ACCA Audit and Assurance 1 — Questions and Answers
Question 1: Which of the following best describes the primary objective of an external audit?
- To detect all fraud within the organization
- To express an opinion on whether financial statements give a true and fair view (Correct answer)
- To prepare financial statements on behalf of management
- To assess the efficiency of management's operations
Correct answer: To express an opinion on whether financial statements give a true and fair view
The external auditor's primary objective is to express an opinion on whether the financial statements present a true and fair view in accordance with the applicable financial reporting framework.
Question 2: Under ISA 315, which of the following is NOT a component of internal control?
- Control environment
- Risk assessment process
- External audit procedures (Correct answer)
- Monitoring of controls
Correct answer: External audit procedures
ISA 315 identifies five components of internal control: control environment, risk assessment process, information system, control activities, and monitoring of controls — external audit procedures are not one of them.
Question 3: What does 'audit risk' refer to?
- The risk that the auditor will be sued by the client
- The risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated (Correct answer)
- The risk that the client will change auditors
- The risk of a material misstatement occurring in the first place
Correct answer: The risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated
Audit risk is the risk that the auditor expresses an inappropriate (incorrect) audit opinion when the financial statements are in fact materially misstated.
Question 4: Which ISA requires auditors to plan and perform an audit with professional skepticism?
- ISA 200 (Correct answer)
- ISA 240
- ISA 500
- ISA 700
Correct answer: ISA 200
ISA 200 'Overall Objectives of the Independent Auditor' establishes the requirement that auditors maintain professional skepticism throughout the audit.
Question 5: Which of the following is an example of a substantive procedure?
- Reviewing the client's segregation of duties policy
- Observing the client's inventory count procedures
- Recalculating depreciation charges on fixed assets (Correct answer)
- Evaluating the design of internal controls
Correct answer: Recalculating depreciation charges on fixed assets
Recalculating depreciation charges is a substantive procedure because it directly tests the monetary amounts and disclosures in the financial statements.
Question 6: What is the meaning of 'inherent risk' in an audit context?
- The risk that controls fail to prevent or detect misstatements
- The risk that the auditor's procedures will not detect a misstatement
- The susceptibility of an assertion to misstatement before considering any related controls (Correct answer)
- The overall risk that the auditor issues a wrong opinion
Correct answer: The susceptibility of an assertion to misstatement before considering any related controls
Inherent risk is the susceptibility of an assertion to a material misstatement, assuming there are no related controls in place.
Question 7: According to ISA 700, an unmodified audit opinion is issued when:
- The auditor concludes that the financial statements are free from all errors
- The financial statements are prepared in compliance with the entity's internal policies
- The auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework (Correct answer)
- The auditor has verified 100% of all transactions during the period
Correct answer: The auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework
ISA 700 states that an unmodified (clean) opinion is expressed when the auditor concludes the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework.
ACCA Audit and Assurance 1
Which of the following best describes the primary objective of an external audit?