ACA Assurance & Audit 3 — Questions and Answers
Question 1: Under ISA 570, if material uncertainty about going concern exists, the auditor must:
- Issue an adverse opinion
- Issue a qualified opinion automatically
- Include an Emphasis of Matter paragraph if the disclosure is adequate (Correct answer)
- Withdraw from the engagement
Correct answer: Include an Emphasis of Matter paragraph if the disclosure is adequate
ISA 570 requires the auditor to include an Emphasis of Matter paragraph drawing attention to the going concern note when management's disclosure is adequate; a modified opinion is issued if disclosure is inadequate.
Question 2: Which of the following best describes inherent risk in the audit risk model?
- The risk that internal controls fail to prevent a misstatement
- The risk of a material misstatement existing before considering internal controls (Correct answer)
- The risk that the auditor fails to detect a material misstatement
- The risk arising from sampling
Correct answer: The risk of a material misstatement existing before considering internal controls
Inherent risk is the susceptibility of an assertion to a material misstatement, assuming no related controls; it arises from the nature of the item, the industry, or the entity's circumstances.
Question 3: Under ISA 600, a group auditor who places reliance on a component auditor must:
- Take no further action once the component report is received
- Be involved in the risk assessment and review sufficient appropriate evidence (Correct answer)
- Accept the component auditor's opinion unconditionally
- Only issue a qualified opinion for group audits
Correct answer: Be involved in the risk assessment and review sufficient appropriate evidence
ISA 600 requires the group engagement team to be involved in the component auditor's risk assessment and to evaluate whether sufficient appropriate audit evidence has been obtained.
Question 4: An assurance engagement provides the practitioner's conclusion on a subject matter. Which level of assurance results in a 'nothing has come to our attention' conclusion?
- Reasonable assurance
- Absolute assurance
- Limited assurance (Correct answer)
- No assurance
Correct answer: Limited assurance
Limited (or moderate) assurance results in negative assurance — 'nothing has come to our attention to suggest...' — whereas reasonable assurance results in a positive conclusion.
Question 5: Under ISA 402, when a client uses a service organisation, the auditor should:
- Always issue a qualified opinion
- Obtain an understanding of the services provided and controls at the service organisation (Correct answer)
- Ignore controls at the service organisation entirely
- Only test controls at the client entity
Correct answer: Obtain an understanding of the services provided and controls at the service organisation
ISA 402 requires the auditor to understand the services provided by the service organisation and their effect on the client's controls, possibly relying on a service auditor's report (SOC report).
Question 6: Which procedure would provide the most reliable evidence about the existence of trade receivables?
- Reviewing the aged receivables ledger
- Recalculating invoice totals
- Direct external confirmation from customers (Correct answer)
- Inspecting sales invoices
Correct answer: Direct external confirmation from customers
Direct external confirmation (circularisation) is the most reliable evidence for existence of receivables as it comes from an independent third party rather than the client's own records.
ACA Assurance & Audit 3
Under ISA 570, if material uncertainty about going concern exists, the auditor must: