This document contains knowledge-based questions related to ACCA Audit & Assurance

practice to help students prepare for the March 2022 session.

June 2010
ISA 315 requires auditors to identify and assess risks of material misstatement at
financial statement and assertion levels. This helps gain understanding of the
entity, focus on key areas, and form the basis of audit strategy.
2. Explain examples of matters the auditor should consider in determining whether a
deficiency in internal controls is significant. (5 marks) Dec 2010
ISA 265 provides factors for assessing significance of internal control
deficiencies, including likelihood of material misstatements. The importance of
controls, susceptibility to loss or fraud, interaction with other deficiencies, and
amounts exposed are also considered.
3. Explain the factors that should be considered by an external auditor before
reliance can be placed on the work performed by a company's internal audit
department. (3 marks) Dec 2011
External auditors consider the objectivity, technical competence, and systematic
approach of internal auditors. Factors include reporting structure, professional
qualifications, and quality control procedures.
4. Explain the purpose of, and procedures for, obtaining written representations.
(5 marks) Dec 2012
Written representations are essential audit evidence, obtained from management and
governance, confirming fulfillment of financial statement responsibilities. They
support other audit evidence, especially in judgemental areas. The letter, signed
by directors, is a crucial part of the final audit process.
5. Explain the difference between an interim and a final audit. (5 marks)
The interim audit is conducted before year end to assess inherent risks, test
internal controls, and identify potential issues. The final audit, after year end,
includes follow-up on inventory count, analytical reviews, and substantive
procedures. The auditor forms an opinion based on both interim and final audit
findings.
6. Define the 'three Es' of a value for money audit. (3 marks)
Value for money audit focuses on economy, efficiency, and effectiveness to minimize
costs and achieve objectives.
7. Describe FOUR benefits of documenting audit work. (4 marks)
Audit documentation provides evidence for conclusions, compliance with standards,
assists in planning and supervision.
8. Describe the audit procedures required in respect of the year-end accrual for
tax payable on employment income. (4 marks) June 2014
The auditor should agree the year-end income tax payable accrual to payroll records
for accuracy. They should also review any correspondence with tax authorities to
ensure all outstanding payments are included in the accrual.
9. Define what is meant by 'audit sampling' and explain the need for this. (3
marks)
Audit sampling involves applying audit procedures to less than 100% of items within
a population to draw conclusions. Auditors provide reasonable assurance, not 100%,
and sample testing is necessary for efficiency.
10. Explain the benefits of audit planning. (4 marks)
ISA 300 highlights the benefits of adequate audit planning, including proper
attention to key areas, timely problem resolution, and effective management of the
audit engagement. It also emphasizes the selection of competent team members,
supervision, and coordination of work.
11. Describe FOUR elements of an unmodified auditor's report and for each explain
why they are included. (4 marks) Dec 2014
Overview of auditor's report elements
: The auditor's report includes title, addressee, introductory paragraph,
management's responsibility, auditor's responsibility, opinion paragraph, other
reporting responsibilities, signature of the auditor, date of the auditor's report,
and auditor's address
The auditor's report must have a title indicating independence.
Addressee is usually shareholders, clarifying who can rely on the opinion.
Introductory paragraph specifies the entity, time period, and pages audited.
Management and auditor responsibilities are clearly defined to reduce expectation
gap.
Opinion paragraph states whether financial statements are true and fair.
Auditor's report must be signed and dated with the auditor's address included.

12. Explain the factors Auditor should consider when placing reliance on the work
of the independent valuer. (5 marks) Dec 2014
ISA 500 requires auditors to evaluate management expert's competence, capabilities,
and independence. Qualifications, memberships, and threats considered. Auditor
meets with expert to discuss relevant expertise.
13. Write a Covering Letter in respect of the Sales and Dispatch System. (2 marks)
The report to management on deficiencies in internal controls for Hummingbird Co
for the year ended 30 September 2014 addresses deficiencies in the sales system
with recommendations. Further testing may have revealed more deficiencies.
14. Explain the purpose of review engagements and how these differ from external
audits; and Describe the level of assurance provided by external audits and review
engagements. (4 marks) June 2015
Review engagements provide negative assurance, stating that no material
misstatements have been found, while external audits offer reasonable assurance
that financial statements are free of material misstatements. Review engagements do
not need to comply with ISAs, and involve less comprehensive procedures such as
analytical review and enquiry.
15. Identify and explain FOUR financial statement assertions relevant to classes of
transactions and events for the year under audit. (4 marks) June 2015
The key principles of accounting include occurrence, completeness, accuracy, cut-
off, and classification.
16. Identify and briefly explain the FIVE components of an entity's internal
control. (5 marks) June 2015
This section discusses the components of an entity's internal control system.

The control environment includes elements such as communication of integrity and

ethical values, commitment to competence, and management's philosophy.
Risk assessment process involves identifying and assessing business risks for
financial reporting purposes.
Control activities are policies and procedures to ensure management directives are
carried out.
Monitoring of controls is essential to assess the effectiveness of internal control
performance over time.

17. Identify and explain TWO factors which would indicate that an engagement letter
for an existing audit client should be revised. (2 marks) Sep-Dec 2015
Engagement letters for recurring clients should be revised if there are any
misunderstandings in the audit scope, special terms, changes in management,
business size, legal requirements, financial reporting framework, or other
reporting requirements. This ensures clarity and alignment between auditors and
clients. Updating engagement letters is crucial for reflecting changes in the audit
process.
18. List SIX matters to be included within an audit engagement letter. (3 marks)
Dec 2015, Mar 2020
The audit engagement letter outlines the scope, responsibilities, and expectations
for both the auditor and management. It includes details on financial reporting
framework, audit team composition, fee computation, and management's written
representations. Some material misstatements may not be detected.
19. Identify FIVE sources of information relevant to gaining an understanding of
ENTITY and describe how this information will be used by the auditor. (5 marks)
Sep-Dec 2015
The audit planning process involves reviewing prior year financial statements,
discussions with previous auditors, and management, as well as analyzing entity's
accounting systems and board minutes. Current year budgets and competitor financial
statements are also important sources of information for risk identification and
assessment. These factors help auditors in determining the audit approach and
identifying key audit risks.
20. Explain FOUR factors which influence the reliability of audit evidence. (4
marks) Sep-Dec 2015
The reliability of audit evidence is influenced by its source, with evidence from
independent sources outside the entity being more reliable. Audit evidence obtained
directly by the auditor in documentary form is considered the most reliable.
21. Explain the five elements of an assurance engagement. (5 marks)
An assurance engagement involves a three-party relationship: the intended user,
responsible party, and practitioner. The subject matter is evaluated against
criteria, evidence is gathered, and an assurance report is provided to the intended
user.
22. Define audit risk and the components of audit risk. (4 marks)
Audit risk is the risk of expressing an inappropriate audit opinion due to material
misstatements in financial statements. It consists of risk of material misstatement
(inherent risk and control risk) and detection risk, affected by sampling and non-
sampling risk.
23. Describe TWO methods for documenting the sales system, and for each explain ONE
advantage and ONE disadvantage of using this method. (6 marks) Sep 2016, Mar-June
2019
This section discusses different methods of documenting the sales system, including
narrative notes, internal control questionnaires, and flowcharts.

Narrative notes provide a written description of the system, easy to record after
discussions with staff members.
Internal control questionnaires assess the existence and effectiveness of controls,
highlighting missing controls or deficiencies.
Flowcharts offer a graphic illustration of the internal control system, making it
easy to view the system in its entirety.
Each method has its advantages and disadvantages, such as ease of preparation,
potential for overstatement of controls, and time-consuming nature of flowcharts.

24. In line with ISA 220 Quality Control for an Audit of Financial Statements,
describe the audit supervisor's responsibilities in relation to supervising and
reviewing the audit assistants' work during the audit. (4 marks) Sep 2016
During the audit, the supervisor tracks progress to meet the timetable, ensures
team competence and addresses significant matters. They review work for compliance
with standards, document conclusions, and identify issues for partner consultation.
The supervisor plays a crucial role in ensuring the audit is conducted effectively
and in accordance with professional standards.
25. Describe FIVE types of procedures for obtaining audit evidence. (5 marks)
Inspection, observation, analytical procedures, inquiry, recalculation, external
confirmation, and re-performance are key audit procedures. These involve examining
records, observing processes, analyzing financial information, seeking information
from knowledgeable persons, checking mathematical accuracy, obtaining external
confirmations, and independently executing procedures. These procedures ensure
thorough and accurate auditing processes.
26. Identify what a key audit matter (KAM) is and explain how the auditor
determines and communicates KAM. (5 marks) Mar-June 2017
Key audit matters (KAM) are the most significant issues in the audit of financial
statements, selected based on higher risk areas, significant auditor judgments, and
significant events. ISA 701 guides auditors in determining KAMs, which are included
in the auditor's report to aid users in understanding the entity. The description
of each KAM in the report should explain why it was considered significant and how
it was addressed in the audit.
27. Describe FOUR different types of control activities and, for each type, provide
an example control a company may implement. (4 marks) Mar-June 2017
Segregation of duties, information processing, authorisation, physical controls,
and performance reviews are key internal control measures to reduce fraud and
error. These measures ensure tasks are carried out by different individuals,
transactions are genuine, and access to assets is restricted.
28. Describe the process Audit firm should have undertaken to assess whether
PRECONDITIONS for an audit were present when accepting the audit of Client. (3
marks). Sep-Dec 2017
ISA 210 states auditors should confirm preconditions for an audit before accepting
a new engagement. Factors to consider include the financial reporting framework,
nature of the entity, and client management responsibilities. Management must
prepare financial statements in accordance with the framework, maintain internal
controls, and provide auditors with access to relevant information.
29. Identify THREE main areas, other than audit risks, which should be included
within the audit strategy document for Prancer Construction Co, and for each area
provide an example relevant to the audit. (3 marks) Sep-Dec 2017
This section outlines the key considerations for planning an audit of financial
statements.

The audit strategy should include considerations such as the financial reporting
framework, use of IT, and availability of key personnel.
Reporting objectives, audit timetable, meetings with management, and audit team
review timings should be planned.
Factors like materiality, professional skepticism, and preliminary planning results
should guide the audit team's efforts.
Resources needed for the audit, including audit team selection, work assignment,
and budget, should be determined.

30. Explain the steps the auditor should take to confirm the accuracy of the
purchases and payables flowcharts and systems notes currently held on file. (5
marks) Dec 2017
Steps to confirm prior year flowcharts and system notes include reviewing audit
file for weaknesses, obtaining system documentation from client, and performing
walk-through tests. Interviewing client staff and tracing transactions are also
crucial.
31. Describe substantive procedures the auditor should perform to confirm the
redundancy provision at the year end. (5 marks) Dec 2017
The auditors are tasked with confirming the existence and completeness of a
redundancy provision at Dashing Co, including reviewing board minutes,
calculations, and actual payments made post year-end. They must ensure compliance
with IAS 37. The provision's accuracy is crucial for financial reporting.
32. Explain the safeguards which your firm should implement to ensure that this
conflict of interest is properly managed. (4 marks) Dec 2017
Safeguards for auditing competitors include notifying both clients, using separate
engagement teams, implementing strict physical separation, providing clear
guidelines on security and confidentiality, and monitoring safeguards regularly.
These measures ensure independence and confidentiality in audits.
33. Describe auditor's responsibilities in relation to the prevention and detection
of fraud and error. (4 marks) Mar-June 2018, Sep-Dec 2019
Auditor must conduct audit in accordance with ISA 240, ensuring financial
statements are free from material misstatement. They must identify, assess, and
respond to risks of material misstatement due to fraud, maintaining professional
skepticism throughout the audit. ISA 240 requires a discussion within the team to
ensure awareness of risks and responsibilities for fraud and error.
34. Explain why analytical procedures are used during THREE stages of an audit. (3
marks) Sep-Dec 2018
Analytical procedures are crucial in all stages of an audit, with ISA 315 and ISA
520 highlighting their significance. They are used during planning to assess risks,
during the final audit to gather evidence, and at the review stage to form
conclusions.
35. Explain why it is important for auditors to communicate throughout the audit
with those charged with governance; and Identify TWO examples of matters which the
auditor may communicate to those charged with governance. (4 marks) Sep-Dec 2018
This section discusses the significance of communication between auditors and those
charged with governance in the audit process.

Communication with those charged with governance helps in developing a constructive

working relationship while maintaining auditor's independence and objectivity.
It assists in obtaining relevant information for the audit, identifying key risks,
and addressing significant accounting adjustments.
Auditors are required to communicate planned approach, audit timetable, internal
control deficiencies, and any suspected frauds identified during the audit.
For listed entities, auditors must confirm compliance with ethical standards and
safeguards for ethical threats.

36. Define and explain materiality and performance materiality. (4 marks)

This section discusses materiality and performance materiality in auditing
processes.

Materiality is defined as misstatements that could influence economic decisions of

users based on financial statements.
Quantitative nature of misstatement refers to relative size, while qualitative
nature refers to prominence and relevance.
Benchmarks like 5% of profit before tax or 1% of total revenue are used to
calculate materiality.
Performance materiality is set lower than overall materiality to reduce the risk of
total errors exceeding materiality.

37. List Four Control Objectives of Sales and Dispatch System. (4 marks)
Orders must be processed accurately and timely, ensuring availability, quality,
credit checks, and correct invoicing. Completeness of income and valid sales
discounts are crucial.
38. Define internal control in the context of a limited liability company. (3
marks)
Internal control ensures achievement of company objectives, including financial
reporting reliability and compliance.
39. Explain the nature and purpose of the following:
Walk-through tests and tests of controls are used to confirm the auditor's
understanding of the system and evaluate the effectiveness of controls in
preventing material misstatements. These procedures are essential in determining
the nature, timing, and extent of substantive procedures.
40. Identify and explain ONE problem associated with the use of test data by
auditors. (3 marks)
The problems with test data include high costs for development, the need for
specialized audit training, potential data file corruption, and limitations in
testing accuracy. Conclusions drawn from test data may be flawed due to testing at
a specific point in time.
41. In the context of audit planning, define the following terms:
The overall audit strategy outlines scope, timing, and direction, guiding the audit
plan development.
42. Identify and explain TWO financial statement assertions, about transactions and
events and related disclosures. (4 marks) Sep2019
The financial reporting framework ensures occurrence, completeness, accuracy, cut-
off, classification, and presentation of transactions and events. It emphasizes
proper recording, measurement, and disclosure in financial statements.
43. For each of the following types of letter, explain its purpose and identify TWO
matters which should be included in it:
This section discusses the importance of audit engagement letters and written
representations from management in the audit process.

Audit engagement letters formalize terms between auditor and client to avoid
misunderstandings.
Written representations from management confirm fulfillment of responsibilities for
financial statement preparation.
Management confirms fair presentation of financial statements, provision of
relevant information, and disclosure of litigation and claims.
The letter also addresses the reasonableness of accounting estimates and adjustment
for subsequent events in financial statements.

44. Identify and explain TWO reasons why auditors can provide only reasonable
assurance that a company’s financial statements are free from material
misstatement. (5 marks) Sep2019
Auditors face challenges such as sampling risk due to limited resources, differing
professional judgments, and reliance on internal controls with inherent
limitations. Audit evidence is often persuasive, not conclusive, relying on third-
party integrity.
45. Identify TWO financial indicators of going concern problems in a company. (2
marks)
The financial indicators of going concern problems in September 2019 include net
liability or net current liability position, fixed-term borrowings approaching
maturity without realistic prospects of renewal or repayment, negative operating
cash flows, and substantial operating losses. Key signs also include withdrawal of
financial support by creditors, adverse key financial ratios, and inability to pay
creditors on due dates.
46. State the type of audit opinion which should be expressed, when the auditor
concludes that a company's financial statements have been inappropriately prepared
on the going concern basis, and explain the reason why such an opinion is
appropriate. (3 marks) Sep2019
An adverse opinion is warranted due to material and pervasive misstatements in
financial statements.
47. Identify ONE component of internal control, other than control activities. (1
mark)
Internal control components include control environment, risk assessment,
information system, and monitoring of controls.
48. State ONE objective of internal control over a purchases and trade payables
system. (2 marks)
The internal control objectives for purchases and trade payables system include
ensuring goods and services are purchased when needed, for the entity's benefit, at
competitive prices, and recorded accurately. The entity should also obtain credit
for goods returned and sub-standard services received.
49. Describe ONE control activity which should be in place over the RECEIPT OF
GOODS PURCHASED into the warehouse by a manufacturing company. (2 marks) Sep2019
Control activities include independent examination of goods, matching received
goods to purchase orders, and raising pre-numbered sequential goods received notes.
Copies of GRNs are forwarded to purchasing and finance departments for monitoring
and matching.
50. Explain the Purpose of an audit Engagement Letter. (2 marks)
An engagement letter outlines terms of audit engagement, ensuring common
understanding and avoiding misunderstandings.
51. Describe four matters the auditor may consider in determining whether a
deficiency in Internal Controls is significant. (4 marks) March 2020
The document highlights evidence of ineffective control environment, including
management fraud, lack of oversight, and misstatements not prevented by internal
controls. It also mentions restatement of financial statements due to material
misstatements. Overall, the text emphasizes the importance of effective risk
assessment and management oversight.
52. Describe THREE control activities that should form part of the company's
continuous (perpetual) inventory counting system, if it is to be considered
effective. (6 marks) June 2020
The company's continuous inventory counting system includes annual physical
inspections for all inventory lines, with high value lines subject to more frequent
counts. Monthly checks for damaged or obsolete items are conducted, with
discrepancies reported immediately for management action.
53. Explain why audit evidence in the form of external confirmation is generally
deemed to be more reliable than evidence generated internally by the audit client.
(3 marks) June 2020
External confirmations are deemed reliable due to third parties' impartiality.
Documentary evidence from third parties is more trustworthy than internally
generated evidence.
54. Explain the differences between a positive and a negative confirmation request,
as applied to a trade receivables circularisation. (3 marks) June 2020
Positive confirmation requests provide higher certainty to auditors compared to
negative confirmation requests.
55. Define audit independence. (4 marks) June 2020
Auditor independence includes independence of mind and appearance, ensuring
integrity, objectivity, and professional scepticism.
56. Identify THREE aspects in respect of which auditors would be expected to
exercise their professional judgement, when auditing the financial statements of a
company operating a hotel chain. (6 marks)
An auditor is expected to exercise professional judgement in determining
materiality, assessing risks, selecting audit procedures, evaluating depreciation
policies, and deciding on audit opinions. This involves various aspects such as
materiality, risk assessment, audit procedures, team selection, testing, and
opinion expression.
57. Define the term 'general IT controls' in the context of a computer environment.
Provide TWO examples of general IT controls to ensure continuity of operation. (5
marks) June 2020
General IT controls ensure continuity of operations with disaster recovery
procedures, off-site storage, and more.
58. Explain the purpose of communicating, formally, with a prospective client's
existing auditors. (2 marks) June 2020
Auditors must formally communicate with existing auditors before accepting new
client instructions.
59. Identify TWO sources from which an auditor may obtain information about a
prospective audit client, other than the existing auditor. (3 marks) June 2020
Various sources for obtaining information about prospective audit clients include
management, financial statements, and media. Credit agencies and client references
are also valuable.
60. With reference to an unmodified auditor's report relating to the financial
statements of a limited liability company with issued share capital:
The report, addressed to shareholders, confirms the audit was conducted in
accordance with ISAs. It also confirms auditor independence and sufficiency of
audit evidence.
61. Explain the purpose of audit software. State TWO benefits of using audit
software. (5 marks)
Audit software aids in substantive procedures on computer-based data, offering
speed, complexity, and cost savings.
62. Explain what is meant by 'professional scepticism' and why it is so important
that the auditor maintains professional scepticism throughout the audit. (3 marks)
mock examination
Professional scepticism is crucial in auditing to reduce risks of errors or fraud.
It involves questioning evidence, evaluating results, and assessing reliability of
documents and responses.
63. Define 'professional judgement' and describe TWO areas where professional
judgement is applied when planning an audit of financial statements. (3 marks) mock
examination
Professional judgement is crucial in planning an audit, including determining
materiality levels and audit procedures.
64. Describe the substantive procedures the auditor should perform to obtain
sufficient and appropriate audit evidence in relation to the valuation of work in
progress. (4 marks) mock examination
The inventory count process involves discussing percentage completions, assessing
WIP levels, and reviewing standard costs applied to WIP. Variances between standard
and actual costs are analyzed, and total WIP is reconciled with financial
statements. Standard costs are compared to actual invoices for reasonableness.