ACA Audit and Assurance 2

Question 1

Which of the following is an example of a substantive procedure?

Accepted Answer

Sending confirmation letters to trade receivables

Answer

Sending confirmation letters to trade receivables is a substantive procedure — specifically a test of detail — designed to obtain evidence about the existence and accuracy of account balances. The other options are tests of controls.

Question 2

Under ISA (UK) 520, what is the primary purpose of analytical procedures performed at the planning stage of an audit?

Accepted Answer

To identify areas of potential risk and focus the audit effort

Answer

Analytical procedures at the planning stage help the auditor understand the entity and its environment, identify areas where material misstatements are likely, and determine the nature, timing, and extent of further audit procedures.

Question 3

Under UK company law, for how long must audit working papers be retained?

Accepted Answer

6 years

Answer

Under the FRC's ethical and quality management standards, audit working papers must generally be retained for a minimum of 6 years from the date of the audit report (or longer if required by law or regulation). This aligns with the UK limitation period for contractual claims.

Question 4

What does the concept of 'audit materiality' represent?

Accepted Answer

The threshold above which misstatements could influence the economic decisions of users of the financial statements

Answer

Under ISA (UK) 320, materiality is the magnitude of misstatements that, individually or in aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. It is a matter of professional judgement.

Question 5

Which of the following situations would most likely require the auditor to issue a disclaimer of opinion?

Accepted Answer

The auditor is unable to obtain sufficient appropriate evidence due to a pervasive limitation on the scope of the audit

Answer

Under ISA (UK) 705, a disclaimer of opinion is issued when the auditor is unable to obtain sufficient appropriate audit evidence and the possible effects on the financial statements could be both material and pervasive. This represents the most severe scope limitation.

ACA ICAEW Practice Test

ACA ICAEW Practice Test

ACA Audit and Assurance 2