ACCA AUDIT AND
ASSURANCE AA PRACTICE
EXAM Question 1: A practitioner is engaged to review a company's interim �nancial statements. Which conclusion best describes the level of assurance normally provided by a review engagement?
Choices:
1) Absolute assurance that the statements are free from any error 2) Reasonable assurance expressed as a positive audit opinion 3) Limited assurance expressed in a form that states nothing has come to the practitioner's attention 4) No assurance because review procedures do not include detailed testing Correct Answer: Limited assurance expressed in a form that states nothing has come to the practitioner's attention Explanation: A review engagement provides limited assurance, normally using a negative-form conclusion such as stating that nothing has come to the practitioner's attention to indicate a material misstatement. An audit provides reasonable, not absolute, assurance.Page 1
Question 2: An audit �rm helped a client design the accounting entries for a complex restructuring and is then asked to audit those same entries. Which independence threat is most directly created?
Choices:
1) Advocacy threat 2) Familiarity threat 3) Self-interest threat 4) Self-review threat
Correct Answer: Self-review threat
Explanation: A self-review threat arises when the audit team may need to evaluate work or judgments previously made by the �rm. Auditing accounting entries the �rm helped design directly creates this risk.
Question 3: Which responsibility is most appropriately assigned to an audit
committee rather than to the external auditor?
Choices:
1) Preparing the entity's �nancial statements 2) Overseeing the relationship with the external auditor and monitoring auditor independence 3) Designing every detailed audit procedure used on the engagement 4) Guaranteeing that all fraud is prevented Correct Answer: Overseeing the relationship with the external auditor and monitoring auditor independence Explanation: An audit committee commonly oversees the external audit relationship, including auditor appointment recommendations and independence. Management prepares the �nancial statements, while the external auditor designs audit procedures and provides reasonable rather than absolute assurance.Page 2
Question 4: Before accepting appointment as auditor of a new client, what should the proposed auditor normally do regarding the predecessor auditor?
Choices:
1) Contact the predecessor without the prospective client's permission in every case 2) Ask the prospective client for permission to communicate with the predecessor about relevant professional matters 3) Rely only on management's explanation for the change of auditor 4) Accept the appointment �rst and investigate the predecessor's concerns after �eldwork begins Correct Answer: Ask the prospective client for permission to communicate with the predecessor about relevant professional matters Explanation: The proposed auditor should seek the client's permission to communicate with the predecessor auditor. This communication may reveal professional or other matters relevant to deciding whether the engagement should be accepted.
Question 5: A retailer has rapidly opened 30 new stores, changed its inventory
system near year end, and tied senior management bonuses to reported pro�t.Which response best re�ects the auditor's risk assessment?
Choices:
1) Reduce substantive testing because growth indicates strong controls 2) Treat the circumstances as increasing risks of material misstatement and design further procedures responsive to those risks 3) Conclude that detection risk is automatically zero because the inventory system is new 4) Ignore the bonus arrangement because remuneration does not a�ect �nancial reporting risk Correct Answer: Treat the circumstances as increasing risks of material misstatement and design further procedures responsive to those risks Page 3