ACCA Audit and Assurance Principles 3 — Questions and Answers
Question 1: Which element of the fraud triangle describes management's rationalization that fraudulent behavior is acceptable?
- Opportunity
- Pressure
- Rationalization (Correct answer)
- Incentive
Correct answer: Rationalization
Rationalization is the third element of the fraud triangle, where the perpetrator justifies the fraudulent act to themselves.
Question 2: ISA 315 requires auditors to obtain an understanding of the entity's environment. Which is NOT a component of this understanding?
- Industry conditions and regulatory environment
- The entity's business model and objectives
- The auditor's own firm's quality control policies (Correct answer)
- The entity's internal control system
Correct answer: The auditor's own firm's quality control policies
Understanding the entity under ISA 315 covers the entity's environment and internal controls, not the audit firm's own policies.
Question 3: When should an auditor perform subsequent events procedures?
- Only up to the balance sheet date
- From the balance sheet date to the date of the auditor's report (Correct answer)
- Up to the date the financial statements are issued to shareholders
- Only during the planning phase
Correct answer: From the balance sheet date to the date of the auditor's report
Under ISA 560, subsequent events procedures cover the period from the balance sheet date to the date of the auditor's report.
Question 4: What is the primary purpose of an engagement letter?
- To set audit fees in advance
- To define the terms of the audit engagement and responsibilities of each party (Correct answer)
- To provide management with a preliminary audit opinion
- To document internal control weaknesses
Correct answer: To define the terms of the audit engagement and responsibilities of each party
An engagement letter establishes the agreed terms of the audit, reducing the risk of misunderstandings between the auditor and client.
Question 5: Under ISA 505, if a positive confirmation is not returned by the debtor, what must the auditor do?
- Accept the non-response as implicit confirmation
- Perform alternative procedures to obtain sufficient appropriate evidence (Correct answer)
- Immediately qualify the audit opinion
- Request management to follow up with the debtor
Correct answer: Perform alternative procedures to obtain sufficient appropriate evidence
Non-response to a positive confirmation request requires the auditor to perform alternative procedures such as examining subsequent cash receipts.
Question 6: Which analytical procedure would best identify an unusual relationship between cost of sales and revenue?
- Recalculating the gross profit margin and comparing it to prior periods (Correct answer)
- Confirming accounts receivable balances with customers
- Inspecting purchase invoices for authenticity
- Testing a sample of payroll transactions
Correct answer: Recalculating the gross profit margin and comparing it to prior periods
Calculating and comparing the gross profit margin across periods or against industry benchmarks quickly highlights anomalies in the cost-revenue relationship.
Question 7: A self-review threat arises when an auditor:
- Has a financial interest in the client
- Reviews work that they or their firm previously performed (Correct answer)
- Acts as an advocate for the client in a dispute
- Becomes too familiar with client management over time
Correct answer: Reviews work that they or their firm previously performed
A self-review threat occurs when an auditor evaluates their own previous judgments or work, making objective re-evaluation difficult.
ACCA Audit and Assurance Principles 3
Which element of the fraud triangle describes management's rationalization that fraudulent behavior is acceptable?