ACCA SP Advanced Audit & Assurance 2 — Questions and Answers
Question 1: Which of the following is an example of 'self-review threat' to auditor independence?
- A director threatens to reduce the audit fee
- The audit firm prepared the financial statements it is now auditing (Correct answer)
- The audit partner owns shares in the audit client
- A junior audit staff member is related to a client employee
Correct answer: The audit firm prepared the financial statements it is now auditing
A self-review threat arises when the auditor reviews or relies on work they or their firm previously produced — such as auditing financial statements the firm prepared.
Question 2: Under ISA 530, 'audit sampling' involves:
- Testing all items in a population above a certain threshold
- Applying audit procedures to less than 100% of items in a population to draw conclusions about the whole population (Correct answer)
- Selecting only high-value items for testing
- Relying solely on analytical procedures
Correct answer: Applying audit procedures to less than 100% of items in a population to draw conclusions about the whole population
Audit sampling (ISA 530) involves selecting a representative sample from a population and applying audit procedures to it, enabling the auditor to draw conclusions about the entire population.
Question 3: An 'emphasis of matter' paragraph differs from an 'other matter' paragraph in that:
- Emphasis of matter modifies the opinion; other matter does not
- Emphasis of matter refers to a matter disclosed in the financial statements; other matter refers to something outside the financial statements (Correct answer)
- Other matter is only used for qualified opinions
- Both modify the audit opinion in the same way
Correct answer: Emphasis of matter refers to a matter disclosed in the financial statements; other matter refers to something outside the financial statements
Emphasis of matter (ISA 706) draws attention to a matter properly disclosed in the financial statements. Other matter paragraphs refer to matters relevant to users that are outside the financial statements.
Question 4: Under ISAE 3000, a 'review engagement' provides:
- Reasonable assurance — the same as an audit
- Limited assurance — the practitioner concludes nothing has come to their attention indicating a material misstatement (Correct answer)
- Absolute assurance on all material matters
- No assurance; only factual findings are reported
Correct answer: Limited assurance — the practitioner concludes nothing has come to their attention indicating a material misstatement
A review engagement (ISAE 3000) provides limited (negative) assurance. The practitioner states that nothing has come to their attention to indicate the subject matter is materially misstated — a lower level than reasonable assurance.
Question 5: Professional scepticism in an advanced audit context requires the auditor to:
- Assume all management representations are fraudulent
- Maintain a questioning mind, critically assess evidence, and be alert to conditions indicating fraud or error, without being predisposed to disbelieve management (Correct answer)
- Accept all audit evidence at face value
- Avoid asking difficult questions to preserve the client relationship
Correct answer: Maintain a questioning mind, critically assess evidence, and be alert to conditions indicating fraud or error, without being predisposed to disbelieve management
Professional scepticism (ISA 200) is a critical mindset alert to conditions suggesting fraud or error. It requires evaluation of evidence quality and does not assume management is either honest or dishonest a priori.
Question 6: Under the FRC's Ethical Standard, 'long association' of an audit partner with a listed client is addressed by:
- Requiring the audit firm to resign after five years
- Rotation of the audit partner (key audit partner) after a maximum of five years for listed entities (with a five-year cooling-off period) (Correct answer)
- Requiring the client to appoint a new audit committee
- Banning the audit firm from providing non-audit services
Correct answer: Rotation of the audit partner (key audit partner) after a maximum of five years for listed entities (with a five-year cooling-off period)
The FRC Ethical Standard requires key audit partners on listed company audits to rotate off the engagement after five years (with a five-year cooling-off period) to safeguard independence and objectivity.
ACCA SP Advanced Audit & Assurance 2
Which of the following is an example of 'self-review threat' to auditor independence?