Question 14:Who is qualified to offer an audit?

A) A licensed auditor from ACCA, ICAEW, ICAS, or ICAI

Act2Part 2-6: Which one is NOT a reliable method to ensure that IAS 16 has been correctly applied for refurbishments?

D) Assuming all refurbishment costs should be capitalized without review

Act 2 - Part 2-7: Which one is NOT a reliable method to assess whether the useful life estimates of PPE are appropriate?

A) Assume all assets have the same 50-year useful life without justificatio

Question 16:Auditors provide different levels of assurance based on what?

D) The type of engagement and level of confidence in financial statements

Question 18:Which level of assurance provides the highest confidence in financial statements?

A) Reasonable assurance through an audit

Question 3:Who conducts an external audit?

B) A qualified and independent auditor

Question 21:Which of the following is NOT a limitation of external audits?

A) External audits help enhance financial statement credibility.

Q17 The three different levels of assurance (by auditors) are...

C) Reasonable assurance, limited assurance, and no assurance

Question 9:Which of the following are key procedures auditors use when carrying out an audit?

A) Sampling tests, record inspections, and professional judgment

Question 6: How does an audit benefit shareholders?

B) It ensures FS are credible and reliable for decision-making

Question 4: What does an external audit primarily seek to identify?

C) Material misstatements in financial statements

Question 8:Which of the following best describes how an audit is carried out?

A) To understand the entity, evaluate systems, and identify high-risk areas

Question 7:Why is auditing essential for capital markets?

C) It provides reliable financial statements, reducing investment risk

Question 1:Which of the following best describes the primary objective of an external audit?

C) Offer reasonable assurance that FS are free from material misstatement

Activity 2 - Q2: Why might shareholders of Blue Coat Plc question the directors' financial reports?

D) Agency Theory – directors may prioritize their own interests

Activity 2 - Part 2-4: Which of the following does NOT help an auditor verify asset ownership?

D) Assuming the company owns all assets listed in financial statements

Act2Part2-5 Which of the following is NOT a reliable method to assess whether the fair value of an asset is appropriate?

D) Accepting the fair value provided by management without verification

Question 23:According to ISA 240, what is an auditor’s responsibility regarding fraud?

C) Assess fraud risk throughout audit and investigate suspicions if arise

Act 2-Part 3-2: Which of the following does NOT help confirm that reported sales are genuine?

B) Accepting all revenue figures provided by management without checks

Act 2-Part 3-3: Which of the following is NOT a reliable method to ensure sales are not recognized before they occur?

D) Recording revenue ASA a sales contract is signed, regardless of delivery

Question 5:According to agency theory, why is an audit necessary for public companies?

A) Directors may manipulate financial statements to protect their interests

Activity 2 - Part 2-3: Which of the following is NOT a reliable method to confirm a company owns its PPE?

C) Relying only on management’s verbal confirmation

Question 10:In an audit, what does professional judgment mean, and why is it important?

A) Applying expertise to assess complex areas and risks

Question 22:Who holds primary responsibility for the prevention and detection of fraud?

B) The company’s management (directors)

Question 15:When is an external audit conducted?

A) Annually, with submission in 6 months (public) or 9 months (private)

Question 19:How does a limited assurance engagement differ from a reasonable assurance engagement?

D) It relies more on inquiry and analysis rather than extensive testing

Question 11:What is the primary value of an external audit?

A) Enhancing the credibility and reliability of financial statements

Activity 2 - Q3: Why are audited financial statements important for capital markets?

C) They help banks, investors, and financial ins. make informed decisions

Activity 2 - Part 2-1: How can an auditor confirm the cost of new PPE additions?

A) Reviewing invoices, purchase orders, and payment records

Question 13:Which criteria allow a limited company to qualify for an audit exemption?

A) Meeting at least 2: turnover ≤ £10.2M, assets ≤ £5.1M, or ≤ 50 employees

Activity 2 - Part 2-2: Which of the following is not a reliable method for verifying the cost of new PPE additions?

D) Accepting management’s estimate without supporting documents

Question 12:Which companies are generally required to have an audit?

A) All limited companies unless exempt based on size criteria

Question 2:Which of the following is NOT a key aspect of an external audit?

D) Guaranteeing that the financial statements are 100% accurate.

Act 2-Part 3-1: Which one is NOT a reliable method to check that all sales for the year are recorded?

D) Assuming all reported revenue is complete without verification

Activity 2 - Q1:Why might you (as a shareholder) not fully trust the financial figures presented by directors?

A) Directors may have incentives to manipulate FS for personal gain

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ACC 6031 Audit & Assurance Week 1

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Questions 36

Answers

1
Question 14:Who is qualified to offer an audit?
C) A company’s internal finance team
B) Any accountant with financial experience
A) A licensed auditor from ACCA, ICAEW, ICAS, or ICAI
D) Any business consultant with auditing knowledge
2
Act2Part 2-6: Which one is NOT a reliable method to ensure that IAS 16 has been correctly applied for refurbishments?
B) Reviewing invoices and contracts to confirm the nature of refurbishments
D) Assuming all refurbishment costs should be capitalized without review
C) Checking how similar expenses were treated in prior years
A) Differentiating between capital and revenue expenditure
3
Act 2 - Part 2-7: Which one is NOT a reliable method to assess whether the useful life estimates of PPE are appropriate?
D) Checking manufacturer guidance on expected lifespan
C) Reviewing historical asset replacement trends
A) Assume all assets have the same 50-year useful life without justificatio
B) Comparing estimates with industry standards
4
Question 16:Auditors provide different levels of assurance based on what?
C) The size and profitability of the company
A) The number of transactions in the financial records
B) The preferences of management
D) The type of engagement and level of confidence in financial statements
5
Question 18:Which level of assurance provides the highest confidence in financial statements?
D) Management’s own assessment of financial statements
A) Reasonable assurance through an audit
B) Limited assurance through a review
C) No assurance through a compilation
6
Question 3:Who conducts an external audit?
D) The company’s shareholders
A) The company’s internal accountant
B) A qualified and independent auditor
C) The board of directors
7
Question 20:Which of the following are limitations of external audits?
C) Audit report issued a long time after the YE date
B) Auditors use judgment and estimates, which may affect objectivity.
A) No absolute assurance due to sampling risk and materiality.
D) All of the above.
8
Question 21:Which of the following is NOT a limitation of external audits?
C) Auditors rely on sampling, so not all transactions are tested.
A) External audits help enhance financial statement credibility.
D) It involves professional judgment, which may introduce subjectivity.
B) Limitations in internal controls i.e. management override, human error
9
Q17 The three different levels of assurance (by auditors) are...
B) High assurance, medium assurance, and low assurance
A) Full assurance, partial assurance, and zero assurance
D) Financial assurance, operational assurance, and compliance assurance
C) Reasonable assurance, limited assurance, and no assurance
10
Question 9:Which of the following are key procedures auditors use when carrying out an audit?
B) Reviewing all transactions individually to ensure absolute accuracy
C) Relying only on management’s representations for FS verification
A) Sampling tests, record inspections, and professional judgment
D) Preparing the company’s FS and making business decisions
11
Question 6: How does an audit benefit shareholders?
B) It ensures FS are credible and reliable for decision-making
C) It prevents directors from making business mistakes
A) It guarantees profits for shareholders
D) It increases company revenue
12
Question 4: What does an external audit primarily seek to identify?
D) Tax evasion by the company
B) Fraud committed by management
A) All minor accounting errors
C) Material misstatements in financial statements
13
Question 8:Which of the following best describes how an audit is carried out?
B) Checking every transaction and ensuring all financial data is accurate
D) Focusing only on FS without assessing internal controls
A) To understand the entity, evaluate systems, and identify high-risk areas
C) Relying solely on management’s explanations and internal reports
14
Question 7:Why is auditing essential for capital markets?
D) It controls market prices and company valuations
A) It eliminates all financial risks for investors
B) It ensures companies always receive funding
C) It provides reliable financial statements, reducing investment risk
15
Question 1:Which of the following best describes the primary objective of an external audit?
A) To ensure that the company’s FS are free from any errors.
C) Offer reasonable assurance that FS are free from material misstatement
D) To prepare financial statements (FS) on behalf of the company
B) To provide absolute assurance that the FS are completely accurate.
16
Activity 2 - Q2: Why might shareholders of Blue Coat Plc question the directors' financial reports?
B) Shareholders control financial reporting
A) External audits are unnecessary
D) Agency Theory – directors may prioritize their own interests
C) Directors must always report 100% accurate figures
17
Activity 2 - Part 2-4: Which of the following does NOT help an auditor verify asset ownership?
A) Inspecting purchase agreements and legal ownership documents
C) Physically examining the asset on company premises
D) Assuming the company owns all assets listed in financial statements
B) Reviewing payment records to trace ownership
18
Act2Part2-5 Which of the following is NOT a reliable method to assess whether the fair value of an asset is appropriate?
B) Comparing the valuation to market data and industry benchmarks
C) Checking the assumptions used in the valuation model
D) Accepting the fair value provided by management without verification
A) Reviewing independent valuation reports from professional appraisers
19
Question 23:According to ISA 240, what is an auditor’s responsibility regarding fraud?
C) Assess fraud risk throughout audit and investigate suspicions if arise
B) Conduct a fraud investigation in every audit
A) Actively prevent fraud in a company
D) Ignore fraud risk unless requested by management
20
Act 2-Part 3-2: Which of the following does NOT help confirm that reported sales are genuine?
C) Confirming customer payments in bank statements
D) Contacting major customers for direct confirmations
B) Accepting all revenue figures provided by management without checks
A) Inspecting invoices and delivery records
21
Act 2-Part 3-3: Which of the following is NOT a reliable method to ensure sales are not recognized before they occur?
D) Recording revenue ASA a sales contract is signed, regardless of delivery
C) Testing journal entries for unusual year-end adjustments
A) Reviewing sales contracts for performance obligations
B) Analyzing deferred revenue accounts
22
Question 5:According to agency theory, why is an audit necessary for public companies?
A) Directors may manipulate financial statements to protect their interests
B) Shareholders lack financial expertise to interpret reports
D) External auditors make business decisions for the company
C) Auditors help directors manage company finances
23
Activity 2 - Part 2-3: Which of the following is NOT a reliable method to confirm a company owns its PPE?
D) Examining lease agreements to ensure proper classification
C) Relying only on management’s verbal confirmation
A) Reviewing title deeds, registration documents, or purchase agreements
B) Checking bank records for payments made to acquire assets
24
Question 10:In an audit, what does professional judgment mean, and why is it important?
D) Following a strict checklist without exceptions
B) Forming opinions without sufficient evidence
A) Applying expertise to assess complex areas and risks
C) Adjusting financial statements at discretion
25
Question 22:Who holds primary responsibility for the prevention and detection of fraud?
B) The company’s management (directors)
A) The external auditor
D) The shareholders
C) The audit committee
26
Question 15:When is an external audit conducted?
A) Annually, with submission in 6 months (public) or 9 months (private)
C) Only when financial issues arise
B) Every two years, based on company preference
D) Only if requested by shareholders
27
Question 19:How does a limited assurance engagement differ from a reasonable assurance engagement?
B) It requires auditors to verify every transaction
A) It guarantees financial statements are 100% accurate
D) It relies more on inquiry and analysis rather than extensive testing
C) It provides a formal audit opinion on financial statements
28
Question 11:What is the primary value of an external audit?
B) Guaranteeing a company’s profitability
C) Preparing financial statements for management
A) Enhancing the credibility and reliability of financial statements
D) Eliminating all financial risks for investors
29
Activity 2 - Q3: Why are audited financial statements important for capital markets?
D) They eliminate all risks in the stock market
B) They prevent directors from making financial mistakes
A) They guarantee companies will always be profitable
C) They help banks, investors, and financial ins. make informed decisions
30
Activity 2 - Part 2-1: How can an auditor confirm the cost of new PPE additions?
B) Relying on management’s verbal confirmation
D) Ignoring costs and focusing only on physical inspection
A) Reviewing invoices, purchase orders, and payment records
C) Checking only the company’s internal records
31
Question 13:Which criteria allow a limited company to qualify for an audit exemption?
C) Being a private company with fewer than 50 employees
D) Have assets worth no more than £5.1M regardless of turnover or employees
A) Meeting at least 2: turnover ≤ £10.2M, assets ≤ £5.1M, or ≤ 50 employees
B) Having a turnover below £10.2M regardless of other factors
32
Activity 2 - Part 2-2: Which of the following is not a reliable method for verifying the cost of new PPE additions?
D) Accepting management’s estimate without supporting documents
B) Performing a physical verification of the asset
A) Inspecting supplier invoices and contracts
C) Checking bank records for payment transactions
33
Question 12:Which companies are generally required to have an audit?
D) Only companies with high annual profits
A) All limited companies unless exempt based on size criteria
B) Only publicly listed companies
C) Only companies with more than 50 employees
34
Question 2:Which of the following is NOT a key aspect of an external audit?
A) Examination of financial statements and internal control systems.
C) Ensuring FS comply with the applicable reporting framework.
D) Guaranteeing that the financial statements are 100% accurate.
B) Providing a positive statement of opinion on the company’s accounts.
35
Act 2-Part 3-1: Which one is NOT a reliable method to check that all sales for the year are recorded?
D) Assuming all reported revenue is complete without verification
B) Reconciling revenue records with bank receipts
A) Reviewing sales cutoff procedures at year-end
C) Comparing revenue trends with prior years
36
Activity 2 - Q1:Why might you (as a shareholder) not fully trust the financial figures presented by directors?
D) Financial statements are always free from bias
A) Directors may have incentives to manipulate FS for personal gain
B) Shareholders do not understand financial statements
C) Directors are legally required to always report accurate figures

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