ACCA Audit and Assurance 2 — Questions and Answers
Question 1: Under ISA 530, which sampling method gives every item in the population an equal chance of selection?
- Systematic sampling
- Haphazard sampling
- Random sampling (Correct answer)
- Stratified sampling
Correct answer: Random sampling
Random sampling ensures that every item in the population has an equal probability of being selected, making it a statistically valid method under ISA 530.
Question 2: What type of modified audit opinion is issued when a misstatement is material but not pervasive?
- Disclaimer of opinion
- Adverse opinion
- Qualified opinion (Correct answer)
- Emphasis of matter paragraph
Correct answer: Qualified opinion
A qualified opinion ('except for') is issued when the auditor concludes that misstatements are material but not pervasive to the financial statements.
Question 3: Which of the following best describes 'control risk'?
- The risk that a misstatement will not be prevented or detected by the entity's internal controls (Correct answer)
- The susceptibility of a transaction to error before controls are applied
- The risk that the auditor's sampling fails to detect a misstatement
- The overall risk that a material misstatement reaches the financial statements
Correct answer: The risk that a misstatement will not be prevented or detected by the entity's internal controls
Control risk is the risk that a material misstatement that could occur will not be prevented, or detected and corrected, on a timely basis by the entity's internal control.
Question 4: Which ISA deals with the auditor's responsibilities regarding fraud?
- ISA 240 (Correct answer)
- ISA 250
- ISA 300
- ISA 550
Correct answer: ISA 240
ISA 240 'The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements' sets out the auditor's duties when considering fraud risk.
Question 5: What is 'tolerable misstatement' in the context of audit sampling?
- The maximum error the auditor is willing to accept before reducing the sample size
- The amount of misstatement the auditor will not report to management
- The maximum monetary error in a population that the auditor is willing to accept (Correct answer)
- The level below which all misstatements are deemed immaterial
Correct answer: The maximum monetary error in a population that the auditor is willing to accept
Tolerable misstatement is the maximum monetary error in a population that the auditor is willing to accept and still conclude that the audit objective has been achieved.
Question 6: Under ISA 550, which of the following is the primary concern when auditing related party transactions?
- Whether the transactions are recorded at fair market value
- Whether the transactions have been conducted at arm's length and adequately disclosed (Correct answer)
- Whether related parties have given written confirmation of all transactions
- Whether related party balances exceed materiality thresholds
Correct answer: Whether the transactions have been conducted at arm's length and adequately disclosed
ISA 550 requires auditors to assess whether related party transactions are conducted at arm's length and are adequately disclosed in accordance with the applicable financial reporting framework.
Question 7: Which of the following procedures is most effective for verifying the existence of trade receivables?
- Reviewing the aged receivables listing for long-outstanding balances
- Agreeing balances to invoices and delivery notes
- Sending direct confirmation requests to customers (circularization) (Correct answer)
- Recalculating the allowance for doubtful debts
Correct answer: Sending direct confirmation requests to customers (circularization)
Direct confirmation (circularization) is the most effective procedure for verifying existence because it obtains third-party evidence directly from the debtor confirming the balance.
ACCA Audit and Assurance 2
Under ISA 530, which sampling method gives every item in the population an equal chance of selection?