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AA Question Rote > Section A Rote (5) > Flashcards

Section A Rote (5) Flashcards

1
Q

What is a conclusion expressed in negative terms?

A

Nothing has come to our attention. Therefore assurance ois limited

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2
Q

When there’s limited assurance, how is an opinion expressed?

A

Negatively

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3
Q

What level of assurance would normally be given to an audit of financial statements?

A

Reasonable assurance

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4
Q

What level of assurance to a review of financial statements

A

Limited assurance

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5
Q

What is professional scepticism?

A

To apply a questioning mind to information and evidence

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6
Q

Who is ultimately responsible for ensuring that the annual financial statements of a listed company are prepared in accordance with IFRS and relevant legislation?

A

The board of directors

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7
Q

What is the objective of an audit of financial statements of a company?

A

To provide assurance on credibility of the financial statements

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8
Q

How are ISAs issued?

A

By IAASB

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9
Q

Can ISAs override local legislation?

A

NO

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10
Q

Who approves the appointment of a company’s auditor?

A

The shareholders

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11
Q

The International Auditing and Assurance Standards Board (IAASB) is a standard-setting board of which of the following?

A

International Federation of Accountants

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12
Q

Is having access to the company’s books, accounts and records a generally accepted right of an auditor

A

Yes

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13
Q

Is to require from company officials any information and explanations on any matter whatsoever a generally accepted right of an auditor?

A

No

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14
Q

Is to report to any legal authority any matter the auditor considers that authority needs to know a generally accepted right of an auditor?

A

No

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15
Q

Is to attend any board or committee meeting a generally accepted right of an auditor?

A

No

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16
Q

Is only a statutory auditor is allowed to carry out audits of companies?

A

Yes, in most jurisdictions

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17
Q

Should all ISAs be applied in the course of an audit?

A

No

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18
Q

What do ISAs require auditors?

A

To use their professional judgment when applying them not merely follow rules.

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19
Q

Is auditor’s accountability and remuneration a principle of corporate governance?

A

No

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20
Q

Is rights of shareholders a principle of corporate governance?

A

Yes

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21
Q

Is board responsibilities a principle of corporate governance?

A

Yes

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22
Q

Is risk management and internal control a principle of corporate governance?

A

Yes

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23
Q

Is there should be a clear division of responsibilities between the leadership of the board and the leadership of the company’s business a provision of UK corporate governance code?

A

Yes

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24
Q

Is all members of the board, excluding the chairman, should be independent non-executive directors a provision of UK corporate governance code?

A

No

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25
Q

Is executive director remuneration should be linked to corporate and individual performance a provision of UK corporate governance code?

A

Yes

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26
Q

Is all directors should be subject to annual re-election a provision of UK corporate governance code?

A

Yes

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27
Q

Who do audit committees normally liaise between?

A

The auditors and the directors

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28
Q

Who has ultimate responsibility for a company’s risk management and system of internal control?

A

The board of directors

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29
Q

What is the threat when the total fees from an audit client represent a large proportion of the firm’s total fees?

A

Dependence on that client and concern about losing it create a self-interest or intimidation threat

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30
Q

What is done when the fee level represents, or is likely to represent, more than 15% for two consecutive years? (issuance)

A

Determine whether a “pre-issuance review” might be a safeguard to reduce the threats to an acceptable level

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31
Q

What is the benchmark for a fee being considered a self-interest or intimidation threat for public interest entities?

A

15%

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32
Q

Should an auditor make a voluntary disclosure if an auditor knows or suspects his client is engaged in money laundering?

A

Yes

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33
Q

Should an auditor make a voluntary disclosure where disclosure is made to non-governmental bodies?

A

No

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34
Q

Should an auditor make a voluntary disclosure where it is in the public interest to disclose?

A

No

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35
Q

Should an auditor make a voluntary if an auditor suspects his client has committed terrorist offenses?

A

Yes

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36
Q

Accepting gifts could be considered to present which of the following threats?

A

Accepting gifts could indicate a self-interest threat, a familiarity threat, and/or an intimidation threat.

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37
Q

When will an action taken by a professional accountant only be considered a safeguard?

A

If it is effective

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38
Q

Is seeking advice from a third party a safeguard?

A

Yes

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39
Q

What is meant by independence of mind?

A

The state of mind permits the expression of a conclusion without being affected by influences that compromise professional judgment; and allows an individual to act with integrity and exercise objectivity and professional scepticism

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40
Q

Is assuring the ability and competence of the individual to carry out the work an example of independence of mind?

A

No

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41
Q

Is allowing an individual to act with integrity an example of independence of mind?

A

Yes

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42
Q

Is allowing an individual to exercise objectivity and professional scepticism an example of independence of mind?

A

Yes

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43
Q

Is permitting the expression of a conclusion without being affected by influences that compromise professional judgme

A

Yes

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44
Q

If a potential client has asked a firm to act as auditor to his company and want the audit to commence immediately as the financial statements are required by the bank? What should the auditor’s response be?

A

Contact the previous auditors for professional clearance before they start work

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45
Q

Should objective and scope of the audit be included in an audit engagement letter?

A

Yes

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46
Q

Should results of previous audits be included in an audit engagement letter?

A

No

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47
Q

Should management’s repsonsibilities be included in an audit engagement letter?

A

Yes

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48
Q

Should need to maintain professional scepticism be included in an audit engagement letter?

A

No

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49
Q

Is a review of the potential client’s commitment to internal controls part of the client screening process?

A

Yes

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50
Q

Is an assessment of the apparent integrity of the management of the potential client part of the client screening process?

A

Yes

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51
Q

Is establishing whether any conflict of interest exists part of the client screening process?

A

Yes

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52
Q

Is carrying out a full background check of the employees of the potential client part of the client screening process?

A

No

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53
Q

Should auditor revise terms of audit engagement if there has been a change of senior management at the client company?

A

Yes

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54
Q

Should auditor revise terms of audit engagement if new regulations have come into force which have direct implications for the client’s business practices?

A

Yes

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55
Q

Should auditor revise terms of audit engagement if the client has opened a second branch in a new location overseas?

A

Yes

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56
Q

What is meant by transfer information? (copy accounts and TB)

A

A copy of the last set of accounts and a detailed trial balance that supports those accounts

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57
Q

Does a copy of the last set of financial statements formally approved by the client part of transfer information?

A

Yes

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58
Q

Does a detailed trial balance that is in agreement with the financial statementst part of transfer information?

A

Yes

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59
Q

Does a working papers relating to the most recent audit of the client part of transfer information?

A

No

60
Q

What is the advantage of using standardised working papers? (standard documentation audit)

A

Introduces a standard approach to the conduct and documentation of the audit

61
Q

What is more likely to appear on the permanent audit file as opposed to the current audit file?

A

Engagement letter

62
Q

How long does the ACCA recommend that audit working papers be retained?

A

A minimum of 7 years

63
Q

Should audit working papers provide evidence that the financial statements of the client are correct?

A

No

64
Q

Should audit working papers hold audit team accountable, assist in planning of audit and facilitate supervision and review of audit work?

A

Yes

65
Q

Who do audit working papers belong to?

A

The auditor and are confidential

66
Q

Does the client have the right to demand access to audit working papers?

A

NO

67
Q

What can client require auditor to do (in relation to ownership of audit documentation)? (disclose third)

A

Require the auditor to disclose documents to third parties, only if the documents in question belong only to the client.

68
Q

What is an audit programme? (instructions audit staff)

A

A clear set of detailed instructions on the work to be carried out by audit staff

69
Q

What is an an internal control questionnaire? (detailed questions characteristics internal control)

A

A series of detailed questions to ascertain and evaluate all important characteristics of the system of internal control in operation

70
Q

What is an IFRS/disclosure checklist? (disclosure compliance IFRS)

A

A list of disclosure and other requirements which must be met in order to ensure compliance with IFRS, statutes and listing rules

71
Q

What is an audit manual?

A

A list of general instructions on the audit firm’s methods of auditing in each area and the firm’s general procedures

72
Q

What can adequate audit planning not provide? (material misstatement)

A

Any assurance concerning the risk of the existence of material misstatement in a set of financial statements

73
Q

What does audit strategy do?

A

Sets the scope, timing and direction of the audit.

74
Q

What should auditor consider when developing an overall audit strategy? (evaluations materiality risk controls)

A

Preliminary evaluations of materiality, audit risk and internal control

75
Q

What is the time frame of audit planning?

A

Begins shortly after the completion of the previous audit and continues until the completion of the current audit engagement.

76
Q

What does performing preliminary engagement activities help ensure?

A

Auditor has considered events or circumstances which may adversely affect his ability to perform the audit engagement

77
Q

Where is determining appropriate materiality levels carried out?

A

As part of the overall audit strategy, which sets the scope, timing and direction of the audit.

78
Q

Is the company’s systems procedure manuals a best source of information about a company’s financial systems?

A

Yes

79
Q

Is the internal audit function’s system notes a best source of information about a company’s financial systems?

A

Yes

80
Q

Is the prior year audit file a best source of information about a company’s financial systems?

A

No, as system may have changed in intervening period

81
Q

Is the Inquiries made of company staff a best source of information about a company’s financial systems?

A

Yes

82
Q

When an audit client is a hi-tech company that has financial problems, a dominant chief executive, poor internal control and unusual transactions. What is the issue?

A

Increased audit risk

83
Q

What is not a qualitative inherent risk factor?

A

Materiality

84
Q

What should happen if inherent and control risk is high (detection and substantive procedures)

A

Low detection level and increased substantive procedures

85
Q

Risks close to the upper end of the spectrum of inherent risk are known as?

A

Significant risks

86
Q

What type of activity is the preparation of reconciliations?

A

Control activity

87
Q

How to reconciliations link to monitoring process? (timely basis)

A

Management’s review to ensure reconciliations are prepared on a timely basis is an activity in the monitoring process

88
Q

What is an advantage of using systems flowcharts to document internal controls

A

Flowcharts provide a visual depiction of a client’s activities.

89
Q

What does an ICQ document?

A

Understanding of the design of the system of internal control

90
Q

What are tests of controls required to assess?

A

Control risk

Effectiveness of the control environment

91
Q

Comparing two or more items with each other is an example of which control activity?

A

Verification

92
Q

What are inherent limitations of internal control? (Collusion, human error)

A

Collusion of two or more people
Human error
Management override

93
Q

Why should the director’s loan from the company be tested?

A

As it is a statutory requirement to disclose the exact amount

94
Q

What should be done for any balance/class of transaction greater than the performance materiality level?

A

Must be tested

95
Q

What action should be taken for

”
As an audit team member with two years of experience, you were assigned to carry out a test of details on directors’ expenses. The result of the test showed that in several cases involving the same director, the Chief Financial Officer (CFO) had authorised the over payment of his expenses. Each expense item was less than the performance materiality level.
“

A

Discuss with senior member of the audit team, because of the potential fraudulent transactions

96
Q

What is a material item?

A

Its omission or misstatement could influence the decisions of primary users of the finance statements

97
Q

What happens to items that fall below the materiality threshold>

A

Can’t be completely ignored and auditor must use judgment in dealing with such items (sampling or analytical procedures)

98
Q

What is an appropriate starting point for determining maeriality for a property development company?

A

Assets

99
Q

What does reviewing ICQ provide?

A

Information about control policies and procedures

100
Q

Can ICQ provide information about actual transactions or events?

A

No, so unlikely to uncover non-compliance with laws and regulations.

101
Q

Who should an auditor report this situation to?

”
An auditor has discovered a $1 million wages fraud by a director of a listed company. The amount is not material in relation to the company’s financial statements and the auditor has determined that the fraud does not constitute money laundering
“

A

To those charged with governance

102
Q

Who is primary responsibile for detection of fraud?

A

Management and TCWG

103
Q

What is the external auditor’s responsibility? (reasonable)

A

Obtain reasonable assurance that the financial statements are free from material misstatement

104
Q

What is the internal auditor’s responsibiltiy?

A

The evaluation of risks based on audit plans and appropriate testing and must be alert to the signs and possibilities of fraud and error

105
Q

Should internal auditors design internal controls?

A

No

106
Q

How can internal auditors assist management?

A

Assist management through assessing the design of the internal controls to detect fraud and error and making recommendations for improvement.

107
Q

What indicates an opportunity to commit fraud? (investors)

A

High expectations of investors

108
Q

Is deprovisionising an access control?

A

Yes

109
Q

Is the sales department matches a list of computer-generated invoices to copies of the manual input documents from which invoices are originated an information processing or general IT control?

A

Information processing

110
Q

Is the personnel department reviews a monthly printout of all changes to payroll standing data which is then checked against manual records an information processing or general IT control?

A

Information processing

111
Q

Is the sales system includes a sequence check on pre-numbered sales input documents received from the sales department an information processing or general IT control?

A

Information processing

112
Q

Is the access to the computer network is authenticated through unique user IDs and passwords an information processing or general IT control?

A

General IT controls

113
Q

What must a control for ensuring purchases aren’t understated include?

A

Must include validating that all goods received have been invoiced

114
Q

Does a control for invoices are authorised as matched with goods/services received notes before being recorded in the detailed purchases listing test for understatement or overstatement?

A

Overstatement

115
Q

Which audit procedure does this relate to?

”
During the current year audit, the auditor tests a control by completing certain procedures that were done by the client as part of the internal control over the given transaction cycle.
“

A

Reperformance

116
Q

When is the risk of material misstatement misstatement the same as inherent risk?

A

When the auditor does not intend to rely on the operating effectiveness of controls

117
Q

What is done when evidence for a substantive audit test may not be available?

A

Auditor will need to place greater reliance on tests of internal controls related to the IT system

118
Q

How should all significant deficiencies and other matters that are deemed of sufficient importance?

A

Should be reported to TCWG

119
Q

When is a lack of sensitivity analysis only be significant?

A

If the accounting estimates were particularly subjective or complex rather than routine

120
Q

Is an indication of areas in which the client can assist in improving audit efficiency included in the report to management?

A

Yes

121
Q

Is constructive feedback on business systems, risk systems and risk management included in the report to management?

A

Yes

122
Q

Are details of the audit work carried out to detect deficiencies included in the report to management?

A

No

123
Q

Are details of additional extensive work that could have been carried out to try to detect further significant deficiencies included in the report to management?

A

No

124
Q

How should all deficiencies identified as significant be communicated>

A

In writing to TCWG

125
Q

How can the auditor ordinarily disclose any details of significant deficiencies? (Client)

A

Client managememt

126
Q

Is unnecessary spending considered to be within the scope of a value for money (VFM) audit?

A

Yes

127
Q

Is revenue opportunities considered to be within the scope of a value for money (VFM) audit?

A

Yes

128
Q

Is financial reporting controls considered to be within the scope of a value for money (VFM) audit?

A

No

129
Q

Is protection of assets considered to be within the scope of a value for money (VFM) audit?

A

Yes

130
Q

Are companies required to implement and maintain an IA function?

A

Yes

131
Q

Should IA report to the finance director?

A

No

132
Q

Appointed by the audit committee relevant to external or internal audit?

A

Internal

133
Q

Reports are publicly available to shareholders relevant to external or internal audit?

A

External

134
Q

Review efficiency and effectiveness of operations to improve operations relevant to external or internal audit?

A

Internal

135
Q

Express an opinion on the financial statements relevant to external or internal audit?

A

External

136
Q

What is a value for money audit?

A

It is focused on assessing the economy, efficiency and effectiveness of asset expenditure

137
Q

Who determines the scope of work of internal auditor?

A

Audit committee

138
Q

Which of the following would increase this risk, and so indicate that more evidence should be collected for “sufficiency”? (deadline year end)

A

A reporting deadline which is sooner after the year end than usual

139
Q

What is needed when auditing a highly automated system

A

Increased need for tests of control, as subtantive tests of details alone won’t cut it

140
Q

Which procedure does the below test?

”
the auditor selects a sample of payment vouchers and compares the dates on the vouchers to the dates the transactions were recorded in the purchase journal.
“

A

Cut-off

141
Q

Comparing the date of purchase transactions to the dates they were recorded is an example of what assertion?

A

A cut-off test

142
Q

What procedure isn’t tested on an BS item?

A

Cut-off

143
Q

What is recalculation?

A

Check on the mathematical accuracy of documents or records

144
Q

What is observation?

A

Looking at a procedure or process being performed by others

145
Q

What is enquiry?

A

Obtain information of knowledgeable persons, within the company or outside the company

146
Q

What is reperformance?

A

Auditor’s independent execution of procedures or controls which were originally performed as part of the entity’s internal control

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