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
Under ISA 570, if management concludes the going concern basis is appropriate but a material uncertainty exists, the auditor should:
Answer: Issue an unmodified opinion with an Emphasis of Matter paragraph highlighting the disclosure
If management adequately discloses the material going concern uncertainty in the notes, the auditor issues an unmodified opinion but includes an Emphasis of Matter paragraph to draw users' attention to the disclosure — provided the basis of preparation is appropriate.
Which of the following is a responsibility of those charged with governance in relation to the external audit?
Answer: Overseeing the financial reporting process and maintaining an effective relationship with the external auditor, including reviewing audit findings
Those charged with governance (typically the audit committee) oversee financial reporting integrity, including appointing the auditor, reviewing the audit plan, discussing findings, and recommending the approval of financial statements.
ISA 240 requires the auditor to consider the risk of management override of controls because:
Answer: Management can use their position to override controls designed to prevent fraud, creating a risk even in strong control environments
ISA 240 identifies management override as a pervasive fraud risk — because management is responsible for designing and implementing controls, they also have the ability to override them, which means even strong controls may not prevent management fraud.
The concept of 'reasonable assurance' means:
Answer: The auditor has obtained a high (but not absolute) level of confidence that material misstatements do not exist
Reasonable assurance is a high level of assurance, but not absolute — the limitations of an audit (sampling, inherent limitations of internal controls, judgment-based areas) mean 100% certainty is not possible.
A peer review (cold review) in audit quality management involves:
Answer: An independent, experienced partner from the same or different firm reviewing the audit file for quality and compliance
A cold (peer) review is performed by a reviewer who was not involved in the engagement; they assess whether the audit file is complete, evidence is sufficient and appropriate, and conclusions are well-supported — a key quality control procedure.
Under ISA 450, uncorrected misstatements must be evaluated by the auditor to determine:
Answer: Whether, individually or in aggregate, they are material to the financial statements and require a modified opinion
ISA 450 requires the auditor to accumulate uncorrected misstatements and assess whether, individually or in combination, they are material. If material misstatements remain uncorrected after requesting management to adjust, a modified opinion is required.