Financial Statements

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.

Answer

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Tags: Business Risk Approach, Financial Statements, Internal controls, Large Companies
Level: Level 3

Topic: The audit approach

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

Answer

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Tags: Audit committee, Auditor performance, Financial Statements, Governance, Non-Audit Work
Level: Level 3

Topic: The regulatory environment

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

Answer

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Tags: Auditor’s Report, Disclosure, Financial Statements, Going Concern, Material Uncertainty
Level: Level 3

Topic: Reporting

BCL – L1 – SA – Q89 – Accounts and Audit

Documents submitted by the board at every AGM.

Question

Which of the following documents is submitted by the board of directors at every AGM ?

A Balance sheet

B Profit and Loss Account

C Both A and B

D None of the above

Answer

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Tags: Annual General Meeting, aw, Financial Statements
Level: Level 1

Topic: Accounts and Audit

AAA – L3 – SA – Q2.10 – True and Fair

Implication 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 free from misstatements

B meaningful presentation and disclosure of information

C complying with ethical standards

D independent

Answer

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Tags: Audit opinion, Financial Statements, ICAG, True and Fair
Level: Level 3

Topic: Reporting

AAA – L3 – SA – Q2.8 – Subsequent Events

Auditor’s responsibility for subsequent events.

Question

Before the issue of the auditor’s report, what is the responsibility of the auditor with regard to significant events after the date of the financial statements?

A The auditor must actively look for significant subsequent events.

B The auditor should consider subsequent events only if they come to his attention.

C The auditor should consider only those subsequent events brought to his attention by the client’s management.

D The auditor must actively look for significant adjusting subsequent events but should consider subsequent non-adjusting events only if they come to his attention.

Answer

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Tags: Auditor Responsibility, Financial Statements, ICAG, Subsequent events
Level: Level 3

Topic: Evaluation and review

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 – Q3.1 – Material Items Focus

Why auditors focus on material items in financial statements.

Question

Why do auditors concentrate their efforts on material items in the financial statements?

A Because they are easier to audit

B Because it reduces the audit time

C Because the risk to the financial statements of being materially misstated is greater

D Because the directors have asked for it

Answer

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Tags: Audit Risk, Financial Statements, ICAG, Materiality
Level: Level 2

Topic: Planning and Approach for Audit and Assurance Engagements

AA – L2 – SA – Q1.9 – Cut-Off

Identify what is not true about cut-off.

Question

What is NOT true about cut-off?

A Last goods received note will determine the last invoice appearing in receivables

B It determines where one period ends and another one starts

C Details should be taken at the inventory count

D It is a good way to manipulate the financial statements

Answer

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Tags: Cut-off, Financial Statements, ICAG, Inventory Count
Level: Level 2

Topic: Audit and Assurance Evidence

AA – L2 – SA – Q1.1 – True and Fair View

Meaning of 'true and fair view' in financial statements.

Question

Although the phrase ‘true and fair view’ has no legal definition, which of the following most accurately describes its meaning with regard to the financial statements of a company?

A The financial statements have been properly prepared in accordance with the law

B The financial statements are free from material misstatements, and they are presented in an understandable and unbiased way

C All items in the financial statements are factually accurate

D The financial statements have been audited

Answer

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Tags: Assurance, Auditing, Financial Statements, ICAG, True and Fair View
Level: Level 2

Topic: Introduction to Audit and Assurance Engagements

Tag (SQ): Financial Statements

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AAA – L3 – SA – Q5.5 – The audit approach

Why use a business risk approach for auditing large companies?

AAA – L3 – SA – Q5.1 – The regulatory environment

What are the functions of an audit committee?

AAA – L3 – SA – Q4.10 – Reporting

What should an auditor do if a material uncertainty about going concern is disclosed?

BCL – L1 – SA – Q89 – Accounts and Audit

Documents submitted by the board at every AGM.

AAA – L3 – SA – Q2.10 – True and Fair

Implication of ‘true and fair’ in financial statements.

AAA – L3 – SA – Q2.8 – Subsequent Events

Auditor’s responsibility for subsequent events.

AA – L2 – SA – Q5.10 – True and Fair

Meaning of ‘true and fair’ in financial statements.

AA – L2 – SA – Q3.1 – Material Items Focus

Why auditors focus on material items in financial statements.

AA – L2 – SA – Q1.9 – Cut-Off

Identify what is not true about cut-off.

AA – L2 – SA – Q1.1 – True and Fair View

Meaning of 'true and fair view' in financial statements.

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AAA – L3 – SA – Q5.5 – The audit approach

Why use a business risk approach for auditing large companies?

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AAA – L3 – SA – Q5.1 – The regulatory environment

What are the functions of an audit committee?

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AAA – L3 – SA – Q4.10 – Reporting

What should an auditor do if a material uncertainty about going concern is disclosed?

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BCL – L1 – SA – Q89 – Accounts and Audit

Documents submitted by the board at every AGM.

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AAA – L3 – SA – Q2.10 – True and Fair

Implication of ‘true and fair’ in financial statements.

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AAA – L3 – SA – Q2.8 – Subsequent Events

Auditor’s responsibility for subsequent events.

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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 – Q3.1 – Material Items Focus

Why auditors focus on material items in financial statements.

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AA – L2 – SA – Q1.9 – Cut-Off

Identify what is not true about cut-off.

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AA – L2 – SA – Q1.1 – True and Fair View

Meaning of 'true and fair view' in financial statements.

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