ACCA Audit and Assurance Principles 4 — Questions and Answers
Question 1: Which type of audit opinion is issued when the financial statements are materially misstated but the misstatement is NOT pervasive?
- Adverse opinion
- Disclaimer of opinion
- Qualified opinion (Correct answer)
- Unmodified opinion
Correct answer: Qualified opinion
A qualified opinion ('except for') is appropriate when there is a material but non-pervasive misstatement or limitation on scope.
Question 2: Under ACCA's Code of Ethics, which principle requires auditors not to disclose client information to third parties without proper authority?
- Integrity
- Objectivity
- Confidentiality (Correct answer)
- Professional competence
Correct answer: Confidentiality
The confidentiality principle prohibits auditors from disclosing client information acquired during the engagement to unauthorized parties.
Question 3: What is 'tolerable misstatement' in audit sampling?
- The total errors discovered in the sample
- The maximum monetary error in a population the auditor can accept without modifying the opinion (Correct answer)
- The threshold above which all errors are adjusted by management
- The benchmark used to assess materiality at the financial statement level
Correct answer: The maximum monetary error in a population the auditor can accept without modifying the opinion
Tolerable misstatement is the amount set by the auditor for sampling purposes, representing the maximum error acceptable before the conclusion about the population changes.
Question 4: Which assertion is MOST directly tested when an auditor reviews the physical inventory count?
- Completeness
- Existence (Correct answer)
- Valuation
- Rights and obligations
Correct answer: Existence
Observing a physical count tests that recorded inventory items actually exist at the balance sheet date.
Question 5: An audit firm provides bookkeeping services to an audit client. Which threat does this primarily create?
- Advocacy threat
- Familiarity threat
- Self-review threat (Correct answer)
- Intimidation threat
Correct answer: Self-review threat
Preparing accounting records and then auditing those same records creates a self-review threat because the firm is auditing its own work.
Question 6: Under ISA 240, management override of controls is considered a significant fraud risk in every audit because:
- Management always has fraudulent intent
- Management is uniquely positioned to override controls regardless of their design (Correct answer)
- All controls designed by management are inherently weak
- External auditors cannot test management-level transactions
Correct answer: Management is uniquely positioned to override controls regardless of their design
ISA 240 recognizes that management can circumvent controls that would otherwise prevent or detect fraud, making this a presumed risk in every audit.
Question 7: What is the auditor's primary objective when testing controls (tests of controls)?
- To determine the monetary value of misstatements
- To obtain evidence about the operating effectiveness of controls in preventing or detecting material misstatements (Correct answer)
- To identify weaknesses for the management letter
- To confirm the design of controls matches documentation
Correct answer: To obtain evidence about the operating effectiveness of controls in preventing or detecting material misstatements
Tests of controls are designed to evaluate whether internal controls operated effectively throughout the period, supporting a reduced assessed level of control risk.
ACCA Audit and Assurance Principles 4
Which type of audit opinion is issued when the financial statements are materially misstated but the misstatement is NOT pervasive?