ACCA AS Audit & Assurance 2

Question 1

Which of the following is an indicator of a 'going concern' problem?

Accepted Answer

Net current liabilities (negative working capital)

Answer

Net current liabilities (current liabilities exceeding current assets) indicate potential liquidity problems and are a significant indicator of going concern uncertainty.

Question 2

Substantive analytical procedures are MOST effective when:

Accepted Answer

The auditor expects relationships between data items to be predictable and stable

Answer

Analytical procedures are most powerful when the auditor can establish a reliable expectation of a balance, which requires predictable and stable relationships between data (e.g., rent expense vs floor area).

Question 3

An auditor discovers a material misstatement that management refuses to correct. The auditor should:

Accepted Answer

Issue a qualified or adverse opinion

Answer

If management refuses to correct a material misstatement, the auditor modifies the audit opinion: a material but not pervasive misstatement results in a qualified ('except for') opinion; a pervasive misstatement results in an adverse opinion.

Question 4

Which of the following is a responsibility of management (not the auditor) regarding financial statements?

Accepted Answer

Preparing financial statements that give a true and fair view

Answer

The preparation of financial statements that give a true and fair view is management's responsibility. The auditor's role is to audit those statements and express an opinion.

Question 5

An 'emphasis of matter' paragraph in an audit report:

Accepted Answer

Draws attention to a matter already adequately disclosed in the financial statements that is fundamental to users' understanding

Answer

An emphasis of matter paragraph (ISA 706) highlights a matter properly presented and disclosed in the financial statements that the auditor considers fundamental to users' understanding. It does not modify the opinion.

ACCA Applied Skills Practice Test

ACCA Applied Skills Practice Test

ACCA AS Audit & Assurance 2