the following statements relate to review engagements?

2 Which of the following statements about materiality are correct?