Process of Assurance: Planning the Assignment, Evidence and Reporting

Question 1

The organisation has few employees in the accounts department.

Which risk is this: Inherent, Control or Detection?

Answer 1

Control risk

Question 2

The organisation is highly connected with the building trade.

Which risk is this: Inherent, Control or Detection?

Answer 2

Inherent risk

Question 3

The assurance firm may do insufficient work to detect material misstatements.

Which risk is this: Inherent, Control or Detection?

Answer 3

Detection risk

Question 4

The financial statements contain a number of estimates.

Which risk is this: Inherent, Control or Detection?

Answer 4

Inherent risk

Question 5

The senior financial controlled of an audited entity has been off work with illness for six months. Her temporary replacement has not worked in a role at this level before and appears to be struggling to keep up with her workload.

At which level does this situation present an audit risk?

Financial statement level or assertion level?

Answer 5

Financial statement level, as this would affect all controls and therefore potentially any area of the financial statements.

Question 6

True/False

Tests of controls are tests designed to give evidence whether the controls in a company are operating effectively or not?

Answer 6

True

Question 7

Analytical procedures are a type of substantive procedure?

Answer 7

True

Question 8

Which three of the following are reported by exception in the auditor’s report?

A. All information and explanations required for the audit have been received
B. Adequate accounting records have been kept
C. The directors’ report is consistent with the financial statements
D. The financial statements have been prepared in accordance with the Companies Act 2006
E. Details of directors’ emoluments have been properly disclosed in the financial statements

Answer 8

A, B, and E.

Question 9

Name all nine financial statement assertions

Answer 9

Existence
Rights and obligations
Occurrence
Completeness
Valuation
Accuracy
Classification
Cut-off
Allocation

Question 10

Give three examples of misunderstandings which contribute to the expectations gap

Answer 10

The nature of financial statements
The type and extent of work undertake by auditors
Level of assurance given by auditors