Step 1

Question 1

Principle purpose of an external audit?

Answer 1

To examine and express an opinion on the company’s financial statements

Question 2

Roles of the responsible party in any assurance engagement? (2)

Answer 2

Setting the criteria of the assurance engagement

Preparing the subject matter

Question 3

Which body is responsible for issuing the International Standards on Auditing?

Answer 3

Financial Reporting Council

Question 4

In addition to reporting on the financial statements, what might auditors also do at the end of the audit?

Answer 4

Report to management

Question 5

The written report from the assurance team is addressed to who?

Answer 5

Users of the financial statements (not the responsible party!)

Question 6

Items that must be included in the engagement letter (6)

Answer 6

Objective of the audit
Scope of the audit
Auditors responsibility
Reporting framework that is applicable
Management’s responsibility to prepare the financial statements
The form of any reports of results of the engagement

Question 7

Aims of audit plans (6)

Answer 7

Ensure appropriate attention is devoted to important areas of the audit

Identify potential problems and resolve them on a timely basis

Ensure that the audit is properly organised and managed

Assign work to engagement team members properly

Facilitate direction and supervision of engagement team members

Facilitate review of work

Question 8

Define the engagement letter

Answer 8

The contract between the auditor and the client where responsibilities are set down and the scope of the audit is agreed

Question 9

Define the management letter

Answer 9

A report at the end of the audit where the auditor feeds back on deficiencies identified during the audit

Question 10

Define an audit planning memorandum

Answer 10

A document whose primary purposes are to provide a record of major points of concern which are peculiar to the audit client, and the auditor’s proposed approach to these matters

Question 11

Define the expectations gap

Answer 11

The gap between what the assurance provider understands he/she is doing and what the user of the information believes he/she is doing

Question 12

What are the purposes of planning the audit?

Answer 12

To ensure appropriate attention is devoted to different areas of the audit
To identify potential problem areas
To facilitate delegation of work to audit team members