ACCA - Audit and Assurance (AA) Questions
and Answers
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 - ANSWER-The individual or organisation, or group thereof that the
practitioner expects will use the assurance repot.
Reasonable party - ANSWER-The party responsible for the underlying subject
matter.
Practitioner - 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 - 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 - ANSWER-Is obtain limited assurance about
whether the subject matter information is free from material misstatement.
An attestation engagement - 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 - 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 - 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 - 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 - 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 - 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 - 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 - ANSWER-Is the system by which companies are directed
and controlled.
Chair - 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 - 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 - 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 - 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 - 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 - ANSWER-The person or organisation with
responsibility for overseeing the strategic direction of the entity and obligations
related to the accountability of the entity.
Management - ANSWER-The persons with executive responsibility for the conduct
of the entities operations.
Integrity - ANSWER-Members shall be straightforward and honest in all business
and personal relationships.
Objectivity - ANSWER-Members shall not allow bias, conflict-of-interest or undue
influence of others to override professional or business judgements.
Professional competence and due care - ANSWER-Members have a continuing duty
to maintain professional knowledge and skill at the level required to ensure that a
client or employer receives competent professional services based on current
developments in practice, legislation and techniques and act diligently and in
accordance with applicable technical and professional standards.
Confidentiality - ANSWER-Members shall respect the confidentiality of information
acquired as a result of professional and business relationships and, therefore, not to
disclose any such information to third parties without proper and specific authority
or unless there is a legal or professional right or duty to disclose. Confidential
information acquired as a result of professional and business relationships must not
be used for the personal advantage of members or third parties.
Professional behaviour - ANSWER-Members shall comply with relevant laws and
regulations and avoid any action that discredits the profession.
Obligatory disclosure - ANSWER-If members know or suspect their clients to have
committed money laundering, treason, drug trafficking or terrorist offences, they
are obliged to disclose all the information at their disposal to a competent authority.
Auditing standards require auditors to consider whether non-compliance with laws
and regulations affects the accounts.
Non-compliance - ANSWER-Refers to acts of omission or commission, intentional or
unintentional, committed by the entity, or by those charged with governance, by
management or by other individuals working for or under the direction of the entity,
which are contrary to the prevailing laws of regulations. Non-compliance does not
include personal misconduct unrelated to the business activities of the entity.
Independence of mind - ANSWER-The state of mind that permits the expression of
a conclusion without being affected by influences that compromise professional
judgement, thereby allowing an individual to act with integrity, and exercise
objectivity and professional scepticism.
and Answers
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 - ANSWER-The individual or organisation, or group thereof that the
practitioner expects will use the assurance repot.
Reasonable party - ANSWER-The party responsible for the underlying subject
matter.
Practitioner - 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 - 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 - ANSWER-Is obtain limited assurance about
whether the subject matter information is free from material misstatement.
An attestation engagement - 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 - 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 - 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 - 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 - 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 - 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 - 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 - ANSWER-Is the system by which companies are directed
and controlled.
Chair - 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 - 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 - 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 - 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 - 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 - ANSWER-The person or organisation with
responsibility for overseeing the strategic direction of the entity and obligations
related to the accountability of the entity.
Management - ANSWER-The persons with executive responsibility for the conduct
of the entities operations.
Integrity - ANSWER-Members shall be straightforward and honest in all business
and personal relationships.
Objectivity - ANSWER-Members shall not allow bias, conflict-of-interest or undue
influence of others to override professional or business judgements.
Professional competence and due care - ANSWER-Members have a continuing duty
to maintain professional knowledge and skill at the level required to ensure that a
client or employer receives competent professional services based on current
developments in practice, legislation and techniques and act diligently and in
accordance with applicable technical and professional standards.
Confidentiality - ANSWER-Members shall respect the confidentiality of information
acquired as a result of professional and business relationships and, therefore, not to
disclose any such information to third parties without proper and specific authority
or unless there is a legal or professional right or duty to disclose. Confidential
information acquired as a result of professional and business relationships must not
be used for the personal advantage of members or third parties.
Professional behaviour - ANSWER-Members shall comply with relevant laws and
regulations and avoid any action that discredits the profession.
Obligatory disclosure - ANSWER-If members know or suspect their clients to have
committed money laundering, treason, drug trafficking or terrorist offences, they
are obliged to disclose all the information at their disposal to a competent authority.
Auditing standards require auditors to consider whether non-compliance with laws
and regulations affects the accounts.
Non-compliance - ANSWER-Refers to acts of omission or commission, intentional or
unintentional, committed by the entity, or by those charged with governance, by
management or by other individuals working for or under the direction of the entity,
which are contrary to the prevailing laws of regulations. Non-compliance does not
include personal misconduct unrelated to the business activities of the entity.
Independence of mind - ANSWER-The state of mind that permits the expression of
a conclusion without being affected by influences that compromise professional
judgement, thereby allowing an individual to act with integrity, and exercise
objectivity and professional scepticism.
