1.

When gaining an understanding of the specific business operations of an audit

client, which of the following matters would an auditor need to consider?

A. Accounting principles and industry-specific practices relevant to the client's

business

B. Acquisitions or disposals of the client's business activities

C. Leasing of property, plant, or equipment for use in the client's business

D. Products or services and markets of the client's business

2. Which of the following statements about materiality are correct?

(1) Information is material if its omission or misstatement could influence the

economic decisions of users of the financial statements.

(2) Materiality is based on the auditor's experience and judgement.

(3) Materiality is always based on revenue.

(4) Materiality should only be calculated at the planning stage of the audit.

A. (1), (2), and (3)

B. (1), (3), and (4)

C. (1) and (2)

D. (2) and (4)

3. Which of the following procedures must the auditor use to obtain an

understanding of the entity and its environment in accordance with ISA 315
Identifying and assessing the risks of material misstatement through
understanding the entity and its environment?

(1) Analytical procedures

(2) Inquiry

(3) Confirmation

(4) Reperformance

A. (1), (2), and (3)

B. (1) and (2)

C. (2), (3), and (4)

D. (1) and (4)

4. What are the purposes of planning the audit?

(1) To ensure appropriate attention is devoted to different areas of the audit

(2) To identify potential problem areas

(3) To facilitate delegation of work to audit team members

(4) To ensure the audit is completed within budget and time restraints

A. (1), (2), (3), and (4)

B. (1), (3), and (4)

C. (1), (2), and (3)

D. (2) and (3)

5. Which of the following factors influence the form and content of audit
working papers?

(1) Risks of material misstatement

(2) Exceptions identified

(3) Nature of the package used for documentation

(4) Cost to the audit

A. (1), (2), and (4)

B. (1), (3), and (4)

C. (1) and (2)

D. (2) and (4)

6. Performance materiality levels are higher than the materiality for the financial
statements as a whole. Is this statement true or false?

A. True

B. False

7. 'Audit risk' represents the risk that the auditor will give an inappropriate
opinion on the financial statements when the financial statements are materially
misstated. Which of the following categories of risk can be controlled by the
auditor?

(1) Control risk

(2) Detection risk

(3) Sampling risk

A. (1) and (2)

B. (2) only

C. (1) and (3)

D. (2) and (3)

8. Which of the following statements are correct with regard to the relationship
between the audit plan and the audit strategy for an external audit engagement?

(1) The audit plan should be developed before the audit strategy is established.

(2) The audit plan and the audit strategy should be established and developed at
the same time.

(3) The overall audit strategy should be more detailed than the audit plan.

(4) The audit strategy should be established before the audit plan is developed.

A. (1) and (3)

B. (2) only

C. (3) and (4)

D. (4) only
9. The definition of the risk of material misstatement is 'Inherent Risk × Control
Risk × Detection Risk'. Is this statement true or false?

A. True

B. False

10. Which of the following would normally be included in the audit plan?

A. Reporting objectives

B. Industry-specific financial reporting requirements

C. Nature, timing, and the extent of planned risk assessment procedures

11. Is the following statement regarding the interim audit true or false? The
higher the risk of material misstatement, the more likely it is that the auditor will
decide to perform substantive procedures during the interim audit rather than at
the period end.

A. True

B. False

12. The auditor of Z Co has set performance materiality at $100,000. Which of

the following could be the materiality level set for the financial statements as a
whole for Z Co?

A. $80,000

B. $95,000

C. $100,000

D. $120,000

13. Which of the following statements is/are true with respect to analytical
procedures?
(1) Analytical procedures can be used throughout the audit.

(2) Analytical procedures must be used as risk assessment procedures.

A. (1) only

B. (2) only

C. (1) and (2)

D. Neither (1) nor (2)

14. Who is responsible for the prevention and detection of fraud?

A. Internal auditors

B. External auditors

C. Those charged with governance and management

D. The audit committee

15. Which of the following is an appropriate response to the risks of material

misstatement at the assertion level?

A. Emphasising the need to maintain professional scepticism

B. Increasing supervision on the audit

C. Increasing sample sizes for inspecting recorded assets where assets are
more susceptible to theft

D. Making changes to the nature of the audit procedures

16. The auditor of A Co wishes to reduce audit risk. Which of the following
actions could the auditor take to achieve this?

(1) Increase sample sizes

(2) Reduce control risk

(3) Assign more experienced staff to the engagement team

A. (1) only
B. (2) only

C. (1) and (3)

D. (2) and (3)

17. Which of the following correctly describes the auditors' responsibilities in

accordance with ISA 240 The auditor's responsibilities relating to fraud in an
audit of financial statements?

A. The auditor is responsible for the prevention and detection of fraud and error.

B. The auditor is not responsible for the prevention of fraud and error but is
responsible for detection.

C. The auditor is responsible for obtaining reasonable assurance that the

financial statements are free from material misstatement whether caused by
fraud or error.

D. The auditor is responsible for detecting all errors and should attempt to detect
fraud where information comes to light as a result of standard audit procedures.

18. Is the following statement true or false regarding the retention of working
papers? ACCA recommends that working papers should be retained for a
minimum period of five years.

A. True

B. False

19. When determining whether the preconditions for an audit are present, the
auditor obtains management's agreement that it acknowledges and understands
its responsibilities. Which of the following is not included in the agreement
obtained by the auditor?

A. Management's responsibility for preparing the financial statements

B. Management's responsibility for internal control to enable the preparation of

financial statements which are free from material misstatement
C. Management's responsibility to provide the auditor with all information
relevant to the preparation of the financial statements

D. Management's responsibility to prevent and detect fraud

20. Which of the following must be included in an audit engagement letter?

A. Arrangements concerning the use of experts

B. Obligations to make audit working papers available to other parties

C. Expected form and content of any reports

D. Basis on which fees are computed

21. It is not the auditor's responsibility to ensure that the entity complies with
relevant laws and regulations. Is this statement true or false?

A. True

B. False

22. F Co owns a chain of four restaurants, and is subject to national regulation

concerning hygiene in the food preparation process. Non-compliance can result
in a large fine, or closure of the restaurant concerned. As F Co's external auditor,
what is your responsibility regarding the company's compliance with the
hygiene regulations?

A. Actively prevent and detect non-compliance with the regulations

B. Perform specific audit procedures to identify possible non-compliance

C. Obtain sufficient appropriate audit evidence about F Co's compliance with the
regulations

D. Nothing – the food hygiene regulations do not have a direct effect on the
financial statements
23. In accordance with ISA 250 Consideration of laws and regulations in an
audit of financial statements, what are the responsibilities of the external
auditor?

A. To obtain sufficient appropriate evidence regarding compliance with laws and

regulations that have both a direct and indirect effect on the financial statements

B. To obtain sufficient appropriate evidence regarding compliance with

laws and regulations that have a direct effect on the financial statements
only

C. To obtain sufficient appropriate evidence regarding compliance with laws and

regulations that have an indirect effect on the financial statements only
regulations which affect the business

24. Auditors usually carry out their audit work at different stages known as the
interim audit and the final audit. Which of the following statements, if any, is/are
correct?

(1) Carrying out tests of control on the company's sales day books would
normally be undertaken during an interim audit.

(2) Review of aged receivables ledger to identify balances requiring write down
or allowance would normally be undertaken during a final audit.

A. Neither (1) nor (2)

B. Both (1) and (2)

C. (1) only

D. (2) only

25. During the planning stages of the final audit, the auditor believes that the
probability of giving an inappropriate audit opinion is too high. How should the
auditor amend the audit plan to resolve this issue?

A. Increase the materiality level

B. Decrease the inherent risk

C. Decrease the detection risk