Audit & Assurance Flashcards
6 cards from real AAT L4 practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Audit & Assurance flashcards as text
The primary objective of an external audit is to:
Answer: Provide reasonable assurance that the financial statements are free from material misstatement, whether due to fraud or error
The external auditor's objective is to obtain reasonable assurance (not absolute assurance) that the financial statements are free from material misstatement, whether caused by fraud or error, and to report accordingly.
Under ISA 315, risk assessment procedures are performed to:
Answer: Identify and assess the risks of material misstatement at the financial statement and assertion levels
ISA 315 requires the auditor to obtain an understanding of the entity and its environment (including internal controls) to identify and assess risks of material misstatement — forming the basis for designing responsive audit procedures.
Inherent risk is:
Answer: The susceptibility of a balance or transaction to material misstatement, assuming no related controls
Inherent risk is the natural susceptibility of an account balance or transaction class to material misstatement before considering any controls — driven by factors such as complexity, subjectivity, and the industry environment.
An unmodified audit opinion is appropriate when:
Answer: The auditor is satisfied that the financial statements present a true and fair view in all material respects
An unmodified (clean) opinion is issued when the auditor concludes that the financial statements give a true and fair view and comply with the applicable financial reporting framework in all material respects.
Under ISA 530, audit sampling is used to:
Answer: Apply audit procedures to a representative selection of items to draw conclusions about the whole population
ISA 530 allows auditors to test a representative sample (rather than 100%) and draw conclusions about the whole population — accepting some sampling risk in exchange for efficiency.
Which of the following is a characteristic of a review engagement (limited assurance)?
Answer: The engagement provides a 'nothing has come to our attention' conclusion based primarily on enquiry and analytical procedures
Limited assurance (review) engagements primarily use enquiry of management and analytical procedures, resulting in a negative assurance conclusion: 'nothing has come to our attention' — a lower level of work and confidence than a full audit.