AAT L4 Audit and Assurance Principles 3

Question 1

An auditor discovers a material misstatement in the financial statements. Management refuses to adjust. The auditor should issue:

Accepted Answer

A qualified 'except for' opinion or an adverse opinion, depending on pervasiveness

Answer

When management refuses to correct a material misstatement, the auditor must modify the opinion. If the effect is material but not pervasive, a qualified opinion is given; if pervasive, an adverse opinion is required.

Question 2

Which of the following is an example of a 'test of controls' rather than a substantive procedure?

Accepted Answer

Checking that purchase invoices above £5,000 have been authorised with a manager's signature

Answer

Checking for authorisation signatures tests whether the control (authorisation requirement) is operating effectively. This is a test of controls, not a substantive check of amounts.

Question 3

A junior auditor is reviewing the inventory count procedures of a manufacturing client. Which procedure best tests the completeness assertion for inventory?

Accepted Answer

Selecting items from the warehouse floor and tracing them back to the inventory sheets

Answer

Tracing from the physical inventory to the records tests completeness — ensuring all existing items have been recorded. Starting from the records tests existence (the opposite direction).

Question 4

What does 'professional scepticism' require of an auditor?

Accepted Answer

Maintaining a questioning mind and critically assessing audit evidence, without assuming good or bad faith

Answer

Professional scepticism means maintaining a questioning mind and critically assessing evidence — it is neither automatic distrust nor automatic acceptance of management's assertions.

Question 5

Which of the following is NOT a component of internal control under the COSO framework?

Accepted Answer

Audit opinion

Answer

The five COSO components of internal control are: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring Activities. An 'audit opinion' is an auditor's output, not an internal control component.

AAT Level 4 Practice Test

AAT Level 4 Practice Test

AAT L4 Audit and Assurance Principles 3