ACCA SP Advanced Audit & Assurance — Questions and Answers
Question 1: Under ISA 315 (Revised), the auditor's understanding of the entity must include:
- The audit client's market share only
- The entity, its environment, its applicable financial reporting framework, and its system of internal controls (Correct answer)
- The personal financial position of each director
- The names and contact details of all major customers
Correct answer: The entity, its environment, its applicable financial reporting framework, and its system of internal controls
ISA 315 (Revised 2019) requires the auditor to obtain an understanding of the entity and its environment, applicable FRF, and the entity's system of internal control to identify and assess risks of material misstatement.
Question 2: Which of the following is a component of the COSO internal control framework?
- Board independence
- Control environment, Risk assessment, Control activities, Information & communication, and Monitoring activities (Correct answer)
- Audit committee composition
- External auditor rotation policy
Correct answer: Control environment, Risk assessment, Control activities, Information & communication, and Monitoring activities
COSO identifies five components of internal control: (1) Control environment, (2) Risk assessment, (3) Control activities, (4) Information and communication, and (5) Monitoring activities.
Question 3: 'Intimidation threat' to auditor independence arises when:
- The auditor is asked to prepare management accounts
- A client threatens to replace the auditor if an unfavourable opinion is issued (Correct answer)
- The audit partner develops a close personal friendship with a director
- The audit firm provides both audit and tax services
Correct answer: A client threatens to replace the auditor if an unfavourable opinion is issued
An intimidation threat occurs when the auditor is deterred from acting objectively by threats (actual or perceived), such as a threat to dismiss the auditor or damage the firm's reputation.
Question 4: Under ISA 240, the fraud triangle identifies three conditions that increase the risk of fraud:
- Motive, Means, Opportunity
- Pressure (incentive), Opportunity, and Rationalisation (Correct answer)
- Greed, Deception, Concealment
- Management override, Collusion, False documentation
Correct answer: Pressure (incentive), Opportunity, and Rationalisation
Cressey's fraud triangle comprises: (1) Pressure/incentive to commit fraud, (2) Opportunity (weak controls), and (3) Rationalisation (justifying the act). ISA 240 uses this to assess fraud risk.
Question 5: An 'agreed-upon procedures' engagement differs from a reasonable assurance engagement in that:
- It provides a higher level of assurance
- The practitioner performs specified procedures and reports factual findings without expressing an opinion or conclusion (Correct answer)
- It is always performed by an internal auditor
- It requires a full audit of the financial statements
Correct answer: The practitioner performs specified procedures and reports factual findings without expressing an opinion or conclusion
In an AUP engagement (ISRS 4400), the practitioner applies specified procedures agreed with the engaging party and reports factual findings. No opinion or conclusion is expressed; users draw their own conclusions.
Question 6: Under ISA 570, if material uncertainty about going concern exists and is adequately disclosed, the auditor should:
- Issue an adverse opinion
- Issue a qualified 'except for' opinion
- Issue an unmodified opinion with a 'material uncertainty related to going concern' section (Correct answer)
- Withdraw from the engagement
Correct answer: Issue an unmodified opinion with a 'material uncertainty related to going concern' section
ISA 570: if going concern uncertainty is material but adequately disclosed in the financial statements, the auditor issues an unmodified opinion but adds a 'Material Uncertainty Related to Going Concern' section to the report.
ACCA SP Advanced Audit & Assurance
Under ISA 315 (Revised), the auditor's understanding of the entity must include: