ACCA AUDIT AND ASSURANCE UPDATED ACTUAL
QUESTIONS AND CORRECT ANSWERS
Question:
What is an assurance engagement?
Answer:
An engagement in which a practitioner obtains sufficient appropriate evidence in
order to express a conclusion designed to enhance the degree of confidence of
the intended users other than the responsible party about the outcome of the
evaluation or measurement of a subject matter against criteria
[International Framework for Assurance Engagements, 7]
Question:
(1) Three party involvement:
Practitioner - the reviewer of the subject matter who provides the assurance
Intended users - the people using the subject matter to make economic decisions
Responsible party - the party responsible for preparing the subject matter
(2) Appropriate subject matter - The information subject to examination by the
practitioner
(3) Suitable criteria - The criteria against which the subject matter is evaluated, i.e.
standards, guidance, laws and regulations
(4) Sufficient appropriate evidence - needed to provide a basis for the
opinion/conclusion
(5) Written assurance report - The output of the assurance engagement
expressing a conclusion/opinion about the subject matter
[International Framework for Assurance Engagements, 20]
Answer:
Elements of an Assurance Engagement
Question:
Reasonable assurance engagements
Answer:
The practitioner:
Gathers sufficient appropriate evidence to be able to draw reasonable
conclusions
- Performs very thorough procedures to obtain sufficient appropriate evidence
including tests of controls and substantive procedures
- Concludes that the subject matter conforms in all material respects with
identified suitable criteria
- Gives a positively worded assurance opinion
- Gives a high level of assurance e.g. an audit report for a company
Question:
Limited assurance engagements
Answer:
,The practitioner:
- Gathers sufficient appropriate
evidence to be able to draw limited conclusions
- Performs significantly fewer procedures, mainly enquiries and analytical
procedures
- Concludes that the subject matter, with respect to identified suitable criteria, is
plausible in the
circumstances
- Gives a negatively worded assurance conclusion
- Gives a moderate or lower level of assurance than that of an audit
Question:
External audit engagements
Answer:
An external audit is an example of a reasonable assurance engagement
ISA 200 Overall Objectives of the Independent Auditor and the Conduct of an
Audit in Accordance with International Standards on Auditing states the purpose
of an external audit engagement is to 'enhance the degree of confidence of
intended users in the financial statements
This is achieved by the auditor expressing an opinion on whether the financial
statements:
- Give a true and fair view (or present fairly in all material respects)
- Are prepared, in all material respects, in accordance with an applicable financial
reporting framework
[ISA 200, 3]
Question:
Objectives of the auditor
Answer:
- Obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error
- Express an opinion on whether the financial statements are prepared, in all
material respects, in accordance with an applicable financial reporting framework
- Report on the financial statements, and communicate as required by ISAs, in
accordance with the auditor's findings
[ISA 200, 11]
Question:
- Higher quality information which is more reliable, improving the reputation of
the market
- Independent scrutiny and verification may be valuable to management
- Reduces the risk of management bias and fraud and error by acting as a
deterrent. An audit may also detect bias, fraud and error
- Enhances the credibility of the financial statements, e.g. for tax authorities or
lenders
- Deficiencies in the internal control system may be highlighted by the auditor
Answer:
Benefits of an audit (HIRED)
, Question:
- Financial statements include subjective estimates and other judgmental matters
- Internal controls may be relied on which have their own inherent limitations
- Representations from management may have to be relied upon as the only
source of evidence in some areas
- Evidence is often persuasive not conclusive
- Do not test all transactions and balances. Auditors test on a sample basis
Answer:
Limitations of an audit (FIRED)
Question:
A review engagement is an example of a limited assurance engagement
The objective of a review of financial statements is to enable an auditor to state
whether, on the basis of procedures, which do not provide all the evidence
required in an audit, anything has come to the auditor's attention that causes the
auditor to believe that the financial statements are not prepared in accordance
with the applicable financial reporting framework
Review engagements are:
- Voluntary
- Analytical procedures
- To make enquiries
- Negative (worded) assurance reports
Answer:
Review engagements
Question:
Who needs an audit and why?
Answer:
In most countries, companies are required by law to have an audit
Small or owner-managed companies are often exempt. This is because there is
less value in an audit for these companies
Note that these exemptions often do not apply to companies in certain regulated
sectors, e.g. financial services companies or companies listed on a stock
exchange
Question:
- The owners and managers of the company are often the same people
- The advice and value which accountants can add to a small company is more
likely to concern other services, such as accounting and tax
- The impact of misstatements in the financial statements of small companies is
unlikely to be material to the wider economy
- The audit fee and disruption of an audit are seen as too great a cost for any
benefits the audit might bring
Answer:
Reasons for exempting small companies from audit
Question:
QUESTIONS AND CORRECT ANSWERS
Question:
What is an assurance engagement?
Answer:
An engagement in which a practitioner obtains sufficient appropriate evidence in
order to express a conclusion designed to enhance the degree of confidence of
the intended users other than the responsible party about the outcome of the
evaluation or measurement of a subject matter against criteria
[International Framework for Assurance Engagements, 7]
Question:
(1) Three party involvement:
Practitioner - the reviewer of the subject matter who provides the assurance
Intended users - the people using the subject matter to make economic decisions
Responsible party - the party responsible for preparing the subject matter
(2) Appropriate subject matter - The information subject to examination by the
practitioner
(3) Suitable criteria - The criteria against which the subject matter is evaluated, i.e.
standards, guidance, laws and regulations
(4) Sufficient appropriate evidence - needed to provide a basis for the
opinion/conclusion
(5) Written assurance report - The output of the assurance engagement
expressing a conclusion/opinion about the subject matter
[International Framework for Assurance Engagements, 20]
Answer:
Elements of an Assurance Engagement
Question:
Reasonable assurance engagements
Answer:
The practitioner:
Gathers sufficient appropriate evidence to be able to draw reasonable
conclusions
- Performs very thorough procedures to obtain sufficient appropriate evidence
including tests of controls and substantive procedures
- Concludes that the subject matter conforms in all material respects with
identified suitable criteria
- Gives a positively worded assurance opinion
- Gives a high level of assurance e.g. an audit report for a company
Question:
Limited assurance engagements
Answer:
,The practitioner:
- Gathers sufficient appropriate
evidence to be able to draw limited conclusions
- Performs significantly fewer procedures, mainly enquiries and analytical
procedures
- Concludes that the subject matter, with respect to identified suitable criteria, is
plausible in the
circumstances
- Gives a negatively worded assurance conclusion
- Gives a moderate or lower level of assurance than that of an audit
Question:
External audit engagements
Answer:
An external audit is an example of a reasonable assurance engagement
ISA 200 Overall Objectives of the Independent Auditor and the Conduct of an
Audit in Accordance with International Standards on Auditing states the purpose
of an external audit engagement is to 'enhance the degree of confidence of
intended users in the financial statements
This is achieved by the auditor expressing an opinion on whether the financial
statements:
- Give a true and fair view (or present fairly in all material respects)
- Are prepared, in all material respects, in accordance with an applicable financial
reporting framework
[ISA 200, 3]
Question:
Objectives of the auditor
Answer:
- Obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error
- Express an opinion on whether the financial statements are prepared, in all
material respects, in accordance with an applicable financial reporting framework
- Report on the financial statements, and communicate as required by ISAs, in
accordance with the auditor's findings
[ISA 200, 11]
Question:
- Higher quality information which is more reliable, improving the reputation of
the market
- Independent scrutiny and verification may be valuable to management
- Reduces the risk of management bias and fraud and error by acting as a
deterrent. An audit may also detect bias, fraud and error
- Enhances the credibility of the financial statements, e.g. for tax authorities or
lenders
- Deficiencies in the internal control system may be highlighted by the auditor
Answer:
Benefits of an audit (HIRED)
, Question:
- Financial statements include subjective estimates and other judgmental matters
- Internal controls may be relied on which have their own inherent limitations
- Representations from management may have to be relied upon as the only
source of evidence in some areas
- Evidence is often persuasive not conclusive
- Do not test all transactions and balances. Auditors test on a sample basis
Answer:
Limitations of an audit (FIRED)
Question:
A review engagement is an example of a limited assurance engagement
The objective of a review of financial statements is to enable an auditor to state
whether, on the basis of procedures, which do not provide all the evidence
required in an audit, anything has come to the auditor's attention that causes the
auditor to believe that the financial statements are not prepared in accordance
with the applicable financial reporting framework
Review engagements are:
- Voluntary
- Analytical procedures
- To make enquiries
- Negative (worded) assurance reports
Answer:
Review engagements
Question:
Who needs an audit and why?
Answer:
In most countries, companies are required by law to have an audit
Small or owner-managed companies are often exempt. This is because there is
less value in an audit for these companies
Note that these exemptions often do not apply to companies in certain regulated
sectors, e.g. financial services companies or companies listed on a stock
exchange
Question:
- The owners and managers of the company are often the same people
- The advice and value which accountants can add to a small company is more
likely to concern other services, such as accounting and tax
- The impact of misstatements in the financial statements of small companies is
unlikely to be material to the wider economy
- The audit fee and disruption of an audit are seen as too great a cost for any
benefits the audit might bring
Answer:
Reasons for exempting small companies from audit
Question:
