Level 3 – Page 3

AAA – L3 – SA – Q4.2 – Auditor Independence Threat

Threat from accepting a loan from a client.

Question

An auditor shall not accept a loan on favorable commercial terms from an audit client because of the threat to his or her independence. The threat would be a:

A Self-interest threat

B Self-review threat

C Advocacy threat

D Familiarity threat

Answer

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Tags: Auditor Ethics, ICAG, Independence, Self-Interest Threat
Level: Level 3

Topic: Rules of Professional Conduct

AAA – L3 – SA – Q4.1 – International Standards on Auditing

True statement about ISAs.

Question

Which of the following is true about ISAs?

A They are statutory

B An auditor shall follow them in the conduct of his audit

C An auditor does not have to follow all ISAs

D If uncertain about interpretation, the auditor should contact the IAASB

Answer

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Tags: Audit Standards, Auditor Compliance, ICAG, ISAs
Level: Level 3

Topic: The regulatory environment

AAA – L3 – SA – Q3.10 – Auditor’s Responsibilities Section

Non-allowable position for responsibilities section.

Question

Which of the following is NOT an allowable position for the Auditor’s Responsibilities for the Financial Statements section of the auditor’s report?

A On a website of an appropriate authority and this website is referenced within the auditor’s report

B Within the body of the auditor’s report

C In an appendix to the auditor’s report that is referenced within the report itself

D In an introductory paragraph at the start of the report

Answer

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Tags: Audit Standards, Auditor’s Report, ICAG, Responsibilities Section
Level: Level 3

Topic: Reporting

AAA – L3 – SA – Q3.9 – Assurance Engagements Standards

Standards for non-audit/review assurance engagements.

Question

Assurance engagements other than audits or reviews of historical financial information are subject to principles and procedures specified in:

A ISAEs and ISQMs

B ISREs and ISAEs

C ISAs and ISQMs

D ISAs and ISREs

Answer

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Tags: Assurance engagements, ICAG, ISAEs, ISQMs
Level: Level 3

Topic: Assurance Services

AAA – L3 – SA – Q3.6 – Auditor’s Expert Valuation

True statements about auditor’s expert valuation.

Question

Which of the following are true about a valuation by an auditor’s expert?

1 It may be a part of audit evidence

2 The auditor’s expert should be experienced in the particular field

3 It reduces the responsibility of the auditor

A 1 and 2 only

B 1 and 3 only

C 2 and 3 only

D 1, 2 and 3

Answer

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Tags: Audit Evidence, Auditor’s Expert, ICAG, Valuation
Level: Level 3

Topic: Audit Evidence

AAA – L3 – SA – Q3.5 – Internal Business Risk

Identifying internal business risk.

Question

Which one of the following is an internal business risk?

A A new competitor in the market

B Insolvency of a customer

C Poor working capital control

D Suppliers demanding tighter credit terms

Answer

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Tags: Business Risk, ICAG, Internal Risk, Working Capital
Level: Level 3

Topic: The audit approach

AAA – L3 – SA – Q3.4 – Quality Management System

Non-component of audit firm’s quality management.

Question

Which of the following would not be part of a system of quality management at an audit firm?

A Use of technical manuals

B Standardized audit documentation

C Continuing professional development of audit staff

D Audit committee

Answer

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Tags: Audit committee, Audit Firm, ICAG, Quality management
Level: Level 3

Topic: Practice management

AAA – L3 – SA – Q3.3 – Suspected Fraud

First step when suspecting fraud by senior management.

Question

When an auditor suspects that fraud has occurred in a corporate client’s business, and that senior management are involved in the fraud, the auditor should as a first step:

A discuss the matter with the audit committee

B seek legal advice

C ask a professional accountancy body for advice

D report the matter to the police authorities.

Answer

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Tags: Auditor Responsibility, Confidentiality, Fraud, ICAG
Level: Level 3

Topic: Professional responsibility and liability

AAA – L3 – SA – Q3.2 – Conflict of Interest

Incorrect statement about conflict of interest.

Question

Which of the following statements is INCORRECT?

A A conflict of interest between two clients may be resolved for the auditor by segregating certain responsibilities and duties.

B In taking on a new client, an audit firm shall consider the potential conflict of interests with providing service to an existing client.

C In a takeover bid, an audit firm can act as the sole adviser to both companies involved in the bid.

D If a potential conflict of interest exists between a potential new client and an existing client, the audit firm may need to either decline the engagement with the new client or withdraw from the engagement from the existing client.

Answer

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Tags: Client Engagements, Conflict of Interest, ICAG, Professional Ethics
Level: Level 3

Topic: Rules of Professional Conduct

AAA – L3 – SA – Q3.1 – Audit Committee Role

Non-role of the audit committee.

Question

Which of the following is NOT a role of the audit committee?

A To monitor the effectiveness of the internal audit function

B To appoint the external auditors

C To monitor the effectiveness of the external audit process

D To review the auditor’s report on the financial statements

Answer

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Tags: Audit committee, Auditor Appointment, Corporate Governance, ICAG
Level: Level 3

Topic: The regulatory environment

Level (SQ): Level 3

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AAA – L3 – SA – Q4.2 – Auditor Independence Threat

Threat from accepting a loan from a client.

AAA – L3 – SA – Q4.1 – International Standards on Auditing

True statement about ISAs.

AAA – L3 – SA – Q3.10 – Auditor’s Responsibilities Section

Non-allowable position for responsibilities section.

AAA – L3 – SA – Q3.9 – Assurance Engagements Standards

Standards for non-audit/review assurance engagements.

AAA – L3 – SA – Q3.6 – Auditor’s Expert Valuation

True statements about auditor’s expert valuation.

AAA – L3 – SA – Q3.5 – Internal Business Risk

Identifying internal business risk.

AAA – L3 – SA – Q3.4 – Quality Management System

Non-component of audit firm’s quality management.

AAA – L3 – SA – Q3.3 – Suspected Fraud

First step when suspecting fraud by senior management.

AAA – L3 – SA – Q3.2 – Conflict of Interest

Incorrect statement about conflict of interest.

AAA – L3 – SA – Q3.1 – Audit Committee Role

Non-role of the audit committee.

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Threat from accepting a loan from a client.

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True statement about ISAs.

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Non-allowable position for responsibilities section.

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Standards for non-audit/review assurance engagements.

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True statements about auditor’s expert valuation.

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Identifying internal business risk.

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First step when suspecting fraud by senior management.

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