PSA 200

Question 1

What does professional skepticism include?

Answer 1

A18
It includes being alert to:
1. Audit evidence that contradicts other audit evidence
3. Information that brings into question the reliability of documents and responses to inquiries to be used as audit evidence
3. Conditions that may indicate fraud
4 . Circumstances that suggest the need for audit procedures un addition to those required by the PSA

Question 2

In case of doubt about the reliability of information or indications of possible fraud, what should the auditor do?

Answer 2

A21. PSAs require that the auditor investigate further and determine what modifications or additions to audit procedures are necessary to resolve the matter.

Question 3

What are the fundamental principles of professional ethics relevant to the auditor when conducting an audit?

Answer 3

Integrity
Objectivity
Professional competence and due care
Confidentiality
Professional behavior

A15

Question 4

What is independence?

Answer 4

Code of Ethics describes independence as comprising both independence of mind and independence in appearance.

Question 5

Why is independence important?

Answer 5

The auditor’s independence from the entity safeguards the auditor’s ability to form an audit opinion without being affected by influences that might compromise that opinion. Independence enhances the auditor’s ability to act with integrity, to be objective and to maintain an attitude of professional skepticism.

Question 6

According to paragraph A23, what decisions does professional judgment include?

Answer 6

• Materiality and audit risk.
• The nature, timing, and extent of audit procedures.
• Evaluating whether sufficient appropriate audit evidence has been obtained.
• The evaluation of management’s judgments in applying the entity’s applicable financial reporting framework.
• The drawing of conclusions based on the audit evidence obtained.

Question 7

The exercise of professional judgment is based on the facts and circumstances known by the auditor.

Answer 7

True.

Question 8

Statement 1. Professional judgment needs to be exercised throughout the audit.
Statement 2. Professional judgment need not be documented.

Answer 8

Only statement 1 is true.

As per PSA A27, the auditor is required to prepare audit documentation sufficient to enable an experienced auditor to understand the significant professional judgment made in reaching conclusions on significant matters arising during the audit.

Question 9

Audit evidence is cumulative in nature and is primarily obtained from audit procedures performed during the course of the audit.

Answer 9

True.

Question 10

What do you call the measure of the quantity of audit evidence?

Answer 10

Sufficiency

Question 11

The higher the assessed risks, the less audit evidence is likely to be required.

Answer 11

False.

Question 12

Obtaining more audit evidence may compensate for its poor quality.

Answer 12

False.

Question 13

What do you call the measure of the quality of audit evidence?

Answer 13

Appropriateness.

Question 14

Whether sufficient appropriate evidence has been obtained to reduce audit risk to an acceptably low level is a matter of professional skepticism.

Answer 14

False.

-professional judgment

Question 15

Audit risk is a function of the risks of material misstatement and inherent risk.

Answer 15

False.

-risk of material misstatements and DETECTION RISK

Question 16

Audit risk includes the risk that the auditor might express an opinion that the FS are materially misstated when they are not.

Answer 16

False. As per PSA 200 par. A33

Question 17

Audit risk does not refer to the auditor’s business risks such as loss from litigation, adverse publicity.

Answer 17

True.

Question 18

What are the two levels at which risks of material misstatement may exist?

Answer 18

1. At the overall financial statement level

2. At the assertion level for classes of transactions, account balances and disclosures.

Question 19

What are the two components the risk of material misstatement at the assertion level consist of?

Answer 19

1. Inherent risk

2. Control risk

Question 20

This is the function of the effectiveness of the design, implementation and maintenance of internal control by management to address identified risks that threaten the achievement of the entity’s objectives relevant to the preparation of the FS.

Answer 20

Control risk

Question 21

Internal control can eliminate risks of material misstatements in the financial statements.

Answer 21

False. I’m can only reduce, but not eliminate.

Question 22

The acceptable level of detection risk bears a direct relationship to the assessed risks of material misstatements at the assertion level.

Answer 22

False.

-inverse relationship

Question 23

How is risk addressed?

Answer 23

As per PSA200 par A43,

1. Adequate planning
2. Proper assignment of personnel to the engagement team
3. Application of professional skepticism
4. Supervision and review of the audit work performed

Question 24

The inherent limitations if an audit arise from:

Answer 24

1. Nature of the financial reporting
2. Nature of audit procedures
3. Need for the audit to be conducted within a reasonable period at a reasonable cost

Question 25

An audit is not an official investigation into alleged wrongdoing.

Answer 25

True.

Question 26

The matter of difficulty, time or cost involved is not in itself a valid basis for the auditor to omit an audit procedure for which there is no alternative or to be satisfied with audit evidence that is less than persuasive.

Answer 26

True.

Question 27

What are the other matters that affect the inherent limitations of an audit?

Answer 27

1. Fraud
2. Existence and completeness of related party relationships and transactions.
3. Occurrence of noncompliance with laws and regulations.
4. Future events that may cause an entity to cease to continue as a going concern.

Question 28

Unless otherwise stated in the PSA, the auditor is permitted to apply a PSA before the effective date specified therein.

Answer 28

True.

Question 29

The PSA may override laws and regulations that govern an audit of financial statements.

Answer 29

False.

PSA 200 par A55

Question 30

If as a result the auditor concludes that the audit evidence is not sufficient and appropriate, what should the auditor do?

Answer 30

• Evaluate whether further relevant audit evidence has been, or will be, obtained as a result of complying with other PSAs;
• Extend the work performed in applying one or more requirements; or
  • Perform other procedures judged by the auditor to be necessary in the
  circumstances.

Question 31

When will a conditional requirement be relevant?

Answer 31

When the circumstances envisioned in the requirement apply and the condition exists.

Question 32

Whether an objective has been achieved is a matter for the auditor’s professional judgment.

Answer 32

True.

Question 33

What circumstances may give rise to a failure in achieving an objective?

Answer 33

Circumstances that:

1. Prevent the auditor from complying with the relevant requirements of a PSA.
2. Result in its not being practicable or possible for the auditor to carry out the additional audit procedures or obtain further audit evidence.