Audit and Assurance Principles Flashcards
6 cards from real AAT L4 practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Audit and Assurance Principles flashcards as text
An auditor discovers a material misstatement in the financial statements. Management refuses to adjust. The auditor should issue:
Answer: A qualified 'except for' opinion or an adverse opinion, depending on pervasiveness
When management refuses to correct a material misstatement, the auditor must modify the opinion. If the effect is material but not pervasive, a qualified opinion is given; if pervasive, an adverse opinion is required.
Which of the following is an example of a 'test of controls' rather than a substantive procedure?
Answer: Checking that purchase invoices above £5,000 have been authorised with a manager's signature
Checking for authorisation signatures tests whether the control (authorisation requirement) is operating effectively. This is a test of controls, not a substantive check of amounts.
A junior auditor is reviewing the inventory count procedures of a manufacturing client. Which procedure best tests the completeness assertion for inventory?
Answer: Selecting items from the warehouse floor and tracing them back to the inventory sheets
Tracing from the physical inventory to the records tests completeness — ensuring all existing items have been recorded. Starting from the records tests existence (the opposite direction).
What does 'professional scepticism' require of an auditor?
Answer: Maintaining a questioning mind and critically assessing audit evidence, without assuming good or bad faith
Professional scepticism means maintaining a questioning mind and critically assessing evidence — it is neither automatic distrust nor automatic acceptance of management's assertions.
Which of the following is NOT a component of internal control under the COSO framework?
Answer: Audit opinion
The five COSO components of internal control are: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring Activities. An 'audit opinion' is an auditor's output, not an internal control component.
An auditor is assessing materiality for a company with revenue of £5m, profit before tax of £200,000, and total assets of £3m. Using a benchmark of 5% of profit before tax, what would the planning materiality be?
Answer: £10,000
Planning materiality = 5% × £200,000 = £10,000. Materiality is applied to the chosen benchmark figure, not to revenue or total assets.