Level 2 – Knowsia

AA – L2 – SA – Q5.10 – True and Fair

Meaning of ‘true and fair’ in financial statements.

Question

Which one of the following should be implied by the term ‘true and fair’ when applied to financial statements?

A Independent

B Free from misstatements

C Meaningful presentation and disclosure of information

D Complying with ethical standards

Answer

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Tags: Audit opinion, Financial Statements, ICAG, True and Fair
Level: Level 2

Topic: Completion Procedures and Reporting

AA – L2 – SA – Q5.7 – Tests of Controls

Identifying non-test of control.

Question

Which of the following is NOT a test of control?

A Checking for sequential numbering of sales invoices

B Ensuring the segregation of duties between sales ledger staff and the cashier

C Checking for evidence of authorization for credit notes

D Test checking from dispatch notes to sales invoices

Answer

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Tags: Audit Software, Automated Audit Techniques, Data Analytics, ICAG
Level: Level 2

Topic: Audit and Assurance Evidence

AA – L2 – SA – Q5.6 – Internal Control Components

Components of internal control system.

Question

Select the appropriate component of a system of internal controls for each of the below examples.

The authorizing of inventory write-offs prior to inventory being scrapped.
The preparation of a reconciliation between the receivable’s ledger control account and the receivables ledger
A Control environment
B Control activity
C Information system and communication
D Information system and communication
E Control environment
F Control activity

Answer

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Tags: Control Components, ICAG, Internal controls, Inventory, Receivables
Level: Level 2

Topic: Planning and Approach for Audit and Assurance Engagements

AA – L2 – SA – Q5.5 – Sampling Non-Current Assets Level

Factors affecting sample size for valuation testing.

Question

When testing non-current assets for the valuation assertion, identify whether each of the below factors would necessitate a decrease in the sample size, an increase in the sample size or would have minimal impact on the sample size.

Stratification of the population
A significant increase in the number of other substantive procedures directed at the same assertion
A Decrease
B Increase
C Minimal impact
D Decrease
E Increase
F Minimal impact

Answer

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Tags: ICAG, Non-current Assets, Sampling, Valuation Assertion
Level: Level 2

Topic: Audit and Assurance Evidence

AA – L2 – SA – Q5.4 – Detection Risk

Influence on detection risk.

Question

Detection risk is influenced by:

A Internal audit

B The client

C Executive and non-executive directors

D The external auditor

Answer

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Tags: Audit Risk, Detection Risk, External auditor, ICAG
Level: Level 2

Topic: Planning and Approach for Audit and Assurance Engagements

AA – L2 – SA – Q5.3 – Materiality

Nature of materiality in auditing.

Question

Materiality is a matter of:

A Capacity

B Liquidity

C Profitability

D Judgment

Answer

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Tags: Audit Planning, ICAG, Materiality, Professional Judgment
Level: Level 2

Topic: Planning and Approach for Audit and Assurance Engagements

AA – L2 – SA – Q5.2 – Ethical Threats

Threat from designing client IT system.

Question

Sapphire & Co are the auditors of Zenith plc, a listed company. Zenith plc has approached Sapphire & Co to help it design and implement a new IT system. Which of the following threats is created if Sapphire & Co accepts this assignment?

A Intimidation threat

B Self-review threat

C Advocacy threat

D Familiarity threat

Answer

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Tags: Auditor Independence, Ethical Threats, ICAG, Self-Review
Level: Level 2

Topic: Professional and Ethical Considerations

AA – L2 – SA – Q5.1 – Director Responsibilities

Identifying non-director responsibility.

Question

Which one of the following is not a director’s responsibility?

A To inform the auditor of the date of the audit

B To keep proper accounting records

C To prevent fraud and error

D To supply information and explanations to the auditor

Answer

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Tags: Companies Act, Corporate Governance, Director Responsibilities, ICAG
Level: Level 2

Topic: Regulatory Framework and Audit Responsibilities

AA – L2 – SA – Q4.10 – Auditor’s Report

Section of auditor’s report for ISA statement.

Question

Which section of the auditor’s report should include a statement that the audit has been carried out in accordance with ISAs?

A Auditor’s opinion paragraph

B Auditor’s responsibilities for the audit of the financial statements C Responsibilities for the financial statements paragraph

D Basis for opinion paragraph

Answer

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Tags: Audit reporting, Auditor’s Report, ICAG, ISA Compliance
Level: Level 2

Topic: Completion Procedures and Reporting

AA – L2 – SA – Q4.9 – Receivables Circularization

Feature not associated with receivables circularization.

Question

What will NEVER be a feature of receivables circularization?

A Using client headed paper to send letters out

B Asking the client if the replies have come back

C A positive circularization

D A negative circularization

Answer

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Tags: Audit Evidence, Audit Procedures, ICAG, Receivables Circularisation
Level: Level 2

Topic: Audit and Assurance Evidence

Level (SQ): Level 2

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AA – L2 – SA – Q5.10 – True and Fair

Meaning of ‘true and fair’ in financial statements.

AA – L2 – SA – Q5.7 – Tests of Controls

Identifying non-test of control.

AA – L2 – SA – Q5.6 – Internal Control Components

Components of internal control system.

AA – L2 – SA – Q5.5 – Sampling Non-Current Assets Level

Factors affecting sample size for valuation testing.

AA – L2 – SA – Q5.4 – Detection Risk

Influence on detection risk.

AA – L2 – SA – Q5.3 – Materiality

Nature of materiality in auditing.

AA – L2 – SA – Q5.2 – Ethical Threats

Threat from designing client IT system.

AA – L2 – SA – Q5.1 – Director Responsibilities

Identifying non-director responsibility.

AA – L2 – SA – Q4.10 – Auditor’s Report

Section of auditor’s report for ISA statement.

AA – L2 – SA – Q4.9 – Receivables Circularization

Feature not associated with receivables circularization.

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AA – L2 – SA – Q5.10 – True and Fair

Meaning of ‘true and fair’ in financial statements.

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AA – L2 – SA – Q5.7 – Tests of Controls

Identifying non-test of control.

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AA – L2 – SA – Q5.6 – Internal Control Components

Components of internal control system.

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AA – L2 – SA – Q5.5 – Sampling Non-Current Assets Level

Factors affecting sample size for valuation testing.

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AA – L2 – SA – Q5.4 – Detection Risk

Influence on detection risk.

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AA – L2 – SA – Q5.3 – Materiality

Nature of materiality in auditing.

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AA – L2 – SA – Q5.2 – Ethical Threats

Threat from designing client IT system.

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AA – L2 – SA – Q5.1 – Director Responsibilities

Identifying non-director responsibility.

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AA – L2 – SA – Q4.10 – Auditor’s Report

Section of auditor’s report for ISA statement.

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AA – L2 – SA – Q4.9 – Receivables Circularization

Feature not associated with receivables circularization.

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