SAMPLE EXAMINATION

Audit and Assurance (ACFI 210)

TIME ALLOWED: 60 minutes

INSTRUCTIONS TO CANDIDATES

ANSWER ALL 32 QUESTIONS.

ALL QUESTIONS CARRY EQUAL MARKS.

THERE IS ONLY ONE CORRECT ANSWER FOR EACH QUESTION.

THERE IS NO NEGATIVE MARKING.

Q1 Which of the following is a limitation of the provision of assurance?

A The fact that assurance work is carried out by people independent of the
entity and who therefore have a limited understanding of the entity
B The fact that most audit evidence is conclusive
C The fact that the provision of assurance attests to the correctness of the
information being reported upon
D The fact that sample testing is used in the assurance process

Q2 Which of the following statements best describes the level of assurance and
the opinion given in an engagement to review cash flow forecasts?

A Reasonable assurance and a positively expressed opinion

B Reasonable assurance and a negatively expressed opinion
C Limited assurance and a positively expressed opinion
D Limited assurance and a negatively expressed opinion

Q3 Which of the following is NOT a requirement of auditors according to ISA200

to enable the auditor to the meet their overall objectives?

A Plan and perform the audit with professional scepticism

B Obtain sufficient, appropriate audit evidence that the financial
statements are correct
C Exercise professional judgement
D Comply with relevant ethical requirements

Q4 In the context of a statutory audit which of the following does NOT describe
an aspect of the expectation gap?
A Some users have a lack of understanding of the limitations of the audit
process
B Some users believe that one of the auditor’s principal duties is to detect
fraud
C Some users do not understand that the financial statements are based on
future information and are therefore subject to uncertainty.
D Some users believe that the auditor’s report certifies the financial
statements as correct.
Q5 Which of the following is NOT something the auditor must be alert to in order
to plan and perform an audit with an attitude of professional scepticism?

A Conditions that indicate possible fraud

B Audit evidence that contradicts other audit evidence
C Circumstances that suggest the need for audit procedures in addition
to those required by ISAs
D Information that can only be corroborated by one external source

Q6 Which of the following procedures are auditors required to carry out before
accepting an engagement

A Ensure the firm is professionally qualified to act

B Perform preliminary analytical procedures
C Ensure an engagement letter is in place
D Ensure there are no fees due to the previous auditors

Q7 Which of the following factors might indicate that an audit client presents a
higher audit risk than normal?

A An audit committee comprised of non-executive directors only

B Profit forecasts indicating steady growth for the next few years
C A number of unusual transactions
D Conservative accounting policies

Q8 Which of the following is NOT required to be included in the written agreed

terms for an audit engagement i.e. the engagement letter?

A The objective of the audit of financial statements

B The applicable reporting framework for the financial statements being
audited
C Basis on which fees are computed and billing arrangements
D The form of any report of the results of the engagement
Q9 If a prospective audit client declines permission to contact the previous
auditors, what should the prospective auditors do?

A Contact the previous auditors and include a statement indicating their

previous client has not given permission
B Normally decline the appointment
C Conduct an assurance engagement to review the prior year financial
statements before accepting the engagement
D Normally inform the Companies Registrar that permission has been
declined

Q10 Which of the following most closely defines ‘performance materiality’

A 5% - 10% of profit before tax

B An expression of the relative significance of a particular matter in the
context of financial statements as a whole
C The amount set by the auditor whereby its omission or misstatement
could influence the economic decisions of users taken on the basis of the
financial statements
D The amount set by the auditor to reduce to an appropriately low level the
probability that the aggregate of uncorrected misstatements exceeds
materiality for the financial statements as a whole

Q11 Which of the following is a purpose of the letter of engagement?

A Written confirmation of the firm's acceptance of the appointment.

B Define clearly the extent of the responsibilities of the users of financial
statements
C To communicate to those charged with governance matters arising from
the audit that are not required to be included in the audit report
D To provide management with recommendations on remedying
deficiencies in internal control

Q12 Which of the following does NOT constitute an analytical procedure?

A Scanning a breakdown of individual items that comprise a balance to

identify unusual items
B Consideration of information from a similar industry
C Consideration of the inherent risk of a class of transactions, balance or
disclosure
D Comparison of expected relationships between financial and non-
financial information
Q13 Which of the following is NOT a key component of the audit strategy?

A Consideration of risk and materiality

B Review and supervision of work performed by the audit junior
C Understanding the entity's environment
D Evaluation of the entity's internal control system

Q14 Which of the following would be included in the audit strategy?

A Confirmation of the client’s bank balances obtained by the auditors

directly from the bank
B List of substantive procedures to be performed on accounts receivable
balances
C Identification of audit risks associated with the client
D Deficiencies identified in the client’s internal control system

Q15 Which of the following statements is TRUE?

A Materiality is always calculated as a percentage of profit before tax

B Materiality should be established at the start of the audit and revised
during the audit if necessary
C Materiality should be established by the client at the planning stage of the
audit
D Materiality is defined as the amount whereby its omission or
misstatement in the financial statements would influence the auditor’s
economic decisions

Q16 Audit risk can be split into three components: inherent risk, control risk and
detection risk. Select the type of risk illustrated (if any) by the following
statement:

Materiality in the previous year was set at 5% of profit before tax.

A Inherent Risk
B Control Risk
C Detection Risk
D None of the above
Q17 Audit risk can be split into three components: inherent risk, control risk and
detection risk. Select the type of risk illustrated (if any) by the following
statement:

The directors’ bonus is based on achieving a certain level of profit.

A Inherent Risk
B Control Risk
C Detection Risk
D None of the above

Q18 The gross profit margin of Wearing Ltd has fallen from 38% in 2013 to 31% in
2014. Which of the following is most likely to explain this decline?

A Fewer units being sold during the year

B A larger proportion of lower gross profit margin units being sold during
the year
C An increase in the purchase price of raw materials that has been passed
onto the customers of Wearing through increased sales prices
D Wearing has been paying its suppliers quicker than in previous years

Q19 Which of the following is an assertion with respect to account balances?

A Existence
B Cut-off
C Occurance
D Understandability

Q20 Which of the following statements is TRUE?

A Photocopied documents are more reliable than documents obtained from

external sources
B Evidence obtained from the entity can only be used as audit evidence
after internal controls have been tested
C Evidence obtained directly by the auditor is more reliable than evidence
obtained indirectly
D Evidence obtained orally cannot be used unless it is also obtained in
writing
Q21 Which of the following statements is FALSE?

A Auditors are required to perform analytical procedures at the planning

stage of the audit
B Auditors are required to perform some tests of control
C Auditors are required to perform some substantive procedures
D Auditors are required to agree the financial statements to the underlying
accounting records

Q22 For a client where internal controls have been assessed as strong, which of
the following audit approaches is most appropriate?

A Tests of controls only

B Substantive analytical procedures and tests of details
C A mix of tests of controls and substantive procedures
D A mix of tests of controls and preliminary analytical procedures

Q23 Which of the following is NOT reported on by exception in the auditor’s

report?
A Adequate accounting records have been kept
B Details of directors’ emoluments have been correctly disclosed
C The information in the directors’ report is consistent with the financial
statements
D The financial statements are in agreement with the accounting records

Q24 Which of the following is NOT a component of internal control?

A The control environment
B The entity’s risk assessment process
C The auditor’s evaluation of the entity’s control environment
D The information system relevant to financial reporting
Q25 Which of the following is NOT a risk associated with the sales system?
A Orders may be taken when inventory is not available for despatch
B Orders may be taken for customers who have exceeded their credit limit
C Payment is made to the wrong supplier
D Cash received is attributed to the wrong customer

Q26 Which of the following are objectives of the sales ordering part of the sales
system?
A Sales are only made to credit worthy customers
B All invoices are approved
C Goods received notes from suppliers are checked to order forms
D Invoices are matched with delivery notes

Q27 Which of the following controls best mitigates the risk that customers might
not be able to pay for a delivery?
A Authorisation of credit terms to customers
B Obtaining customers’ signatures on delivery documentation
C Regular preparation of trade receivables statements
D Agreeing orders to delivery documentation

Q28 Which of the following is a risk of Zobb Ltd’s sales system?

A Suppliers may deliver goods not ordered
B Goods may be received by Zobb Ltd but not invoiced
C Invoices may be cancelled by valid credit notes
D Sales might be recorded in the wrong customer accounts

Q29 Which of the following controls is LEAST likely to prevent misappropriation

by staff of customers’ remittances?
A Segregation of duties between cash handling and recording
B Post opening by two people
C Investigation of differences between till records and cash collected
D Regular banking
Q30 Pinar Ltd operates a number of control procedures in its sales system.
Assuming that all controls are operating effectively, which of the following
control procedures is MOST likely to ensure that the correct amount and type
of goods are delivered to customers?

A Use of pre-printed sequentially numbered sales order documentation

B Matching of sales orders with despatch notes
C Matching of despatch notes with sales invoices
D Requiring customers to sign for goods received

Q31 Which of the following financial statement assertions will be supported by a

sample check of prices charged to customers in invoices against authorised
price lists?

A Allocation
B Occurrence
C Completeness
D Valuation

Q32 An audit has revealed two internals control deficiencies with respect to the
sales system.

Deficiency A: Invoices are not sequentially numbered.

Deficiency B: Sales credit notes are not sequentially numbered.

What is the risk for revenue in respect of each of these deficiencies?

Deficiency A Deficiency B
A Overstatement Overstatement
B Overstatement Understatement
C Understatement Overstatement
D Understatement Understatement

END