AAT L4 Audit & Assurance 2

Question 1

Professional scepticism in an audit context means the auditor:

Accepted Answer

Maintains a questioning mind and critically assesses evidence, regardless of prior experience with the client

Answer

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:

Accepted Answer

Management and those charged with governance

Answer

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:

Accepted Answer

Reduce detection risk by performing more extensive and targeted audit procedures

Answer

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:

Accepted Answer

Those charged with governance in writing

Answer

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?

Accepted Answer

Examining invoices received after the year end to identify goods received before year end but not recorded

Answer

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.

AAT Level 4 Practice Test

AAT Level 4 Practice Test

AAT L4 Audit & Assurance 2