ACA Assurance Questions With 100% Correct Answers.

5 key elements of audit - Answer-1. 3 party involvement 2. subject matter (f/s) 3. suitable criteria (e.g. UK CGC) 4. evidence 5. written report ISA 200 - what are the objectives of auditors? - Answer-- obtain reasonable assurance f/s are free from material misstatement (fraud or error) - express opinion whether f/s prepared in accordance w/ financial reporting framework Exemption from statutory audit - Answer-- CA 2006 exempts small p. ltd. if 2/3: -> 50 employees or less -> turnover £10.2m or less -> gross assets £5.1m or less Auditor requirements - Answer-basic: - employment by firm controlled by qualified persons - CA2006 no officers/employees of company or partner of above qualified auditors: - membership of recognised supervisory body Money laundering check (client due diligence) - Answer-- req. per. Money Laundering Regulations 2007 - client id docs retained 5 yrs ISA 210: mandatory contents of engagement letter (6) - Answer-- auditor's and management's responsibilities- scope of work (stat/non-stat) - form of reports (reasonable/limited) - written confirmation of firm's acceptance of engagement - level of access to books & records (full = audit & limited = review engagement) - reporting framework ISA 210: optional contents of engagement letter (5) - Answer-- limitations of engagement - confidentiality/restricted use of report - reliance on internal controls - basis of fee calculations - restrictions on auditor's liability Key components of audit strategy - Answer-- understanding the entity and its environment - materiality - risk assessment - nature, extent & timing of audit procedures - direction, supervision & review of work ISA 315 - what 6 things are important in understanding the entity and its environment? - Answer-- industry, regulatory, financial reporting framework - nature of the entity - accounting policies - objectives and strategies & business risks that may result in material misstatement - measurement of entity's financial performance - internal controls ISA 315 - How to understand the entity and its environment? (4) - Answer-- enquires of management & client staff - analytical procedures- observation - inspection Risk assessment - Answer--> audit risk = inherent risk x control risk x detection risk Audit risk - Answer-= risk auditor gives inappropriate opinion on f/s Inherent risk - Answer-= risk of misstatement in a transaction irregardless of internal controls Control risk - Answer-= risk of material misstatement not prevented, detected or corrected by internal controls Detection risk - Answer-= risk auditor's procedures will not detect material misstatement