ACCA - Association of Chartered Certified Accountants Audit and Assurance Principles Questions and Answers

Question 1

An auditor is reviewing the non-current assets of a manufacturing company. To verify the 'existence' assertion for the machinery, which of the following audit procedures would be the MOST appropriate?

Accepted Answer

Physically inspecting the machines on the factory floor and agreeing them to the non-current asset register.

Answer

The 'existence' assertion confirms that assets included in the financial statements actually exist. The most direct and reliable way to test this for physical assets like machinery is to physically inspect them and trace them back to the non-current asset register. Reviewing depreciation (valuation), inspecting invoices (rights and obligations, occurrence), and making enquiries (less reliable evidence) are not the primary procedures for testing existence.

Question 2

According to the ACCA's Code of Ethics and Conduct, which fundamental principle requires a professional accountant to be straightforward and honest in all professional and business relationships?

Accepted Answer

Integrity

Answer

The principle of Integrity requires members to be straightforward and honest in all professional and business relationships. Objectivity relates to avoiding bias, Professional Competence and Due Care relates to maintaining skills and acting diligently, and Confidentiality relates to not disclosing information.

Question 3

In the context of audit risk, what is 'detection risk'?

Accepted Answer

The risk that the auditor's procedures will not detect a material misstatement that exists.

Answer

Detection risk is the risk that the audit procedures performed by the auditor to reduce audit risk to an acceptably low level will not detect a misstatement that exists and that could be material. It is the one component of audit risk that the auditor can directly control through the nature, timing, and extent of their procedures. The other options define control risk, inherent risk, and the risk of material misstatement, respectively.

Question 4

A junior auditor has been asked to gather evidence regarding the valuation of inventory. Which of the following sources of audit evidence would generally be considered the MOST reliable?

Accepted Answer

A direct written confirmation from a third-party storage facility holding some of the company's inventory.

Answer

According to ISA 500 'Audit Evidence', evidence is generally more reliable when it is obtained from independent sources outside the entity. A direct confirmation from a third party is more reliable than evidence generated internally (management schedule, photocopies) or verbal evidence, which is less formal and subject to misunderstanding.

Question 5

During the planning stage of an audit, the auditor uses analytical procedures to identify unusual fluctuations or relationships. Which of the following is a primary purpose of using analytical procedures at this stage?

Accepted Answer

To assist in understanding the business and in identifying areas of potential risk.

Answer

ISA 315 requires the use of analytical procedures during the planning stage to assist in understanding the business and identifying areas of potential risk of material misstatement. They are used to highlight unusual transactions or events and amounts, ratios, and trends that might indicate matters with audit implications. They are used as substantive procedures during testing and at the final review stage, but their primary purpose during planning is risk assessment.

ACCA - Association of Chartered Certified Accountants Practice Test

ACCA - Association of Chartered Certified Accountants Practice Test

ACCA - Association of Chartered Certified Accountants Audit and Assurance Principles Questions and Answers