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Audit and Assurance Flashcards

6 cards from real ACA 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 and Assurance flashcards as text

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

    Answer: Sending confirmation letters to trade receivables

    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.

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

    Answer: To identify areas of potential risk and focus the audit effort

    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.

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

    Answer: 6 years

    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.

  4. What does the concept of 'audit materiality' represent?

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

    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.

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

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

    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.

  6. Under ISA (UK) 240, which of the following is TRUE regarding the auditor's responsibility for fraud?

    Answer: The auditor must obtain reasonable assurance that the financial statements are free from material misstatement due to fraud

    ISA (UK) 240 requires the auditor to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether caused by fraud or error. The primary responsibility for prevention and detection of fraud rests with management and those charged with governance.