ACCA Audit and Assurance Principles 5 — Questions and Answers
Question 1: Which of the following best describes 'professional skepticism' as required by ISA 200?
- Assuming management is always dishonest
- An attitude that includes a questioning mind and critical assessment of audit evidence (Correct answer)
- Refusing to accept any management representations
- Applying conservative accounting judgments
Correct answer: An attitude that includes a questioning mind and critical assessment of audit evidence
Professional skepticism means maintaining a questioning mind and critically evaluating evidence without assuming dishonesty or unquestioning acceptance.
Question 2: When an auditor uses the work of an auditor's expert, who retains sole responsibility for the audit opinion?
- The expert, for matters within their expertise
- Both the auditor and the expert jointly
- The auditor, without sharing responsibility with the expert (Correct answer)
- The client management who engaged the expert
Correct answer: The auditor, without sharing responsibility with the expert
Under ISA 620, the auditor remains solely responsible for the audit opinion even when using the work of an expert.
Question 3: Which type of assurance engagement provides a lower level of assurance than a full audit?
- Statutory audit
- Review engagement (Correct answer)
- Forensic audit
- Due diligence engagement
Correct answer: Review engagement
A review engagement provides limited (negative) assurance, concluding that nothing has come to the auditor's attention indicating the financial statements are misstated.
Question 4: Under ISA 550, which transaction type between related parties requires the MOST auditor attention?
- Routine transactions priced at market rates
- Transactions not in the normal course of business (Correct answer)
- Intragroup dividends between subsidiaries
- Payroll transactions for related-party employees
Correct answer: Transactions not in the normal course of business
Related party transactions outside the normal course of business require heightened scrutiny because they may lack commercial substance or be used to manipulate results.
Question 5: Performance materiality is set at a level LOWER than overall materiality primarily to:
- Provide a buffer to reduce the probability that the aggregate of uncorrected misstatements exceeds overall materiality (Correct answer)
- Simplify communication with those charged with governance
- Allow auditors to ignore smaller misstatements entirely
- Align with regulatory thresholds for financial reporting
Correct answer: Provide a buffer to reduce the probability that the aggregate of uncorrected misstatements exceeds overall materiality
Performance materiality creates a safety margin so that the combined effect of uncorrected and undetected misstatements does not exceed overall materiality.
Question 6: An auditor discovers after issuing the audit report that a fact existed at the report date which would have caused the report to be amended. Under ISA 560, what should the auditor do?
- Take no action, as the report has already been issued
- Discuss the matter with management and, if necessary, take steps to prevent reliance on the report (Correct answer)
- Reissue the report with a new date automatically
- Inform only the audit committee and take no further action
Correct answer: Discuss the matter with management and, if necessary, take steps to prevent reliance on the report
ISA 560 requires the auditor to discuss subsequently discovered facts with management and, if material, take appropriate action to prevent continued reliance on the original report.
Question 7: Which internal control activity most directly prevents unauthorized payments in a payables system?
- Monthly bank reconciliations
- Segregation of duties between invoice approval and payment authorization (Correct answer)
- Aged creditor listings reviewed by the CFO
- Automated matching of purchase orders to vendor invoices
Correct answer: Segregation of duties between invoice approval and payment authorization
Segregating the functions of approving invoices and authorizing payments ensures no single individual can initiate and complete an unauthorized payment.
ACCA Audit and Assurance Principles 5
Which of the following best describes 'professional skepticism' as required by ISA 200?