Study Question
- 1 Marks
AAA – L3 – SA – Q5.9 – Audit-related services
Which term is not associated with prospective financial information?
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AAA – L3 – SA – Q5.8 – Audit-related services
What type of engagement is due diligence work for a client?
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- Tags: Direct reporting, Due diligence, Engagement types, Professional services
- Level: Level 3
- Topic: Audit-Related Services
- 1 Marks
AAA – L3 – SA – Q5.7 – Audit evidence
Which statements about related party transactions are correct?
Question
Which of the following statements are correct?
1 With related party transactions, there is some risk of collusion and fraud.
2 A focus of audit attention with regard to related party transactions shall be on significant non-routine transactions.
A Statement 1 only is correct.
B Statement 2 only is correct.
C Both statements are correct.
D Neither statement is correct.
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- Tags: Disclosures, Fraud Risk, Non-routine transactions, Related Party Transactions
- Level: Level 3
- Topic: Audit Evidence
- 1 Marks
AAA – L3 – SA – Q5.6 – Audit evidence
What factors influence an auditor’s materiality decision?
Question
Which of the following will influence an auditor’s decision as to whether a matter is material?
1 Degree of approximation
2 Losses or low profits
3 Time of occurrence during the year
4 Offset and aggregation
A 1,2 and 3 only
B 1,3 and 4 only
C 2,3 and 4 only
D 1,2 and 4 only
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- Tags: Aggregation, Approximation, Audit judgment, Materiality, Profitability
- Level: Level 3
- Topic: Audit Evidence
- 1 Marks
AAA – L3 – SA – Q5.5 – The audit approach
Why use a business risk approach for auditing large companies?
Question
What is the main justification for the use of a business risk approach to an audit of large companies?
A A systems-based approach and a substantive testing approach are unlikely to detect material misstatements in the financial statements of large companies.
B This approach forces the auditors to understand the client’s business in depth.
C It is more effective than other approaches to audit in detecting deficiencies in internal control.
D Major audit problems in large companies are more likely to result from business-related problems than from deficiencies in internal control.
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AAA – L3 – SA – Q5.4 – Evaluation and review
What is the key objective of an engagement quality review?
Question
The key objective of an engagement quality review is to:
A monitor the firm’s system of quality management
B ensure the audit procedures were carried out in accordance with professional standards
C ensure the auditor’s report issued is appropriate in the circumstances
D perform an objective evaluation of the significant judgments made by the audit team and the conclusions reached
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AAA – L3 – SA – Q5.3 – Professional responsibility and liability
What should an auditor do upon suspecting fraudulent activity by a director?
Question
An audit engagement partner suspects that a director of a client company has been carrying out fraudulent activity. What would be the most appropriate immediate course of action?
A Challenge the suspected individual
B Report the suspicions to the audit committee of the client company
C Report the suspicions to the chairman of the board of the client company
D Seek legal advice
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AAA – L3 – SA – Q5.2 – Rules of professional conduct
Which statement about auditor independence is incorrect?
Question
Which of the following statements is INCORRECT?
A An auditor may serve on the board of directors of an audit client.
B An auditor who is an immediate family member of the director of an audit client must not be assigned to the audit team.
C Purchasing goods from an audit client on normal commercial terms does not create a threat to the auditor’s independence.
D An auditor who was recently a director of an audit client must not be assigned to the audit team for that client.
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AAA – L3 – SA – Q5.1 – The regulatory environment
What are the functions of an audit committee?
Question
Which of the following are functions of the audit committee?
1 Policy on giving non-audit work to the audit firm
2 Review of the performance of the external auditor
3 Review of the external auditor’s working papers
4 Review with the external auditors their report on the financial statements
A 1,2 and 3 only
B 1,3 and 4 only
C 2,3 and 4 only
D 1,2 and 4 only
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- Tags: Audit committee, Auditor performance, Financial Statements, Governance, Non-Audit Work
- Level: Level 3
- Topic: The regulatory environment
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AAA – L3 – SA – Q4.10 – Reporting
What should an auditor do if a material uncertainty about going concern is disclosed?
Question
A company prepares its financial statements on a going concern basis, but a material uncertainty exists about the ability of the company to continue as a going concern which is fully disclosed by management in the financial statements. In this situation, what shall the auditor do?
A The auditor’s report shall contain a ‘Material Uncertainty Related to Going Concern’ paragraph
B The auditor’s report shall state an adverse opinion
C The auditor’s report shall state a disclaimer of opinion
D The auditor’s report shall contain an ’emphasis of matter’ paragraph
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- Tags: Auditor’s Report, Disclosure, Financial Statements, Going Concern, Material Uncertainty
- Level: Level 3
- Topic: Reporting
