ACCA - Audit and Assurance (AA)
UPDATED Exam Questions and
CORRECT Answers
Objective of an external audit - Correct Answer- The objective of an audit of financial
statements is to enable the auditor to express an opinion on whether the financial statements
are prepared, in all material respects, in accordance with applicable financial reporting
framework. An audit of financial statements is an example of an assurance engagement.
Advantages of a non-statutory audit - Correct Answer- It can provide a means of settling
accounts between the partners.
Where audited accounts are available this may make the accounts more acceptable to taxation
authorities.
The sale of the business or the negotiation of loan or overdraft facilities may be facilitated if
the firm is able to produce audited accounts.
An audit on behalf of a sleeping partner is useful since generally such a personal have you
have a means of checking the accounts of the business or confirming the share of profits due
to them.
Accountability - Correct Answer- The quality or state of being accountable; that is, being
required or expected to justify actions and decisions. It suggests an application or willingness
to accept responsibility for one's actions.
Stewardship - Correct Answer- Refers to the duties and obligations of a person who manages
another persons property.
Agents - Correct Answer- Are people who are employed or used to provide a particular
service. In the case of a company, the people being used to provide the service or managing
the business also have the second role of trying to maximise their personal wealth in their
own right.
Assurance engagement - Correct Answer- A practitioner that aims to obtain 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
measurement or evaluation of an underlying subject matter against criteria.
,Elements of an assurance engagement - Correct Answer- A three party relationship. The three
parties are the intended user, the responsible party and the practitioner.
A subject matter, where the data to be evaluated has been prepared by the responsible party. It
can take many forms, including the financial performance, non-financial performance,
process and behaviour.
Suitable criteria, where the subject matter is evaluated or measured against criteria in order to
reach an opinion.
Evidence, where sufficient appropriate evidence needs to be gathered to support the required
level of assurance.
An assurance report, where a written report containing the practitioners opinion is issued to
the intended user in the form appropriate to reasonable assurance engagement or a limited
assurance engagement.
Intended users - Correct Answer- The individual or organisation, or group thereof that the
practitioner expects will use the assurance repot.
Reasonable party - Correct Answer- The party responsible for the underlying subject matter.
Practitioner - Correct Answer- The individual conducting the engagement which will usually
be the engagement partner or other members of the engagement team, or as applicable, the
firm.
Objective of a reasonable assurance engagement - Correct Answer- Is a reduction in
assurance engagement risk to an acceptably low level in the circumstances of engagement as
the basis for the insurance practitioners conclusion. The conclusion would usually be
expressed in a positive forum.
Objective of a review engagement - Correct Answer- Is obtain limited assurance about
whether the subject matter information is free from material misstatement.
An attestation engagement - Correct Answer- Where underlying subject matter has not been
measured or evaluated by the practitioner, and the practitioner concludes whether or not the
subject matter information is free from material misstatement.
,A direct engagement - Correct Answer- Where the underlying subject matter has been
measured and evaluated by the practitioner, and the practitioner then presents conclusions on
the reported outcome in the insurance report.
Internal audit function - Correct Answer- Will perform assurance and consulting activities
designed to evaluate and improve the effectiveness of the entities governance, risk
management and internal control processes.
True - Correct Answer- Information is factual and conforms with reality. In addition, the
information conforms with required standards and law. The financial statements have been
correctly extracted from the books and records.
Fair - Correct Answer- Information is free from discrimination and bias and is in compliance
with expected standards and rules. The accounts should reflect the commercial substance of
the companies underlying transactions.
Reasonable assurance - Correct Answer- An audit gives the reader this assurance on the truth
and fairness of the financial statements, which is high, but not absolute, level of assurance.
The auditors report does not guarantee that the financial statements are correct, but that they
are true and fair with in a reasonable margin of error.
Materiality - Correct Answer- An expression of the relative significance or importance of a
particular matter in the context of the financial statements as a whole. The matter is material
if it's a mission or misstatement would reasonably be expected to influence the economic
decisions of use is taken on the basis of the financial statements. Materiality depends on the
size of the item or error judged in the particular circumstances of its omission or
misstatement.
Corporate governance - Correct Answer- Is the system by which companies are directed and
controlled.
Chair - Correct Answer- The chair and the chief executive cannot be the same individual.
There is a time limit on the chairs position, and cannot remain in post for beyond nine years.
They must be independent, and cannot be a former Chief Executive of the same company
except in exceptional circumstances.
, Non-executive directors - Correct Answer- Are directors who do not have day-to-day
operational responsibility for the company. They are not employees of the company or
affiliated with it in any way.
They can be compromised by the following: Employment with the company or group in the
last five years.
Material business relationships with the company in the past three years.
Remuneration beyond the basic fee for the role.
Close family ties with any of the companies advisors, directors or senior employees.
Representing a significant shareholder.
Serving longer than nine years on the board.
Remuneration committee - Correct Answer- Must be established, made up of at least 3
independent non-executive directors, but in smaller companies it may be 2.
Executive directors cannot sit on this committee.
The chair of the board cannot chair on this committee, but they can be a member of it if they
were independent on appointment.
It is responsible for:
Setting remuneration for the chair, executive directors and senior management.
Setting the remuneration policy for executive directors. Reviewing workforce remuneration
and policies.
Nomination committee - Correct Answer- Should be established to lead the process for
making nominations for board appointments. This committee should be made up of a
majority of independent non-executive directors. All directors are then subject to annual re-
election by shareholders.
Audit committee - Correct Answer- A subcommittee of the board of directors, usually
containing a number of independent non-executive directors. The role and function of this
committee should be set out in written terms of reference and extract from the UK corporate
governance code.
Those charged with governance - Correct Answer- The person or organisation with
responsibility for overseeing the strategic direction of the entity and obligations related to the
accountability of the entity.
UPDATED Exam Questions and
CORRECT Answers
Objective of an external audit - Correct Answer- The objective of an audit of financial
statements is to enable the auditor to express an opinion on whether the financial statements
are prepared, in all material respects, in accordance with applicable financial reporting
framework. An audit of financial statements is an example of an assurance engagement.
Advantages of a non-statutory audit - Correct Answer- It can provide a means of settling
accounts between the partners.
Where audited accounts are available this may make the accounts more acceptable to taxation
authorities.
The sale of the business or the negotiation of loan or overdraft facilities may be facilitated if
the firm is able to produce audited accounts.
An audit on behalf of a sleeping partner is useful since generally such a personal have you
have a means of checking the accounts of the business or confirming the share of profits due
to them.
Accountability - Correct Answer- The quality or state of being accountable; that is, being
required or expected to justify actions and decisions. It suggests an application or willingness
to accept responsibility for one's actions.
Stewardship - Correct Answer- Refers to the duties and obligations of a person who manages
another persons property.
Agents - Correct Answer- Are people who are employed or used to provide a particular
service. In the case of a company, the people being used to provide the service or managing
the business also have the second role of trying to maximise their personal wealth in their
own right.
Assurance engagement - Correct Answer- A practitioner that aims to obtain 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
measurement or evaluation of an underlying subject matter against criteria.
,Elements of an assurance engagement - Correct Answer- A three party relationship. The three
parties are the intended user, the responsible party and the practitioner.
A subject matter, where the data to be evaluated has been prepared by the responsible party. It
can take many forms, including the financial performance, non-financial performance,
process and behaviour.
Suitable criteria, where the subject matter is evaluated or measured against criteria in order to
reach an opinion.
Evidence, where sufficient appropriate evidence needs to be gathered to support the required
level of assurance.
An assurance report, where a written report containing the practitioners opinion is issued to
the intended user in the form appropriate to reasonable assurance engagement or a limited
assurance engagement.
Intended users - Correct Answer- The individual or organisation, or group thereof that the
practitioner expects will use the assurance repot.
Reasonable party - Correct Answer- The party responsible for the underlying subject matter.
Practitioner - Correct Answer- The individual conducting the engagement which will usually
be the engagement partner or other members of the engagement team, or as applicable, the
firm.
Objective of a reasonable assurance engagement - Correct Answer- Is a reduction in
assurance engagement risk to an acceptably low level in the circumstances of engagement as
the basis for the insurance practitioners conclusion. The conclusion would usually be
expressed in a positive forum.
Objective of a review engagement - Correct Answer- Is obtain limited assurance about
whether the subject matter information is free from material misstatement.
An attestation engagement - Correct Answer- Where underlying subject matter has not been
measured or evaluated by the practitioner, and the practitioner concludes whether or not the
subject matter information is free from material misstatement.
,A direct engagement - Correct Answer- Where the underlying subject matter has been
measured and evaluated by the practitioner, and the practitioner then presents conclusions on
the reported outcome in the insurance report.
Internal audit function - Correct Answer- Will perform assurance and consulting activities
designed to evaluate and improve the effectiveness of the entities governance, risk
management and internal control processes.
True - Correct Answer- Information is factual and conforms with reality. In addition, the
information conforms with required standards and law. The financial statements have been
correctly extracted from the books and records.
Fair - Correct Answer- Information is free from discrimination and bias and is in compliance
with expected standards and rules. The accounts should reflect the commercial substance of
the companies underlying transactions.
Reasonable assurance - Correct Answer- An audit gives the reader this assurance on the truth
and fairness of the financial statements, which is high, but not absolute, level of assurance.
The auditors report does not guarantee that the financial statements are correct, but that they
are true and fair with in a reasonable margin of error.
Materiality - Correct Answer- An expression of the relative significance or importance of a
particular matter in the context of the financial statements as a whole. The matter is material
if it's a mission or misstatement would reasonably be expected to influence the economic
decisions of use is taken on the basis of the financial statements. Materiality depends on the
size of the item or error judged in the particular circumstances of its omission or
misstatement.
Corporate governance - Correct Answer- Is the system by which companies are directed and
controlled.
Chair - Correct Answer- The chair and the chief executive cannot be the same individual.
There is a time limit on the chairs position, and cannot remain in post for beyond nine years.
They must be independent, and cannot be a former Chief Executive of the same company
except in exceptional circumstances.
, Non-executive directors - Correct Answer- Are directors who do not have day-to-day
operational responsibility for the company. They are not employees of the company or
affiliated with it in any way.
They can be compromised by the following: Employment with the company or group in the
last five years.
Material business relationships with the company in the past three years.
Remuneration beyond the basic fee for the role.
Close family ties with any of the companies advisors, directors or senior employees.
Representing a significant shareholder.
Serving longer than nine years on the board.
Remuneration committee - Correct Answer- Must be established, made up of at least 3
independent non-executive directors, but in smaller companies it may be 2.
Executive directors cannot sit on this committee.
The chair of the board cannot chair on this committee, but they can be a member of it if they
were independent on appointment.
It is responsible for:
Setting remuneration for the chair, executive directors and senior management.
Setting the remuneration policy for executive directors. Reviewing workforce remuneration
and policies.
Nomination committee - Correct Answer- Should be established to lead the process for
making nominations for board appointments. This committee should be made up of a
majority of independent non-executive directors. All directors are then subject to annual re-
election by shareholders.
Audit committee - Correct Answer- A subcommittee of the board of directors, usually
containing a number of independent non-executive directors. The role and function of this
committee should be set out in written terms of reference and extract from the UK corporate
governance code.
Those charged with governance - Correct Answer- The person or organisation with
responsibility for overseeing the strategic direction of the entity and obligations related to the
accountability of the entity.
