ACCA Audit and
Assurance Exam
Questions & Answers
What is an assurance engagement? - ANSWERSAn 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]
Elements of an Assurance Engagement - ANSWERS(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]
Reasonable assurance engagements - ANSWERSThe 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
Limited assurance engagements - ANSWERSThe 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
External audit engagements - ANSWERSAn 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]
,Objectives of the auditor - ANSWERS- 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]
Benefits of an audit (HIRED) - ANSWERS- 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
Limitations of an audit (FIRED) - ANSWERS- 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
Review engagements - ANSWERSA 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
Who needs an audit and why? - ANSWERSIn 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
Reasons for exempting small companies from audit - ANSWERS- 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
Assurance Exam
Questions & Answers
What is an assurance engagement? - ANSWERSAn 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]
Elements of an Assurance Engagement - ANSWERS(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]
Reasonable assurance engagements - ANSWERSThe 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
Limited assurance engagements - ANSWERSThe 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
External audit engagements - ANSWERSAn 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]
,Objectives of the auditor - ANSWERS- 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]
Benefits of an audit (HIRED) - ANSWERS- 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
Limitations of an audit (FIRED) - ANSWERS- 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
Review engagements - ANSWERSA 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
Who needs an audit and why? - ANSWERSIn 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
Reasons for exempting small companies from audit - ANSWERS- 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
