ACA Assurance & Audit 1 — Questions and Answers
Question 1: Which International Standard on Auditing requires the auditor to communicate Key Audit Matters?
- ISA 315
- ISA 700
- ISA 701 (Correct answer)
- ISA 720
Correct answer: ISA 701
ISA 701 (Communicating Key Audit Matters in the Independent Auditor's Report) requires auditors of listed entities to describe matters of most significance in the audit.
Question 2: Under ISA 315, the auditor is required to obtain an understanding of the entity and its environment to:
- Prepare the financial statements
- Identify and assess risks of material misstatement (Correct answer)
- Design the management letter
- Confirm the going concern assumption
Correct answer: Identify and assess risks of material misstatement
ISA 315 requires the auditor to understand the entity, its environment, and internal controls to identify and assess risks of material misstatement at the financial statement and assertion levels.
Question 3: The concept of materiality in auditing means that:
- Every error must be corrected regardless of size
- Misstatements are material if they could influence economic decisions of users (Correct answer)
- Only errors over £10,000 need to be reported
- The auditor guarantees the financial statements are accurate
Correct answer: Misstatements are material if they could influence economic decisions of users
Materiality is defined by the potential to influence the economic decisions of users; the auditor uses professional judgement to determine quantitative and qualitative materiality thresholds.
Question 4: Which type of audit opinion is issued when financial statements present a true and fair view with no material misstatements?
- Qualified opinion
- Adverse opinion
- Disclaimer of opinion
- Unmodified opinion (Correct answer)
Correct answer: Unmodified opinion
An unmodified (clean) opinion is issued when the auditor concludes that the financial statements are prepared, in all material respects, in accordance with the applicable framework.
Question 5: Under ISA 530, audit sampling involves:
- Testing all items in a population
- Applying procedures to less than 100% of a population to draw conclusions about the whole (Correct answer)
- Only testing items above a monetary threshold
- Relying solely on analytical procedures
Correct answer: Applying procedures to less than 100% of a population to draw conclusions about the whole
Audit sampling applies procedures to a representative subset of a population, allowing the auditor to draw conclusions about the entire population with an acceptable level of audit risk.
Question 6: Which assertion relates to whether transactions occurred during the accounting period?
- Completeness
- Accuracy
- Occurrence (Correct answer)
- Classification
Correct answer: Occurrence
The occurrence assertion addresses whether transactions and events that have been recorded actually occurred and pertain to the entity — a key assertion for revenue testing.
ACA Assurance & Audit 1
Which International Standard on Auditing requires the auditor to communicate Key Audit Matters?