Audit & Assurance 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 & Assurance flashcards as text
The Conceptual Framework for Assurance Engagements identifies three parties to an assurance engagement. These are:
Answer: Practitioner, intended users, and the responsible party (management)
The three parties are: the practitioner (performing the engagement), the intended users (who rely on the conclusion), and the responsible party (management, who is responsible for the subject matter — e.g., the financial statements).
Which of the following is a key difference between an internal audit function and an external audit?
Answer: External auditors report to shareholders and provide statutory assurance; internal auditors report to management/governance to improve internal controls
External audit provides independent statutory assurance to shareholders on the financial statements; internal audit is an internal function focused on improving risk management, controls, and governance — reporting to management and the audit committee.
The objective of a forensic audit is:
Answer: To investigate suspected fraud, financial irregularity, or disputes for legal proceedings
Forensic audits are specialist investigations into suspected fraud, financial crime, or disputes; they often provide evidence suitable for use in legal proceedings and are more detailed and focused than a financial statement audit.
Under ISA 700, the auditor's report must include a section describing Key Audit Matters (KAMs) for:
Answer: Listed entities and, where required by law or regulation, other public interest entities
ISA 701 requires KAMs disclosure in audit reports of listed entities and those where regulators or law require it. For unlisted entities applying ISA 700, KAMs are not required (though they may be included voluntarily).
Due professional care in auditing requires the auditor to:
Answer: Apply the skill and care of a reasonably competent, diligent auditor
Due professional care requires the auditor to exercise the skill, knowledge, and diligence expected of a competent professional. It does not require perfection — the standard is that of a reasonably competent auditor.
Which of the following represents a threat to auditor independence in the UK?
Answer: A partner of the audit firm holds shares in a listed audit client
A partner holding shares in an audit client creates an unacceptable self-interest threat to independence; audit engagement partners (and others in the audit team) must not hold financial interests in audit clients.