chap2

phần 1
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 skepticism
1 and 3

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
(1), (2) and (4)

“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?
Integrity

“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?
Objectivity

“Auditors have a continuing duty to maintain professional knowledge and skill

at the level required and should act diligently and in accordance with applicable
technical and professional standards”. Which of the following principles of
ACCA’s code of ethics does this statement mention to?
Professional competence and due care

“Auditors should not disclose information to 3rd parties unless there is a legal
or professional right or duty to disclose”. Which of the following principles of
ACCA’s code of ethics does this statement mention to?
Confidentiality

“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?
Professional behaviour

Which of the following statement explain for “self-interest” threat?

The auditors’ own personal interest in client which could influcence the
auditor’s independence
Which of the following statement explain for “self-review” threat?
When carrying out the audit, the auditors, review work that their own firm has
undertaken previously, e.g. preparing accounts or making a valuation.

Which of the following statement explain for “Advocacy” threat?

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.

Which of the following statement explain for “Familiarity” threat?

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.

Which of the following statement explain for “Intimidation” threat?

The auditors may be intimidated by a dominant or aggressive atmosphere at the
client.

In which of the following situations would the auditor has duty to disclose
confidential information about a client?
The auditor suspects that the client has committed money-laundering offences

Which of the following could cause “advocacy threat”?

Firm to represent Stark in a dispute with the tax authorities

As part of your planning work you have identified a number of potential risks to
independence, that is “The audit firm holds shares in the audit client”. Which
ethical threats do the case relate to?
Self-interest

As part of your planning work you have identified a number of potential risks to
independence, that is “Your audit firm has been asked to prepare the financial
statements of a client as their finance director has been taken ill”. Which ethical
threats do the case relate to?
Self review

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?
Advocacy
As part of your planning work you have identified a number of potential risks to
independence, that is “Your audit firm has provided audit service for this client
for 10 years”. Which ethical threats do the case relate to?
Familiarity

As part of your planning work you have identified a number of potential risks to
independence, that is “The Finance Director calls you and threatens to move
auditor if you don’t drop your fees next year”. Which ethical threats do the case
relate to?
Intimidation

phần 2
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: “Audit team to be offered a balloon flight by the client”. Which of the
following options best identifies the valid threats to independence?
Self-interest

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: “Tax fee of taxation service to be based on a percentage of tax saved”.
Which of the following options best identifies the valid threats to
independence?
Self-interest

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: “Firm to represent the client in a dispute with the tax authorities”.
Which of the following options best identifies the valid threats to
independence?
Advocacy

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 team has been offered a discount on luxury phones”.
Which of the following options best identifies the valid threats to
independence?
Self-interest
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?
Self-review

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: “Total fees from LV is over 15% of the total fees of the firm for the
second consecutive year”. Which of the following options best identifies the
valid threats to independence?
Self-interest

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: “Total fees from LV is over 15% of the total fees of the firm for the
second consecutive year”. Which of the following options best identifies the
valid threats to independence?
Self-interest

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: “Fees are overdue in respect of last year's audit”. Which of the
following options best identifies the valid threats to independence?
Self-interest

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 engagement partner has been asked to attend meetings with
potential investors”. Which of the following options best identifies the valid
threats to independence?
Advocacy

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 client has been offered the opportunity to provide other services
to the client”. Which of the following options best identifies the valid threats to
independence?
Self-review
In relation to the audit team being offered a 10% discount on mobile phones.
Which of the following statements is true in accordance with ACCA's Code of
Ethics and Conduct?
Unless the value of the discount is trivial and inconsequential to the audit team
members, the offer should be declined

In relation to the audit team being offered a balloon ride by the client. Which of
the following statements is true or false in accordance with ACCA's Code of
Ethics and Conduct?
The gift should only be accepted if its value is trivial and inconsequential to the
recipients.

Zoe is also concerned that Ali & Co might breach confidentiality were the audit
firm to represent Stark in its dispute with the tax authorities. Which of the
following statements best reflects the auditor's duty of confidentiality?
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.

The finance director has made two offers to members of the audit team. Which
of the following offers can be accepted by audit team?
Loan at normal rates as other clients.

chap 5
Filters
Events after the reporting date are categorised as either being an adjusting event
and a non-adjusting event . An adjusting event provides evidence of conditions
that existed at the reporting date. Which of the following should be classified as
adjusting event?
Bankruptcy of a major customer

Events after the reporting date are categorised as either being an adjusting event
and a non-adjusting event . An adjusting event provides evidence of conditions
that existed at the reporting date. Which of the following should be classified as
adjusting event?
Resolution of a court case

Events after the reporting date are categorised as either being an adjusting event
and a non-adjusting event . An adjusting event provides evidence of conditions
that existed at the reporting date. Which of the following should be classified as
an adjusting event?
Discovery of fraud or errors
Events after the reporting date are categorised as either being an adjusting event
and a non-adjusting event. Non-adjusting events are not incorporated into the
financial statements, although they may be disclosed. Which of the following
should be classified as a non-adjusting event?
A fire destroying some of the company's inventory (the company's going
concern status is not affected)

Events after the reporting date are categorised as either being an adjusting event
and a non-adjusting event. Non-adjusting events are not incorporated into the
financial statements, although they may be disclosed. Which of the following
should be classified as a non-adjusting event?
An issue of shares to finance expansion after reporting date

Audit procedures for subsequent events should be performed between the date
of the financial statements and which date?
The date of the auditor’s report

You are a member of the statutory audit team working on the financial
statements of Windermere Ltd, a nationwide chain of outdoor equipment stores,
for the year ended 31 December 2018. The following matters have been brought
to your attention: On 1 March 2019 (after the reporting date), there was a fire in
one of Windermere’s warehouses, destroying a material amount of inventory.
Which of the following is auditor’s responsibilities regarding that subsequent
event of Windermere?
If the event occurred between the company’s reporting date and the date that the
audit report is signed, the auditor has an active duty which means that the
auditor must obtain sufficient appropriate evidence that all subsequent events
that require adjustment or disclosure have been identified

Which of the following statements correctly describes auditor’s responsibility in

relation to subsequent events occurring between the date on which the auditor's
report is signed and the date on which the financial statements are issued?
Auditor should discuss any subsequent events they become aware of with the
directors of Strawberry Co to determine whether the financial statements need
amended

Which of the following statements correctly describes auditor’s responsibility in

relation to subsequent events occurring after the date on which the auditor's
report is signed?
Auditor has no obligation to perform any procedure after the date on which the
auditor's report is signed. However, if auditors become aware of any events,
they should discuss with directors of audited client.
You are auditing financial statement of Cley Ltd for the year ended 31
December 20X0. During the subsequent events review procedures for Cley Ltd,
you have identified that a sales credit notes for a large amount of sales returns,
relating to a pre-year-end despatch of inventory, was issued to a customer on 15
January 20X1. Which of the following should be appropriate action for auditor?
This is an adjusting event since because the credit note provides evidence of a
condition that existed at the year-end i.e. the customer did not accept the goods
delivered by Kitty Ltd.
Which of the following correctly describe auditor’s responsibility regarding
subsequent events?
(1) Between the client’s year end (reporting date) and the date the audit report is
signed, the auditor has an active duty. This means they must obtain sufficient
appropriate evidence that all subsequent events that require adjustment or
disclosure have been identified.
(2) Between the date that the audit report is signed and the AGM, the auditor
has a passive duty. This means there is no requirement to perform audit
procedures. However, if a fact becomes known that should result in an
amendment to the FSs, the auditor must take the necessary action.
Both statement (1) and (2) is true

One month after the financial statements were issued, the legal claim was
finalized with the court awarding compensation of $500,000 to the ex‐financial
controller. The directors of Sampson Co have contacted Blenkin & Co to inform
them of the outcome.”
Which TWO of the following are appropriate actions for Blenkin & Co to take?
(1) Discuss the matter with management and, where appropriate, those charged
with governance’
(2) Obtain a written representation from management
(3) Consider whether the firm should resign from the engagement
(4) Enquire how management intends to address the matter in the financial
statements where appropriate
(1) and (4)

Which statements are TRUE about subsequent events?

(1) All material subsequent events require the numbers in the financial
statements to be adjusted
(2) The auditor’s responsibilities for subsequent events which occur prior to the
audit report being signed are different from their responsibilities after the audit
report has been issued
(3) The auditor should request a written representation confirming that all
relevant subsequent events have been disclosed
(4) A non-adjusting event is a subsequent event for which NO amendments to
the current year financial statements are required
(2) and (3)

You are an audit manager at Blenkin & Co and are approaching the end of the
audit of Sampson Co, which is a large listed retailer. The draft financial
statements currently show a profit before tax of $6·5m and revenue of $66m for
the financial year ended 30 June 20X6. You have been informed that the finance
director left Sampson Co on 31 May 20X6.
As part of the subsequent events audit procedures, you reviewed post year-end
board meeting minutes and discovered that a legal case for unfair dismissal has
been brought against Sampson Co by the finance director. During a discussion
with the Human Resources (HR) director of Sampson Co, you established that
the company received notice of the proposed legal claim on 10 July 20X6.
The HR director told you that Sampson Co’s lawyers believe that the finance
director’s claim is likely to be successful, but estimate that $150,000 is the
maximum amount of compensation which would be paid. However,
management does not intend to make any adjustments or disclosures in the
financial statements.
Which of the following audit procedures should be performed to form a
conclusion as to whether the financial statements require amendment in relation
to the unfair dismissal claim?
(1) Inspect relevant correspondence with Sampson Co’s lawyers
(2) Write to the finance director to confirm the claim and level of damages
(3) Review the post year-end cash book for evidence of payments to the finance
director
(4) Request that management confirm their views in a written representation
1, 3 and 4

Choose the relevant options to fill the blank in the statements below, which
explain how the issue of share capital should be treated in the financial
statements (in consequence): “Regarding to subsequent events, the issue of
share capital is ……(1)………. event because it ……(2)……………. and it is
material therefore it requires …….(3)……….
(1) A non-adjusting; (2) give new information about an event that did not exist
at the year-end date; (3) to be disclosed in the current year financial statements
Strawberry Co received a letter dated 15 May 20X5, from the government
environmental agency advising that water samples taken from a public lake
close to Strawberry Co's manufacturing site have shown traces of a harmful
substance which is produced during its manufacturing process. The agency has
concluded that Strawberry Co is the source of the contamination and is liable
for a fine. The board of directors has denied any responsibility and have
forwarded the case to the company’s legal advisers.
The audit team has performed various substantive procedures in order to obtain
sufficient and appropriate audit evidence relating to the potential fine for
environmental damage.

Which TWO of the following are appropriate audit procedures to perform in

respect of the letter from government environmental agency?
(1) Send a letter addressed to the government environmental agency to confirm
the matter
(2) Examine post year-end board meeting minutes to identify any reference to
further developments of the case
(3) Review the correspondence with the company’s legal advisers to assess the
probable outcome of the case
(4) Test the effectiveness of the client's internal control systems in relation to
the prevention of environmental damage
(2) and (3)

Filters
Purple Ltd received notification from one of its competitors that they are being
sued for breach of copyright in respect of one of their products. The competitor
is seeking compensation of $10million. Purple’s solicitors are still in the early
stages of assessing the claim and acknowledge the possibility of its success.
The Finance Director has warned that such a large compensation figure would
jeopardise Purple’s ability to continue trading. In this year’s financial
statements, the Finance Director has appropriately disclosed a contingent
liability in respect of the possible compensation and the uncertainty about
Purple’s going concern status. Auditor agreed with the disclosure made by the
Finance Director. Which of the following is the most appropriate form of audit
opinion that auditor should issue if the issue remains and how the going concern
issue would be disclosed in the auditor's report?
An unmodified opinion and describe the nature of the going concern uncertainty
in the “Material Uncertainty Related to Going Concern” section

The financial statements of Puppy Ltd include a note relating to a significant

uncertainty over going concern. The uncertainty has arisen because a major
customer has threatened to terminate its contract early due to Puppy’s failure to
comply with service levels required by the contract. Your firm has concluded
that the disclosure note included in Puppy’s financial statements is appropriate
and adequate. Which of the following is the most appropriate form of audit
opinion that auditor should issue if the issue remains and how the going concern
issue would be disclosed in the auditor's report?
An unmodified opinion and describe the nature of the going concern uncertainty
in the “Material Uncertainty Related to Going Concern” section
Hilton Ltd is a drug manufacturing company specialising in making drugs to
treat heartburn. It currently manufactures one of the market-leading drugs,
Fungi, which accounts for 65% of the company's annual revenue. High numbers
of sufferers have recently experienced severe side effects when using Fungi and
a government committee is now investigating this. Hilto 's licence to
manufacture Fungi has been suspended until the investigation is complete. The
investigation by the government committee will take a long time and will not be
finished until after the financial statements for the year ended 31 December
2009 have been published. The directors have disclosed this matter in a note to
the draft financial statements, stating that if the licence is not reinstated there
would be significant doubts over Hilton's ability to continue to trade. Your firm
has concluded that the disclosure note included in Hilton’s financial statements
is appropriate and adequate. Which of the following is the most appropriate
form of audit opinion that auditor should issue if the issue remains and how the
going concern issue would be disclosed in the auditor's report?
An unmodified opinion and describe the nature of the going concern uncertainty
in the “Material Uncertainty Related to Going Concern” section

Which of the followings is the appropriate audit opinion that should be used by
the auditor for a company that is NOT a going concern if they have prepared
their financial statements using the going concern basis?
An adverse opinion

You client intend to cease trading in two years’ time and have prepared their
financial statements on the going concern basis. What is the impact on the audit
opinion?
This is a disagreement. It is considered material by nature and is pervasive to
the users understanding of the financial statements. The auditor will issue an
adverse opinion

As part of the year end audit procedures of your client, Spoon Ltd, they have
said to you that they are unsure about their ability to continue as a going
concern: This is as a result of a very competitive environment in their industry.
Management intend to disclose this uncertainty in their financial statements.
What is the impact on the audit opinion?
(1) If the disclosure is adequate, then issue an unmodified opinion and will
include ‘material uncertainty relating to going concern’ paragraph.
(2) If the disclosure is not adequate and this is considered material but not
pervasive then issue a modified ‘except for’ opinion.
(3) If the disclosure is not adequate and this is considered material and
pervasive then issue an adverse opinion.
All of three statements are correct
Which of the following correctly describle auditor’s responsibility regarding
going concern issue?
Auditor needs to consider the appropriateness of management’s use of the going
concern assumption
Which TWO of the following statements correctly describes the respective
responsibilities of directors and auditors in relation to going concern?
(1) The directors must assess whether the company can continue to trade for the
foreseeable future.
(2) The auditor will evaluate management’s assessment of going concerned
(3) The auditors and the directors must make disclosure of going concern
uncertainties in the financial statements
(4) The auditor should make an assessment of an entity's ability to continue as a
going concern
(1) and (2)

The directors have now agreed to include going concern disclosures, while
continuing to use the going concern basis of accounting. You agree with the
client's management that the going concern basis of accounting is appropriate
under the circumstances. You have reviewed the draft disclosures and believe
they are correct and adequate. Indicate which form of audit opinion would be
appropriate and how the going concern issue would be disclosed in the auditor's
report?
An unmodified opinion and describe the nature of the going concern uncertainty
in the “Material Uncertainty Related to Going Concern” section

You have concluded that Stone is not a going concern. If the directors refuse to
amend the financial statements which of the following correctly describes the
impact on the auditor's report?
An Adverse opinion and an explanation of circumstances in the “Basis for
adverse opinion” section

The auditors have been informed that Clarinet's bankers will not make a
decision on the overdraft facility until after the auditor's report is completed.
The directors have now agreed to include some going concern disclosures and
you believe these disclosures are adequate. Which of the following correctly
summarises the impact on the auditor's report of Clarinet if the auditor believes
the company is a going concern but that this is subject to a material uncertainty?
An unmodified opinion and a disclosure in “Material Uncertainty Related to
Going Concern” section
In which of the following situations should a company NOT prepare financial
statements using the “breakup basis”?
There are material uncertainties relating to going concerned

Which of the following statements NOT CORRECT when describing the

respective responsibilities of directors and auditors in relation to going concern?
The auditors and the directors must make disclosure of going concern
uncertainties in the financial statements

As part of the year end audit procedures of your client, Spoon Ltd, they have
said to you that they are unsure about their ability to continue as a going
concern: This is because of a competitive environment in their industry.
Management intends to disclose this uncertainty in their financial statements.
Which of the following is most appropriate form of audit opinion that the
auditor should issue?
It depends on whether the management’s disclosure is appropriate or not

Filters
According to ISA 701, which of the following should be included in the ‘Key
Audit Matters’ paragraph in the auditor’s report?
Matters which required significant auditor attention

At the completion stage of the audit, the client is required to sign a letter of
representation (management’s representation letter). If management outright
refuse to produce a written representation or they do not provide representation
on one or more areas requested by the auditor, which of the following is
appropriate action for auditor?
(1) The auditor should discuss the matters with management
(2) Re-consider the integrity of the company management – this may have an
impact on the reliability of other audit evidence given
(3) The auditor may consider the impact on the auditor report, for example,
modify the audit opinion due to an inability to obtain sufficient appropriate
evidence
All of the three above statement are appropriate
“A report to those charge with governance and management which normally
include the observations of auditor which identifies the weakness point of
internal control, the possible consequences which could result from those
weakness and the auditor’s recommendation for improvement. A report to
management generally includes a covering letter and an appendix showing the
control deficiencies, implication, and recommendation. This is a by-product of
the audit and may not be a comprehensive list of deficiencies”
The above statement are describing which of the following report?
Management letter

At the completion stage of the audit, the client is required to sign a letter of
representation (management’s representation letter). Which of the following
could be included in management representation letter?
Confirmation of management about fulfilled responsibility for preparation of
financial statements in accordance with Financial Reporting framework
At the completion stage of the audit, the client is required to sign a letter of
representation (management’s representation letter). Which of the following
statements correctly describes the nature of management representation letter?
A written statement by management provided to the auditor to confirm certain
matters or to support other audit evidence
At the completion stage of the audit, the client is required to sign a letter of
representation (management’s representation letter). Which of the following
statements NOT correctly describes the nature of management representation
letter?
Representations from management are the most reliable audit evidence and they
can be used instead of other evidence which the auditor expect to exist
You are auditing Plastics Co and the overall materiality threshold has been set
at $150,000. You are in the phase of an overall review of the financial
statements for the year ended 31 December 20X1 prior to the issue of the
auditor’s report. The following is included in your assessment of uncorrected
misstatement: “Missing invoice in purchases $60,000”. Which of the following
action is appropriate if the auditor is to issue an unmodified audit opinion?
No misstatement is required because this misstatement is below materiality
threshold. However, this would still be added to the schedule of unadjusted
errors as it could end up being material in aggregate
You are auditing Plastics Co and the overall materiality threshold has been set
at $150,000. You are in the phase of an overall review of the financial
statements for the year ended 31 December 20X1 prior to the issue of the
auditor’s report. The following is included in your assessment of uncorrected
misstatement: “Revenue relating to next year included in current year, amount
of $230,000”. Which of the following action is appropriate for the auditor?
This misstatement must be discussed with client and an adjustment is proposed.
If the management agree to adjust this misstatement, auditor can issue an
unmodified audit opinion
At the completion stage of the audit, the client is required to sign a letter of
representation (management’s representation letter). Which of the following
could be included in management representation letter?
Confirmation of management that all relevant information has been provided to
auditor
Maison's computerised wages program is backed up daily, however for a period
of two months the wages records and back-ups have been corrupted, and
therefore cannot be accessed. Wages and salaries for these two months are
$1.1m. Profit before tax is $10m. Based on the above information Which of the
following correctly summarises the effect of the issue relating to the wages
balance in the financial statements of Maison?
Material misstatement related to “proper accounting records have not been
kept”
You have reviewed a financial summary which is to be included in the annual
report and have found that the details are inconsistent with the financial
statements. You have notified the directors of the error in the summary financial
statements. Which of the following correctly summarises the impact on the
auditor's report if the directors do not correct this error?
Unmodified opinion and “Other Information” section including a description of
the uncorrected inconsistency
The auditors have discovered that the chairman’s report of XYZ Co, a listed
company, is inconsistent with the financial statements and it has been
determined that the material inconsistency is in the chairman’s report. Which of
the following auditor’s reports will be issued for XYZ Co if the directors refuse
to amend the inconsistency?
Unmodified opinion with the material inconsistency explained in the “other
information” section
It is 1 July 20X5. You are an audit manager at X & Co, currently finalising the
audit of Y Co for the year ended 31 March 20X5. You are performing the
final review in preparation for signing the auditor’s report. During the year
one of the company’s properties was revalued by an independent expert valuer.
Which of the following are audit procedures X & Co should perform in
conducting its overall review of the financial statements (in completion phase)
of Y Co?
Design and perform analytical procedures to confirm the financial
statements are consistent with the auditor’s understanding of the entity
River Co is a manufacturer of shoes. You are an audit manager with Cello & Co
and you are performing an overall review of the financial statements for the
year ended 30 September 20X8 prior to the issue of the auditor’s report. Profit
before tax for the year was $131·4m (20X7: $120·9m).
Your review also includes an assessment of uncorrected misstatements. These
have been recorded by the audit team as follows:

$’000
(1) Interest payable omitted in error
1,942
(2) Additional allowance for receivables required
9,198
(3) Error in sales invoice processing resulting in understatement of sales
8,541
Which of the uncorrected misstatements numbered (1), (2) and (3) by the audit
team MUST be adjusted for if the auditor is to issue an unmodified audit
opinion?
Misstatements 2 and 3 only

River Co is a manufacturer of shoes. You are an audit manager with Cello & Co
and you are performing an overall review of the financial statements for the
year ended 30 September 20X8 prior to the issue of the auditor’s report. Profit
before tax for the year was $131·4m (20X7: $120·9m).
Your review also includes an assessment of uncorrected misstatements. These
have been recorded by the audit team as follows:

$’000
(1) Interest payable omitted in error
1,942
(2) Additional allowance for receivables required
9,198
(3) Error in sales invoice processing resulting in understatement of sales
8,541
(4) Write off in respect of faulty goods
2,900
 All

adjustments required by the auditors have been made to the financial

statements with the exception of adjustment (4) relating to the faulty goods.
Which of the following correctly describes the effect of this matter on the
auditor’s report?
Unmodified opinion with no further disclosure

It is 15 March 20X3. You are an audit manager at X & Co, currently finalising
the audit of Y Co for the year ended 31 December 20X2. You are
performing the final review in preparation for signing the auditor’s report.
Which of the following are audit procedures X & Co should perform in
conducting its overall review (completion phase) of the financial statements of
Y Co ?
Review to confirm that sufficient and appropriate evidence gathered and the
audit work performed in accordance with relevant laws / standards

Ash Trading Co (Ash) is a new audit client of Chestnut & Co, its year end was
31 January 20X5. The inventory count at Ash's warehouse was undertaken on
31 January 20X5 and was overseen by the company's internal audit department.
Neither Chestnut & Co nor the previous auditors attended the count. Detailed
inventory records were maintained but it was not possible to undertake another
full inventory count subsequent to the year end. The draft financial statements
show a profit before tax of $2.4 million, revenue of $10.1 million and inventory
of $51,000. Which of the following correctly summarises the effect of the issue
relating to the inventory count of Ash at the year end?
Immaterial misstatement

You are audit manager and performing an audit of financial statement for the
year ended 30 Jun 20X5 of Straberry Co. All audit work will be finished by 31
July 20X5. The auditor's report is due to be signed by your audit firm on 28
September 20X5. Strawberry Co's board plans to issue the financial statements
on 21 October 20X5 which will be followed by an annual general meeting on 30
October 20X5.
At the completion stage of the audit, the client is required to sign a letter of
representation (management’s representation letter). Which of the following
would be the most appropriate date for the directors of Strawberry Co to sign
the written representation?
28 September 20X5

Which of the following example illustrates Detection Risk?

Sample sizes have been calculated incorrectly by the auditor and are too small

Which of the following example illustrates Detection Risk?

Audit staff are inexperienced

Which of the following example illustrates Inherent Risk?

The company operates in high-regulated industry

Which one of the following best describes the principal difference between
fraud and errors
Fraud is an intentional act whereas error is unintentional

Which of the following is NOT a reason for obtaining an understanding about

the entity and its environment?
To identify the relevant internal control and test its operating effectiveness

Which of the following is NOT true regarding Performance Materiality?

Performance materiality levels are higher than the materiality for the financial
statements as a whole
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: In December
20X9, the Company placed orders for two new machines which will be used for
production, estimated total cost of those machines is $15m and the company is
not sure whether they will be received by the year end.
Which of the following summarises the key audit concern arising from the
matter described?
Existence of non-current assets

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 $500,000 which they are owed by Bobby.
Which of the following summarises the key audit concern arising from the
matter described?
Valuation of trade receivable

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: Steel is closing
one of its branch in next few months and this could lead to a large workforce
redundant.
Which of the following summarizes the key audit concern arising from the
matter described?
Completeness of liabilities

The following statement is true or false in accordance with ISA 240 The
auditor's responsibilities relating to Fraud in an Audit of Financial statement?
“The auditor is not responsible for the prevention of fraud and error but is
responsible for detection.”
False

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?
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.

Which of the following statements is NOT true regarding purpose of risk

assessment in planning audit?
The risk assessment will enable the audit senior to produce an accurate budget
for the audit assignment
Imagine you are doing the audit planning for the audit of Steel Ltd for the year
end 31 December 20X9. In December 20X9, the Company placed orders for
two new machines which will be used for production, estimated total cost of
those machines is $15m and the company is not sure whether they will be
received by the year end. This information has led you to be concerned that
property, plant and equipment may be overstated in the financial statements.
Which of the following statements represents a valid response to this audit risk?
Discuss with management as to whether the planes have arrived, if so then
physically verify a sample of these plane to ensure existence.

Imagine you are doing the audit planning for the audit of Steel Ltd for the year
end 31 December 20X9. The company has spent an estimated $1.2m on
refurbishing their existing plants. This information has led you to be concerned
that property, plant and equipment may be overstated in the financial
statements. Which of the following statements represents a valid response to
this audit risk?
Obtain a breakdown of the capitalised costs and agree a sample of items to
invoices to determine the nature of the expenditure, to ensure that only
expenditure enhance conditions of asset, should be capitalized.

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: Steel is closing
one of its branch in next few months and this could lead to a large workforce
redundant. This information has led you to be concerned that redundancy
provision may be understated in the financial statements. Which of the
following statements represents a valid response to this audit risk?
Discuss with management the status of the redundancy program, review and
recalculate redundancy provision to ensure accuracy.

Which of the following statements is NOT true regarding “performance

materiality”?
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.

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?
Substantive tests only
In the audit of a client where controls have been assessed as strong. Which of
the following is the most appropriate approach which should be used by the
auditor?
A mix of tests of controls and substantive procedures

Two types of procedures used in gathering evidence are tests of controls and
substantive procedures. Which of the following is illustrated for substantive
procedure?
Re-calculation of net realisable value of inventory and comparisation with cost
to ensure that inventory is stated at lower of cost and net realisation value.

Which one of the following populations should the auditors start from when
testing for completeness of reported sales of a manufacturing company?
Good despatched notes

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
Neither (1) nor (2)

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?
Completeness

Which of the following techniques is generally accepted to be the most

efficient to obtain evidence regarding the existence of bank balances?
Confirmation

which one of the following financial statement assertions will be supported by a

sample check on the numerical sequence of despatch records and invoices?
Completeness

Which one of the following procedures should be undertaken to confirm the

existence of cash at bank?
Obtaining the direct confirmation of the bank balance from the client’s bank

Which of the following audit procedures would provide the auditor with
evidence of completeness of inventory?
Tracing test counts performed at the inventory count to the detailed inventory
listing
Which of the following audit procedures to prove the assertion of valuation of
inventory?
Comparing cost on a number of inventory items to sales invoices subsequent to
the year end

Which TWO of the following substantive procedures provide evidence over the
EXISTENCE of trade receivables?
(1) Agreeing a sample of goods despatched notes to sales invoices and to the
sales ledger;
(2) Undertaking a receivables circularization ;
(3) Review of post year-end cash receipts, if these relate to year-end receivables
follow through to the sales ledger;
(4) Recalculating the allowance for uncollectible accounts
2 and 3

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.
(1) and (2)

The auditor of Green plc carried out an external confirmation of receivables at

the year end to confirm the accuracy of total trade receivables in the statement
of financial position at that date. Two of the replies to the confirmations
disagreed with the balances:
(1) Customer A disagreed with the balances because he had made a payment
two days before the year end. The auditor has confirmed that the cheque
cleared the bank two days after the year end.
(2) Customer B disagreed with the balance because their records did not contain
invoice number IN 001191. This invoice and associated goods were despatched
by Green plc on the last day of the year. The auditor has verified that the
despatch record and cut-off with inventory are correct.
Required: Which of the above disagreements would be considered as a
misstatement?
Neither (1) nor (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
1 và 2 only

Which of the following are the key elements of an assurance engagement (1)
Three-party relationship: (2) A subject matter (3) Suitable criteria (4) An
assurance file

1 ,2 và 3

Which of the following is limitation of the provision of audit engagement

Sampling is used in assurance work

In any assurance engagement, there are three parties involved: the responsible party,
the practitioner and the user. In respect of given subject matter, which party
determines suitable criteria?
Responsible party

In any assurance engagement, there are three parties involved: the

responsible party, the practitioner and the user. In respect of given subject

matter, which party provide an opinion on whether the subject matter

complies with the criteria?

Practitioner

Which of the following are NOT benefit of an audit report on financial

statement?

An audit report attests to the correctness of the information being reported on

The level of assurance provided by an assurance engagement will depend on

the type of engagement. Which of the following type of engagemeent will give

the level of reasonable assruance?

Statutory audit

Which of the following is TRUE regarding audit?

An audit gives the reader reasonable assurance on the truth and fairness of the
financial statements
Which of the following is the most appropriate definition of the external

audit?

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.

Which one of the following statements best describes the evidence obtained

and the opinion given in a reasonable assurance engagement?

Sufficient appropriate evidence and a positively worded opinion

Which of the following is true regarding assurance engagement?

statutory audit gives reasonable assurance that financial statements give a true
and fair view

Which of the following is TRUE regarding assurance?

A statutory audit gives reasonable assurance that the financial statement give a
true and fair view

The level of assurance provided by an assurance will depend on the type of

engagement. Which of the following level of assurance that a statutory audit
engagement would give?
reasonable assurance

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?
Limited assurance
The level of assurance provided by an assurance will depend on the type of
engagement. Which of the following level of assurance that a "report on profit
and cashflow forcast" engagement would give?
Limited assurance
Assurance engagements can relate only to financial measures and results?
F
Which of the following statements is TRUE regarding assurance: (1) Auditors
are required to express an opinion as to whether the financial statements
give a true and fair view; (2) An audit is a type of reasonable assurance:
engagement.
Both statements are true

What sort of assurance does a resonable assurance engagement give?

High level of assurance

In any assurance engagement, there are three parties involved: the responsible
party, the practitioner and the user. In respect of given subject matter, which
party provide an opinion on whether the subject matter complies with the
criteria?
Practitioner

Which of the following are NOT benefit of an audit report on financial

statement?
An audit report attests to the correctness of the information being reported on

The level of assurance provided by an assurance engagement will depend on the

type of engagement. Which of the following type of engagemeent will give the
level of reasonable assruance?
Statutory audit

Which of the following is TRUE regarding audit?

An audit gives the reader reasonable assurance on the truth and fairness of the
financial statements

Which of the following is the most appropriate definition of the external audit?
The exyernal audit is an exercise cariednout by auditors in order to give
anopinion on whether the financial statements of a company are materially
misstated
Which of the following is NOT TRUE regarding assurance?
Reasonable assurance is absolute assurance of the correctness of the subject
matter
Which of the following is NOT one of the five elements of an assurance
engagement?
A three party relationship consisting of a responsible party, users and subject
matter
Which of the following is the correct definition of an audit?
The independent examination of and expression of opinion on the financial
statements of an entity by a duly appointed auditor in pursuit of that
appointment
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.
Accountability
Negative assurance is associated with what sort of assurance engagement
Limited assurance

Fill the appropriate word in the blank: "An assurance engagement is when a
professional examines information for which another...... is responsible for"
Party

Which of the following are the responsibilities of the external auditor in

auditing financial statements? (1) Maintaining internal controls and preparing
financial report; (2) Providing internal assurance on internal control and
financial reports; (3) Providing internal oversight of the reporting process
None of the above

Who normally appoints the external auditors of a company?

Shareholders

Which of the following body is responsible for setting International Standard on

Auditing?
IAASB

Rat LLP is the external auditor of Palm plc, a listed company. The directors of
Palm have requested that Rat LLP carry out a review engagement assessing the
effectiveness of its coporate governance policies against the UK Corporate
Goverance Code. For the above review engagement, which of the following is
the most appropriate statement regarding subject matter, suitable criteria and
responsible party:
The subject matter is Palm's corporate governace code; The suitable criteria is
UK Corporate Goverance Code: The responsible party is thedirectors of Palm
plc.

Which one of the following best describe the concept of assurance?

Assurance refer to an assurance firm's satisfaction as to the reliability of an
assertion being made by one party for the use of another party

Which of the following is a general principle for the auditor to follow?: (1)
Compliance with applicable ethical principles; (2) Compliance with
international standard on auditing(3) Keeping an attitude of professional scepticism
when planning and performing the audit
(1) and (2) and (3)