ACA Assurance & Audit 4 — Questions and Answers
Question 1: The concept of 'true and fair view' in UK auditing means the financial statements:
- Are prepared using only IFRS standards
- Are free from all errors without exception
- Give a fair presentation of the financial position and performance (Correct answer)
- Have been approved by HMRC
Correct answer: Give a fair presentation of the financial position and performance
True and fair view means the financial statements faithfully represent the financial position and performance without material misstatements, giving users a reliable picture of the entity.
Question 2: Under ISA 500, the reliability of audit evidence is generally higher when:
- Evidence is obtained from the client's management
- Evidence is obtained internally rather than externally
- Evidence is obtained from external, independent sources (Correct answer)
- Verbal representations are used
Correct answer: Evidence is obtained from external, independent sources
ISA 500 indicates evidence is more reliable when obtained from independent external sources, compared to internally generated evidence or representations from management.
Question 3: An auditor issues an adverse opinion when:
- The financial statements contain pervasive material misstatements (Correct answer)
- The auditor cannot obtain sufficient evidence
- The financial statements have minor errors
- Management refuses to sign the representation letter
Correct answer: The financial statements contain pervasive material misstatements
An adverse opinion is issued when misstatements are both material and pervasive, meaning they fundamentally affect the financial statements and would mislead users.
Question 4: Under ISA 620, an auditor may use an expert's work. The responsibility for the audit opinion:
- Transfers to the expert
- Is shared equally between auditor and expert
- Remains with the auditor (Correct answer)
- Is reduced to limited assurance
Correct answer: Remains with the auditor
ISA 620 is clear that even when using an auditor's expert, the auditor retains sole responsibility for the audit opinion and must evaluate the adequacy of the expert's work.
Question 5: Which of the following is a control risk indicator?
- A complex accounting estimate
- Management override of internal controls (Correct answer)
- Assets susceptible to theft
- Complex related party transactions
Correct answer: Management override of internal controls
Control risk is the risk that internal controls fail to prevent or detect a material misstatement; management override of controls is a significant indicator of high control risk.
Question 6: Under ISAE 3000, a review engagement differs from an audit because:
- It provides reasonable assurance on financial information
- It uses only enquiry and analytical procedures (Correct answer)
- It is performed only by non-auditors
- It always covers historical information
Correct answer: It uses only enquiry and analytical procedures
A review under ISAE 3000 primarily uses enquiry and analytical procedures rather than the full range of audit procedures, resulting in limited rather than reasonable assurance.
ACA Assurance & Audit 4
The concept of 'true and fair view' in UK auditing means the financial statements: