AAT L4 Audit & Assurance 2 — Questions and Answers
Question 1: Professional scepticism in an audit context means the auditor:
- Assumes management is committing fraud
- Accepts all evidence provided by management without question
- Maintains a questioning mind and critically assesses evidence, regardless of prior experience with the client (Correct answer)
- Only questions items identified by the audit risk assessment
Correct answer: Maintains a questioning mind and critically assesses evidence, regardless of prior experience with the client
Professional scepticism is an attitude requiring a questioning mind, alertness to conditions suggesting misstatement, and critical assessment of audit evidence — not assuming honesty or dishonesty, but always requiring sufficient appropriate evidence.
Question 2: ISA 240 deals with the auditor's responsibilities relating to fraud. The primary responsibility for preventing and detecting fraud rests with:
- The external auditor
- Management and those charged with governance (Correct answer)
- Internal audit
- HMRC
Correct answer: Management and those charged with governance
ISA 240 clarifies that management (with oversight from those charged with governance) bears the primary responsibility for prevention and detection of fraud; the auditor obtains reasonable assurance but cannot guarantee all fraud is found.
Question 3: The audit risk model shows: Audit Risk = Inherent Risk × Control Risk × Detection Risk. If inherent risk and control risk are both assessed as high, the auditor should:
- Reduce detection risk by performing less audit work
- Accept the high audit risk without further action
- Reduce detection risk by performing more extensive and targeted audit procedures (Correct answer)
- Issue a qualified opinion immediately
Correct answer: Reduce detection risk by performing more extensive and targeted audit procedures
If inherent and control risk are high, detection risk must be kept very low to maintain an acceptable level of overall audit risk; the auditor achieves this by performing more extensive, targeted substantive procedures.
Question 4: Under ISA 265, a significant deficiency in internal control must be communicated to:
- Shareholders via the annual report
- Those charged with governance in writing (Correct answer)
- HMRC and the FRC
- The general public through a press release
Correct answer: Those charged with governance in writing
ISA 265 requires the auditor to communicate significant deficiencies in internal control identified during the audit to those charged with governance (e.g., the audit committee) in writing on a timely basis.
Question 5: Which of the following audit procedures provides the most reliable evidence about the completeness of trade payables?
- Reviewing the list of approved suppliers
- Examining invoices received after the year end to identify goods received before year end but not recorded (Correct answer)
- Recalculating the payables ledger total
- Confirming balances directly with suppliers
Correct answer: Examining invoices received after the year end to identify goods received before year end but not recorded
Reviewing post-year-end invoices and delivery notes for goods received before year end tests whether all liabilities were recorded — this directly tests the completeness assertion for payables.
Question 6: The engagement partner is responsible for:
- Performing all the audit fieldwork personally
- The overall quality of each audit engagement and compliance with professional standards (Correct answer)
- Preparing the financial statements
- Setting the audit fee without client discussion
Correct answer: The overall quality of each audit engagement and compliance with professional standards
Under ISQM 1 and ISA 220, the engagement partner takes ultimate responsibility for the overall quality of the audit, including ensuring compliance with standards, ethics, and the quality management system.
AAT L4 Audit & Assurance 2
Professional scepticism in an audit context means the auditor: