FCCA FCCA Audit and Assurance 1 — Questions and Answers
Question 1: Which body sets international auditing standards used by ACCA and FCCA members in most jurisdictions outside the US?
- FASB
- IAASB (International Auditing and Assurance Standards Board) (Correct answer)
- SEC
- AICPA
Correct answer: IAASB (International Auditing and Assurance Standards Board)
The IAASB issues International Standards on Auditing (ISAs), which are adopted or adapted in most countries where ACCA members practice.
Question 2: What is the primary objective of an external audit of financial statements?
- To guarantee the accuracy of all figures in the financial statements
- To express an opinion on whether the financial statements give a true and fair view (Correct answer)
- To detect and prevent all fraud within the organization
- To provide investment advice based on the financial results
Correct answer: To express an opinion on whether the financial statements give a true and fair view
The external auditor's primary objective is to form and express an opinion on whether the financial statements present a true and fair view in accordance with the applicable reporting framework.
Question 3: Under ISA 315, an auditor must obtain an understanding of which key areas to identify risks of material misstatement?
- Industry benchmarks and competitor performance
- The entity and its environment, including internal controls (Correct answer)
- The auditor's own internal quality control procedures
- Prior year audit findings from other audit firms
Correct answer: The entity and its environment, including internal controls
ISA 315 requires auditors to understand the entity, its environment, applicable financial reporting framework, and its system of internal controls to identify risks of material misstatement.
Question 4: Which type of audit opinion is issued when the financial statements give a true and fair view with no material misstatements?
- Qualified opinion
- Adverse opinion
- Disclaimer of opinion
- Unmodified (unqualified) opinion (Correct answer)
Correct answer: Unmodified (unqualified) opinion
An unmodified opinion (often called an unqualified opinion) is issued when the auditor concludes the financial statements present a true and fair view without material misstatement.
Question 5: Audit risk is composed of three components. Which of the following is NOT one of them?
- Inherent risk
- Control risk
- Detection risk
- Compliance risk (Correct answer)
Correct answer: Compliance risk
Audit risk = Inherent Risk × Control Risk × Detection Risk; compliance risk is not a component of the standard audit risk model.
Question 6: Under ISA 530, audit sampling involves selecting less than 100% of items in a population. What is the main purpose of this technique?
- To reduce the audit fee by doing less work
- To obtain sufficient appropriate audit evidence about a population by testing a representative sample (Correct answer)
- To identify only high-value transactions for testing
- To comply with SEC requirements for listed companies
Correct answer: To obtain sufficient appropriate audit evidence about a population by testing a representative sample
Audit sampling allows the auditor to draw conclusions about an entire population based on evidence gathered from a representative subset, balancing efficiency and effectiveness.
FCCA FCCA Audit and Assurance 1
Which body sets international auditing standards used by ACCA and FCCA members in most jurisdictions outside the US?