TEST 1

1. Which of the following are the key elements of an assurance engagement:

(1) Three-party relationship;
(2) A subject matter;
(3) Suitable criteria;
(4) An assurance file
A. (1), (2), and (3)
B. (1), (2), (3), and (4)
C. (2), (3), and (4)
D. (2) and (3) only

2. Your client has asked why the auditor’s report your firm has issued on its
financial statements talks about “true and fair” rather than “correct” given that you
had spent three weeks on site reviewing all its accounting records and controls.
Which THREE of the following explain why this type of opinion has been given on
the financial statements?
A.All transactions must be reviewed.
B.Judgement involved in the use of accounting policies and estimates.
C.Audit is designed to ensure that accounts are free from material
misstatements.
D.Sampling is used to identify a representative number from each population,
but still there is a risk that incorrect items would not be chosen.

3. Which ONE of the following is NOT type of assurance engagement regarding

other information?
A.Report on prospective financial information.
B.Report on key performance indicators.
C.Report on effectiveness of internal controls for external financial purposes.
D.Report on historical financial information

4. The 'expectation gap' is the possible difference between an auditor's actual

responsibilities and those assumed by readers of an auditor's report? Which TWO
of the following are the main misunderstandings in respect of the audit made by
users of financial statements?
A.Auditor certifies accounts in report as being correct.
B.Auditors check all transactions.
C.Frauds involving collusion are harder to detect.
D.Auditors may not find material frauds.

5. Which of the following is NOT a provision of the UK Corporate Governance

Code?
A.There should be a clear division of responsibilities between the leadership of the
board and the leadership of the company’s business
B.All members of the board, excluding the chairman, should be independent
non-executive directors
C.Executive director remuneration should be linked to corporate and individual
performance
D.All directors should be subject to annual re-election

6. Which of the following is NOT describe what you understand by the terms
'reasonable assurance
A.Objective is a reduction in assurance engagement risk to a level that is
acceptable in the circumstances
B.Conclusion expressed positively.
C.High level of assurance.
D.Not absolute level of assurance

7. A fraud has recently been discovered, involving the payroll's expenses of

Yexmarine Ltd over a period of three years. The management of Yexmarine has
written to the audit firm claiming that they had a responsibility to detect fraud
during their audit, and requesting an explanation as to how they could have missed
it. Which THREE of the following points should the auditor make in response to
the Yexmarine’s management?
A.Auditor has no responsibilities as such to detect fraud.
B.Responsibilities set out in engagement letter.
C.Management’s Blue is responsible for detection fraud through
implementing and monitoring the internal control system.
D.Audit firm is responsible for detecting fraud and error at Blue.

8. During your firm's external audit of Yexmarine Ltd (Yexmarine), a

phamarceutiacal manufacturer, through inquiring its staffs, you were told that the
company frequently fails to provide its factory workers with the legally required
protective clothing when working with hazardous chemicals. Which ONE of the
following the auditor might NOT have to take FIRST in this circumstance
regarding ISA 250 "Consideration with laws and regulations in audit of financial
statements"?
A.Auditor should undertake audit procedures to identify non-compliance with laws
and regulations that mig...
B.Inspecting the correspondence with relevant licensing authorities.
C.Obtain the written representation provided by Yexmarine's management.
D.Make a statement of circumstances on resignation immediately due to this
material non-compliance wit…

8,1. During your firm’s external audit of Yexmarine Ltd (Yexmarine), a

phamarceutiacal manufacturer, through inquiring its staffs, you were told that the
company frequently fails to provide its factory workers with the legally required
protective clothing when working with hazardous chemicals. Which TWO of the
following explain why this information should be considered by your firm during
the external audit regarding ISA 250 “Consideration with laws and regulations in
audit of financial statements”?
A. Failure to provide protective clothing may breach health and safety
regulations and may indicate a lack of management integrity.
B. There may be an impact on the financial statements due to legal claims if
employees suffer injuries or going concern issues if authorities close factory.
C. Auditors should note the non-compliance with laws and regulations in the
engagement letter.
D. There may be an immaterial impact on the financial statements due to not
arising any legal claims from Lemon’s employees

9. You are the auditor of Yexmarine Ltd, a new audit client having some special
purpose subsidiaries. You are aware that your audit client has covered ISA 550
Related Parties. Which THREE of the following lists of possible procedures you
would perform to ensure that all material related party transactions have been
identified
A. Obtain a list of current known related parties and discuss the list of related
parties as disclosed by the directors as to its accuracy and completeness.
B. Enquiry of directors as to whether have been any material transactions
with related parties.
C. Review the accounting records before and after the year end for any large
amounts and analyze with reasons.
D. Issue a modified audit report because any transactions arising from special
purpose subsidiaries of Yexmarine will be considered as material.

10. Yexmarine is your new client, this engagement will represent 20% of the
recurring practice income for the firm. Your firm were able to win the client
without it going out to tender as one of the Directors of Yexmarine, Sebastian, is
your partner’s wife. Sebastian were very impressed with one of the audit managers
she met and have asked if he could come and work temporarily in her accounts
department as they’ve had some members of the team leave recently who haven’t
yet been replaced.
Which of the followings are ethical threats in respect of the engagement with
Yexmarine?
(1) Self-interest
(2) Self-review
(3) Advocacy
(4) Intimidation
A.1 only
B.1, 2,3
C.1,2,4
D.2,3,4

11. Yexmarine is your audit client which develops software packages. Mr Brat,
director of Yexmarine has proposed a potential business opportunity to your
auditing firm. The proposal is that Yexmarine and your firm could jointly develop
 accounting and tax calculation software, and that revenue from sales of the
software would be equally split between the two firms.
Which of the following is ethical threats arising from Mr Brat proposal?
A.Self-interest
B.Advocacy
C.Familiarity
D.Intimidation

12. An audit firm has identified that the current year fees to be received from a
listed client for audit and other services will represent 16% of the firm’s total fee
income (15.5% in the prior year). Which of the following safeguards would NOT
be relevant in addressing the threat identified in relation to fees?
A. Disclosure to those charged with governance of the client that its fees represent
more than 15% of the audit firm’s total fee income
B. A pre-issuance review to be conducted by an independent professional
accountant
C. Separate engagement teams to provide the audit and non-audit services
D. A post-issuance review to be conducted by an external accountant or
regulatory body

13. Which TWO of the following reasons affect to assurance engagement quality
A.The superivisor of assurance engagement may fail to communicate the
issues arising to the engagement partner
B.The auditor may perform the right work to an adequate standard
C.The client could be negligent
D.The chief accountant of a company which is a supplier of audited entity could be
incompetent

14. Which THREE of the following parties affect to audit quality?

A.The individual auditor
B.The client
C.The third party
D.The engagement partner

15. Which ONE of the following actions is NOT a quality control action in
engagement performance phase?
A.Direction
B.Documentation and review
C.Consultation
D.Observation

16. Which of the following statements is false relating to review actions in the audit
firm
A.The review will help to assess the sufficiency and appropriatesness of obtained
audit evidence
B.The review is the obligatory procedure according to law and regulations
C.Engagement quality control review (EQCR) is performed by engagement
partner
D.A “hot review” is a review carried out by a partner not otherwise involved in the
engagement or an external consultant
E. Engagement quality control review (EQRC) is performed by a suitabily qualified
partner or other person in the firm not otherwise involved in the engagement

17. Which ONE of the followings is NOT a main element of a firm’s quality
control system?
A.Engagement performance
B.Monitoring
C.Risk assessment process
D.Acceptance and continuance of client relationships and specific engagements

18. Which THREE of the following clients have high inherent risk
A.Grey Ltd has evidence of questionable integrity of management
B.Green Ltd has significant unexplained transactions
C.White Ltd has few unusual transactions
D.Blue Ltd has poor recent or forecast performance

19. Which of the following statement explain for “Self-interest” threat?

A.The auditors’ own personal interest in client which could influcence the
auditor’s independence.
B.When carrying out the audit, the auditors, review work that their own firm has
undertaken previously, e.g. preparing accounts or making a valuation. (Self-review)
C.If the auditors get involved in disputes concerning the client, they may end up
acting for or against the client, which undermines the appearance of objectivity.
(Advocacy)
D.If the auditors are involved with the client for a long time, they may become
unduly sympathetic towards directors and management and thus too inclined to
trust their unsupported word. (Familiarity)
E. The auditors may be intimidated by a dominant or aggressive atmosphere at the
client. (Intimidation)

20. You have been invited to tender for the audit of Yexmarine plc, a company that
owns and operates 40 hotels in the south west of England. You have not previously
acted for Yexmarine, but you are the current auditors of Milk Ltd, a company that
owns and operates hotels in 30 out of 35 towns in which Yexmarine operates. The
hotels operated by each company offer similar facilities to each other at a similar
price
Which of the following is not procedures you may need to implement in the event
that your tender was successful.
A.Obtain informed consent of both clients
B.Use different partners and teams
C.Use Chinese walls
D.Use Milk's engagement partner as Yexmarien's engagement partner as he
has expe...

21. Which of the following is true regarding assurance engagement

A. A statutory audit gives reasonable assurance that financial statements give
a true and fair view
B. A negative assurance conclusion gives a high level of assurance.
C. Reasonable assurance is absolute assurance of the correctness of the subject
matter
D. The practitioner’s conclusion in a review engagement is expressed in positive
form of assurance

22. Which of the following procedures is NOT likely to result in the discovery of
possible non-compliance with laws and regulations?
A.Enquiring of management or the entity’s lawyer
B.Reviewing internal control questionnaires
C.Undertaking tests of details on classes of transactions (?)
D.Reading minutes of board meetings

TEST 2

1. You are the audit senior in charge of the audit of Pam plc, a manufacturing
company. You have been understanding Palm’s internal control over the payroll
process. Which TWO of the following are example of segregation of duties?

A. Calculations of PAYE and NIC deductions should be reviewed and

authorized by the payroll supervisor who is not actually involved in
performing the calculations.
B.Overtime pay should be approved by a manager or director prior to payroll
preparation, to ensure that employees are paid at authorized rates.
C.The numerical sequence of forms for new joiners should be checked periodically
to detect omission.
D. Unclaimed wages should be kept by someone other than the person
responsible for recording payroll entries, otherwise there could be a
temptation to falsify the gures and pocket some of the wages.

2. In the auditor’s judgememt, management’s use of going concern basis of

accounting is appropriate but the material uncertainty has NOT been adequately
disclosed in a note to financial statements. What form of auditor’s report should be
issued?
A. An unqualified opinion with “Material uncertainty relating to going concern”
section
B. An adverse opinion
C. A qualified opinion on the basis of insufficient audit evidence
D. A qualified opinion on the basis of material misstatement

3. Which of the following procedures are TESTS OF CONTROL an auditor should

perform in testing the inventory cycle of their client whilst attending the inventory
count?
(1) Observe whether the client’s staff are following the inventory count instructions
(2) Review inventory present in the warehouse for evidence of damage or
obsolescence
(3) Obtain a sample of the last goods received notes and goods despatched notes
and follow through to ensure inclusion in the correct accounting period
(4) Inspect and review management’s inventory count instructions
A.2 and 3
B.1 and 4
C.1 and 2
D.3 and 4

4. ISA 700 Forming an opinion and reporting on financial statements sets out the
basic elements of an auditor's report. Which of the following is not included in an
unmodified auditor's report?
A.Management's responsibility for the financial statements
B.Auditors' responsibilities
C.Audit opinion
D.Deficiencies of internal controls

5. Before accepting a new client, audit firm often perform client screening
procedure. ACC, an assurance firm, has the following 4 clients among its client
portfolio. For below clients, select the client which has low inherent risk
A.Green Ltd is planning to list on the local stock exchange within the next year
B.Grey Ltd has lack of finance director
C.White Ltd has few unusual transactions
D.Blue Ltd is currently facing financial difficulties and is seeking alternative forms
of finanance

6. Which of the following summarises the key audit concern arising from the
matter described?
The following information is obtained when you are doing the audit planning for
the audit of Stuart Ltd for the year end 31 December 20X9: One large customer,
Dulce, went into liquidation before the year end and Stuart are not sure if they will
receive the $500,000 which they are owed by Dulce
A.Valuation of trade receivable
B.Existence of trade receivables
C.Completeness of trade receivables
D.Presentation of trade receivables

7. Which of the following statements about a engagement letter is true?

A. It is sent by the auditor to record the agreed terms and conditions of the
audit engagement.
B. For recurring audit, a letter of engagement must be issued each year
C. It is sent from the new client to the auditor setting out the audit requirement
D. Once sent, the term of engagement letter will stand untill the auditor resigns or
is removed from office.

8. On 25 Jan 20X8, a company’s warehouse is destroyed by fire.How should this

be treated in the financial statements for the year ended 31 December 20X7?
A. Adjust the financial statements to write off the warehouse and explain the event
in a note to the financial statements
B. Only adjust the financial statements to write off the warehouse
C. No adjustment or disclosure is required
D. Only explain the event in a note to the financial statements.

9. Which TWO of the following are benefit of adequate planning of the audit.
A. to facilitate the direction, supervision and review
B. To design audit programs
C. to ensure that modified audit opinion is not required
D. to devote appropriate attention to important area
10. According to ISA 315, in the planning phase, Auditor must understand the
entity and its environment to assess the risks of material misstatement at the
financial statement level and at the assertion level. Which ONE of the following
statements in respect of risk is false?
A. Risk of material misstatement is organized by inherent and control risks
B. Identifying business risks is part of the company's risk assessment processes
C. Inherent and control risks are components of audit risk.
D. Auditors should provide suggestions for companies to overcome business
risks

11. What is appropriate response if a prospective client does not give permission to
a proposed new auditor to communicate with existing auditor?
A. Accept the appointment anyway as communication is only a matter of
professional courtesy
B. Contact the existing auditor anyway
C. Decline the appointment
D. Attempt to find out the information by other means and then decide on whether
to accept or decline the appointment

12. Which of the following correctly describe the use of an ‘emphasis of matter’
(EOM) paragraph as part of the audit report
A. An EOM paragraph should be used where the financial statements give a
true and fair view. It should highlight a matter included in the financial
statements which has been correctly disclosed but which is fundamental to the
understanding of the users of the financial statements
B. An EOM paragraph should be used where there is material disagreement but its
impact is not pervasive
C. An EOM paragraph should be used where there is limitations of scope which
possible impact is material but not pervasive
D. It is alternative name for “Other matter” paragraph
E. It may be used to draw attention to matters of most significance to the audit

13. The engagement letter is an agreement between the audit firm and the client for
performing of the audit and related services. Which ONE of the following must
NOT be included in an audit engagement letter?
A. The objective and scope of the audit
B. Expected form and content of any reports
C. Arrangements concerning the use of experts
D. The applicable financial reporting framework

14. The auditor of ABC Co believes that trade receivables are materially misstated
because some amounts appear to be irrecoverable. The directors have refused to
adjust the FS.
What form of audit opinion should the auditor give?
A. Qualified opinion on the basis of insufficient audit evidence on the
recoverability of the debts
B. An adverse opinion on the basis of a material misstatement
C. An unmodified opinion
D. A qualified opinion on the basis of a material misstatement

15. After the FS with an unmodified audit opinion have been issued to members,
the auditor becomes aware that they contain a material misstatement. What should
be the auditor’s next step?
A. Discuss how management intends to address the matter
B. Seek legal advice
C. Carry out audit procedures on the necessary amendments
D. No action is needed because the audit has been completed

16. Events after the reporting date are categorised as either being an adjusting event
and a non-adjusting event. Non-adjusting events are not incorporated into the
financial statements, although they may be disclosed. Which of the following
should be classified as a non-adjusting event?
A. An issue of shares to finance expansion after reporting date
B. The bankruptcy of a major customer, with a substantial debt outstanding at the
end of the reporting period
C. A valuation of property providing evidence of impairment in value at the
Statement of Financial Position date
D. Discovery of fraud or error affecting the financial statement
17. Which TWO of the followings are acceptance procedures to accept a new
client?
A. Implement the preliminary analytical procedure
B. Ensure professionally qualified to act
C. Understand the entity and its environment to assess the business risk and
inherent risk
D. Obtain references for key personnel within the entity to be audited

17. Imagine you are doing the audit planning for the audit of Steel Ltd for the year
end 31 December 20X9. The company has spent an estimated $1.2m on
refurbishing their existing plants. This information has led you to be concerned that
property, plant and equipment may be overstated in the financial statements. Which
of the following statements represents a valid response to this audit risk?
A. Perform a proof in total calculation of the depreciation charge for the year and
investigate any significant differences.
B. Physically verify a sample of these plants to ensure existence.
C. Select a sample of existing planes and trace to accounting book to verify the
completeness of recording.
D. Obtain a breakdown of the capitalised costs and agree a sample of items to
invoices to determine the nature of the expenditure, to ensure that only
expenditure enhance conditions of asset, should be capitalized

8. Which of the following statements regarding a new auditor's communication

with existing auditor are true?
(1) The new auditor can decide whether it is necessary to communicate with
existing auditor
(2) Both the new auditor and the existing auditor must have the client's permission
to communicate.
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2

9. When planning the use the work of experts and in assessing the results of the
work of experts, to what matters should the auditor pay attention?
A. Assess the experts’ competence, capabilities, and objectivity.
B. Assess appropriateness of audit evidence regarding financial statement’s
assertions, especially source of data and reasonable assumption and method.
C. Result of work considering auditor’s own knowledge of business.
D. All these above.