AAT Level 4 - Professional Diploma in Accounting Audit and Assurance Principles Questions and Answers

Question 1

An audit junior at a UK firm is offered a significant 'friends and family' discount on a new car by a client, a large car dealership.
The discount is substantially better than that available to the general public.
According to the FRC's Ethical Standard, which threat to professional ethics is most prominently created in this situation?

Accepted Answer

Self-interest threat

Answer

Self-review threat

Answer

Advocacy threat

Answer

Familiarity threat

Question 2

According to ISA (UK) 700 (Revised), which of the following is a fundamental element that MUST be included in the 'Basis for Opinion' section of an unmodified audit report for a UK company?

Accepted Answer

A statement that the audit was conducted in accordance with International Standards on Auditing (UK).

Answer

A detailed list of all uncorrected misstatements found during the audit.

Answer

The names of all senior members of the audit engagement team.

Answer

A summary of the company's key performance indicators for the year.

Question 3

An auditor is verifying the year-end trade receivables balance of a UK manufacturing company. They select a sample of customer balances and send letters directly to those customers, asking them to confirm in writing the amount they owed at the year-end. This procedure is an example of which type of audit evidence?

Accepted Answer

External confirmation

Answer

Analytical procedures

Answer

Inspection

Answer

Observation

Question 4

An auditor is assessing the risks for a new client operating in the highly volatile and complex cryptocurrency market. The nature of the client's transactions is complicated and involves a high degree of estimation and judgment, making the accounts susceptible to misstatement regardless of the internal controls in place. These factors are most likely to increase which component of the audit risk model?

Accepted Answer

Inherent risk

Answer

Detection risk

Answer

Control risk

Answer

Sampling risk

Question 5

Which of the following provides the most accurate description of the primary purpose of an Engagement Quality Control Review (also known as a 'hot review') within a UK audit firm?

Accepted Answer

To provide an objective evaluation of the significant judgements made and conclusions reached by the audit team before the report is signed.

Answer

To ensure the final audit fee is profitable for the firm and has been billed correctly to the client.

Answer

To serve as the primary training mechanism for new audit staff by reviewing their completed work papers.

Answer

To check that the financial statements have been correctly filed with Companies House within the statutory deadline.

Question 6

Under the UK Companies Act 2006, who holds the primary responsibility for appointing the very first external auditors of a newly incorporated private company?

Accepted Answer

The directors of the company.

Answer

The members (shareholders) by ordinary resolution at the first general meeting.

Answer

The company's primary bank or lender to protect their interests.

Answer

Her Majesty's Revenue and Customs (HMRC) as part of the registration process.