FCCA Audit and Assurance Flashcards

Which of the following best describes 'materiality' in the context of an audit?

Answer: Information is material if its omission or misstatement could influence the economic decisions of users

Materiality is determined by whether an omission or misstatement could influence the economic decisions of users relying on the financial statements.

An auditor discovers a significant fraud risk. Under ISA 240, what must the auditor do?

Answer: Communicate the matter to management and those charged with governance

ISA 240 requires auditors to communicate identified or suspected fraud to management and those charged with governance at an appropriate level.

Which audit procedure involves the auditor physically inspecting inventory or other assets?

Answer: Observation

Observation involves the auditor watching a process being performed (such as a stocktake), while physical inspection of assets is a form of inspection — both are substantive audit procedures.

Under the Sarbanes-Oxley Act (SOX) in the US, which section requires management to assess and report on internal controls over financial reporting?

Answer: Section 404

SOX Section 404 requires management of publicly listed US companies to assess and report on the effectiveness of internal controls over financial reporting, with the auditor attesting to that assessment.

What does 'professional skepticism' mean in the context of auditing?

Answer: The auditor maintains a questioning mind and critically assesses audit evidence

Professional skepticism requires the auditor to maintain a questioning mind, be alert to conditions that may indicate misstatement, and critically evaluate audit evidence.

Which form of assurance engagement provides a lower level of assurance than an audit?

Answer: Review engagement

A review engagement (governed by ISRE 2400) provides limited assurance — typically expressed as 'nothing has come to our attention' — which is a lower level than the reasonable assurance of an audit.