You’re on a roll
Create a free account to save your ACCA progress, track your accuracy by topic, and pick up right where you left off.
Free Questions › ACCA › Advanced Audit and Assurance
Free ACCA Advanced Audit and Assurance Practice Questions & Answers
300 exam-style Advanced Audit and Assurance questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 121
What is 'cut-off testing' and why is it important?
Select an option first.
Correct answer: B — Verifying that transactions are recorded in the correct accounting period — for purchases: check that goods received before year-end have been recorded as purchases and payables; for sales: confirm that goods dispatched before year-end are recorded as revenue and receivables. Cut-off errors can overstate or understate profit
Explanation: B is correct. Cut-off (ISA 315/500): a misstatement risk at year-end. Example: goods dispatched on 31 December but recorded in January = overstated year-end inventory, understated revenue, understated debtors. Test: identify the last dispatch/receipt note before year-end and confirm it appears in the correct period. A is a subsequent events concept. C and D are project management concepts.
Question 122
What is 'substantive analytical procedure' and when would the auditor use it?
Select an option first.
Correct answer: B — Using the analysis of relationships between financial and non-financial data as a substantive procedure to detect material misstatements — effective when: data is reliable, relationships are predictable, and the auditor can develop a precise expectation of what the figure should be
Explanation: B is correct. Substantive analytical procedures (ISA 520): example — the auditor calculates expected payroll costs by multiplying headcount × average salary and compares to the recorded payroll expense. If the actual is significantly different from the expectation without a good explanation, a misstatement may exist. Effective when: high volume, routine transactions, predictable relationships (rent, utilities). A is a control evaluation. C: cannot fully replace tests of detail for significant risks. D is the final analytical review (different purpose).
Question 123
What are 'tests of detail' and how do they address specific financial statement assertions?
Select an option first.
Correct answer: B — Detailed examination of individual transactions, balances, or disclosures to obtain direct evidence about assertions — types include: agreement of balances to source documents (accuracy), physical verification of assets (existence), trace from floor to records (completeness), and third-party confirmation (existence/accuracy)
Explanation: B is correct. Tests of detail (ISA 330): the most direct form of substantive evidence. Examples: agree fixed assets on the register to physical observation and title documents, confirm the year-end bank balance with the bank, reconcile the debtors ledger total to the balance sheet figure, trace goods received notes to purchase invoices. A is analytical procedures. C is control testing. D: tests of detail apply to all items (statistical sampling extends them to the population).
Question 124
What is the 'audit of accounting estimates' and what makes it challenging?
Select an option first.
Correct answer: B — Management uses judgement to estimate amounts in the financial statements (e.g., bad debt provisions, depreciation rates, fair values, warranty provisions) — the challenge is that different people might legitimately reach different estimates, and management may intentionally skew estimates to manipulate reported results
Explanation: B is correct. Auditing estimates (ISA 540): the auditor evaluates whether: the estimate is reasonable (within the range of acceptable outcomes), the method and assumptions are appropriate and consistently applied, and whether there is any indication of management bias. Procedures: assess the model, test the inputs/data, develop an independent estimate, review subsequent events. A is wrong. C is wrong. D: external auditors must test estimates.
Question 125
What is 'management bias' in accounting estimates and why is it a concern?
Select an option first.
Correct answer: B — A systematic pattern in management's estimates that consistently leans in one direction (e.g., always optimistic about recoverability, always choosing depreciation rates that maximise profit) — individual estimates may be within an acceptable range, but the cumulative effect of consistently biased estimates can be material
Explanation: B is correct. Management bias (ISA 540): not necessarily fraudulent but could be. Example: management consistently sets bad debt provisions at the low end of a reasonable range, making profit slightly higher. Each individual estimate may be defensible, but the cumulative bias may be material. The auditor evaluates estimates not just individually but collectively and for consistency with other evidence. A is auditor bias. C is wrong — bias can be unintentional. D is wrong.
Get the full ACCA question bank — free
Drop your email and we'll send you fresh ACCA practice questions, fully worked solutions and exam-deadline reminders. No spam — unsubscribe in one click.
Want to save your score and take a full mock exam? Create a free account →
Question 126
What is 'fair value measurement' and what are the audit challenges it presents?
Select an option first.
Correct answer: B — An estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction at the measurement date (IFRS 13) — audit challenges include: Level 3 fair values rely on unobservable inputs and management's models, making them highly judgemental and difficult to verify independently
Explanation: B is correct. Fair value hierarchy (IFRS 13): Level 1 (quoted prices — most reliable), Level 2 (observable inputs), Level 3 (unobservable inputs — management's own models and assumptions — highest audit risk). Challenges: complex valuation models, subjective assumptions, need for specialist expertise (auditor may need a valuation expert). A is only Level 1. C is wrong. D is true for Level 1 only.
Question 127
When should an auditor use an 'auditor's expert'?
Select an option first.
Correct answer: B — When the auditor needs to use the work of an individual who has expertise in a field other than accounting or auditing (e.g., valuer for properties, actuary for pension liabilities, geologist for mining reserves, IT security specialist) to obtain sufficient appropriate audit evidence in that area
Explanation: B is correct. Auditor's expert (ISA 620): used when the auditor lacks the expertise to evaluate a specific aspect of the financial statements alone. The auditor must: evaluate the expert's competence, objectivity, and independence, understand the scope and methodology of their work, and consider whether the work provides sufficient appropriate evidence. A: the client's own specialist is management's expert (ISA 500). C and D are not the triggers.
Question 128
What is a 'management's expert' and how does the auditor treat their work?
Select an option first.
Correct answer: B — An individual or organisation with expertise in a non-accounting or non-auditing field whose work has been used by management to assist in preparing the financial statements (e.g., actuary valuing pension liabilities, surveyor valuing properties) — the auditor evaluates the expert's competence and objectivity but the evidence is treated as a client representation
Explanation: B is correct. Management's expert (ISA 500): since the expert works for management, their output is treated as a management representation — not independent evidence. The auditor evaluates: qualifications, experience, objectivity, methodology, and whether the inputs provided to the expert are reasonable. The auditor may need to engage their own expert to independently assess the management expert's work. A and C reverse the relationship. D is a management consultant.
Question 129
What is the 'final analytical review' at the end of an audit and what is its purpose?
Select an option first.
Correct answer: B — An overall review of the financial statements performed near the end of the audit to confirm that conclusions are consistent with the auditor's understanding of the entity — it assesses whether the financial statements as a whole make sense, and whether there are any unusual relationships or unexpected amounts that have not been explained
Explanation: B is correct. Final analytical review (ISA 520): performed late in the audit by a senior member. Compares current year to prior year and budget, reviews key ratios, and confirms that the completed audit work is consistent with the picture presented by the financial statements. If unexpected results appear at this stage, additional procedures are required. A: it is a high-level review, not detailed. C and D are wrong.
Question 130
What is the standard structure of an unmodified audit report?
Select an option first.
Correct answer: B — It includes sections covering: addressee, opinion (with the applicable framework stated), basis for opinion (reference to ISAs, ethical requirements, confirmation of independence, and reasonable assurance), material uncertainty related to going concern (if applicable), key audit matters (listed entities), other information, responsibilities of management, responsibilities of the auditor, and name/location/date
Explanation: B is correct. Unmodified audit report (ISA 700): the standardised structure enables users to understand the auditor's work and conclusions. Key audit matters (ISA 701) are required for listed entities — the most significant risks communicated to the audit committee. Going concern disclosures (ISA 570) may add a material uncertainty section. A and C are too brief. D: the structure is standardised under ISA 700.
Question 131
What is the difference between an 'unmodified opinion' and a 'modified opinion'?
Select an option first.
Correct answer: B — An unmodified opinion is issued when the financial statements give a true and fair view with no material misstatements (a 'clean' opinion). A modified opinion is issued when: the statements contain a material misstatement (qualified/adverse), or the auditor was unable to obtain sufficient appropriate evidence (qualified/disclaimer)
Explanation: B is correct. Modified opinions (ISA 705): three types — qualified ('except for' a material but not pervasive matter), adverse (financial statements are materially and pervasively misstated), and disclaimer (unable to express an opinion due to inability to obtain sufficient evidence on pervasive matters). A: unmodified means free from material misstatement, not 'perfect'. C: qualified may not be material to users' decisions. D: unmodified reflects the financial statements only.
Question 132
When would an auditor issue an 'adverse opinion'?
Select an option first.
Correct answer: B — When the financial statements are materially and pervasively misstated — meaning the misstatements are not limited to specific elements but affect the financial statements as a whole, such that the statements do not give a true and fair view
Explanation: B is correct. Adverse opinion: the most serious modified opinion. 'Pervasive' means the effect is so widespread that no part of the financial statements can be relied upon. Example: going concern basis is inappropriate but management still uses it — the entire basis of preparation is wrong, leading to a pervasively misleading picture. A and C are audit process issues (not opinion modifiers in themselves). D: a material error in one line → qualified ('except for') not adverse.
Question 133
When would an auditor issue a 'disclaimer of opinion'?
Select an option first.
Correct answer: B — When the auditor is unable to obtain sufficient appropriate audit evidence and the possible effects on the financial statements could be material and pervasive — the auditor cannot express any opinion because the evidence basis is too limited
Explanation: B is correct. Disclaimer of opinion: the auditor has not been able to obtain enough evidence on which to base an opinion, and the possible impact of this limitation is pervasive (so widespread that no partial opinion can be expressed). Example: joining as auditor after year-end when opening balances cannot be verified, and this fundamentally undermines the entire audit. A and C are not grounds for disclaimer. D: if the company doesn't want an audit and it is required by law, this is an illegal act.
Question 134
What is an 'emphasis of matter' paragraph and when is it added to the audit report?
Select an option first.
Correct answer: B — A paragraph added to draw users' attention to a matter already properly presented and disclosed in the financial statements, without modifying the audit opinion — used when the auditor believes it is fundamental to users' understanding. Common example: a material uncertainty related to going concern that is properly disclosed
Explanation: B is correct. Emphasis of matter (ISA 706): the audit opinion is still unmodified — the emphasis paragraph simply highlights important information already in the financial statements. Most common use: going concern — management has appropriately disclosed material uncertainties about the company's ability to continue as a going concern. A: it doesn't replace the opinion. C: it is added alongside an unmodified opinion. D: it is only added when necessary.
Question 135
What are 'key audit matters' (KAMs) and who requires them?
Select an option first.
Correct answer: B — Areas that, in the auditor's professional judgement, were of most significance in the audit of the financial statements for the current period — reported in a separate section of the audit report of listed entities. KAMs are chosen from matters communicated to those charged with governance (typically the audit committee)
Explanation: B is correct. KAMs (ISA 701): required for listed entities, encouraged for others. For each KAM, the auditor describes: why it was considered a KAM (the risk), how it was addressed in the audit (the procedures performed), and the outcome. They improve the informational value of the audit report by telling users what the auditor focused on. A: KAMs are selected by the auditor. C: only for listed entities. D: KAMs can be reported alongside unmodified opinions.
Question 136
What is the 'management letter' (letter of recommendations) and what does it contain?
Select an option first.
Correct answer: B — A communication from the auditor to management (or those charged with governance) following the audit — highlighting internal control deficiencies identified during the audit, along with recommendations for improvement. Significant deficiencies must be reported in writing; other matters may be reported verbally or in a management letter
Explanation: B is correct. Management letter (ISA 265): the auditor must communicate in writing any significant deficiencies in internal control identified during the audit. For less significant matters, communication may be oral or in a written management letter. The report typically: describes the deficiency, explains the risk it creates, and recommends an improvement. A: the management letter addresses control matters, not ethics. C is a management representation. D is the engagement letter revision.
Question 137
What is a 'significant deficiency' in internal control?
Select an option first.
Correct answer: B — A deficiency or combination of deficiencies in internal control that, in the auditor's professional judgement, is of sufficient importance to merit the attention of those charged with governance — it represents a higher threshold than a simple deficiency but need not rise to the level of a material weakness
Explanation: B is correct. Significant deficiency (ISA 265): the auditor evaluates whether a deficiency, individually or in combination with others, represents a significant deficiency. Key: the potential for misstatement is significant. Example: no formal process for reviewing revenue cut-off near year-end. A is any deficiency (broader). C is not a definition. D: significant deficiencies are communicated in writing when identified, not as a routine inclusion.
Question 138
What is the difference between 'those charged with governance' (TCWG) and 'management'?
Select an option first.
Correct answer: B — Those charged with governance are responsible for overseeing the strategic direction and accountability of the entity — typically the board of directors and the audit committee. Management is responsible for day-to-day operations, preparing financial statements, and implementing controls. In small companies, these may overlap
Explanation: B is correct. TCWG (ISA 260): the auditor communicates with TCWG — typically the board, audit committee, or equivalent. Management: running the business, preparing financial information. In many public companies, the board oversees management. In small companies, the owner-manager may be both management and TCWG. A: they can overlap but are different roles. C is too narrow. D: this is common but not always the case.
Question 139
What is the 'true and fair view' concept and how does it relate to the audit opinion?
Select an option first.
Correct answer: B — It means the financial statements are free from material misstatement and faithfully represent the financial position, performance, and cash flows in a manner that complies with the applicable financial reporting framework — the standard against which the audit opinion is formed
Explanation: B is correct. True and fair view: the standard used in UK and EU (and many other jurisdictions). IFRS equivalent: 'present fairly in all material respects'. The concept acknowledges that perfect accuracy is impossible — 'true' means not misleading, 'fair' means balanced presentation. The audit opinion is based on whether the financial statements achieve this standard. A sets an impossibly high bar. C: many countries use this concept. D is too narrow.
Question 140
What is 'profit before tax' as a benchmark for setting materiality and why might other benchmarks be more appropriate?
Select an option first.
Correct answer: B — Profit before tax (typically 5%) is commonly used but may be inappropriate when: the entity is loss-making (profit is negative or near zero), revenues are more stable than profits (use 0.5–1% of revenue), or the balance sheet is more relevant (use 0.5–1% of total assets). The choice depends on what users focus on
Explanation: B is correct. Materiality benchmarks: chosen based on what users of the financial statements focus on. PBT (5%): common for profitable trading companies. Revenue (0.5–1%): for loss-making companies or when revenue is more stable. Total assets (1–2%): for balance sheet-heavy entities (e.g., investment companies, banks). A: PBT can be inappropriate. C: auditors use professional judgement to choose. D: ISAs provide guidance, not a fixed rule.
Question 141
What is an 'uncorrected misstatement' and what should the auditor do when one is identified?
Select an option first.
Correct answer: B — A misstatement identified during the audit that management has not corrected, either because it believes it is not material or it disagrees that a misstatement exists — the auditor accumulates all uncorrected misstatements and assesses whether their aggregate effect is material to the financial statements
Explanation: B is correct. Uncorrected misstatements (ISA 450): the auditor maintains a 'summary of misstatements' schedule. At the conclusion of the audit, all uncorrected misstatements are evaluated in aggregate. If they exceed materiality (or would if adjusted), the auditor requests correction. If management refuses and aggregate effect is material: modify the opinion. The auditor also requests a written representation from management about uncorrected misstatements. A, C and D are wrong.
Question 142
What is the 'audit opinion on internal control over financial reporting' in the context of listed entities?
Select an option first.
Correct answer: B — In some jurisdictions (e.g., the US under Sarbanes-Oxley Section 404), auditors of large listed companies must provide a separate opinion on the effectiveness of internal controls over financial reporting — this is in addition to (not instead of) the financial statement audit opinion. Not required in most other jurisdictions
Explanation: B is correct. SOX s.404(b): US listed companies must have their internal controls audited separately. Management also provides its own assessment. The PCAOB's AS 2201 governs this. In the UK and under ISAs, auditors must consider internal controls for audit purposes but do not provide a separate opinion on their effectiveness. A: not a standard ISA requirement. C: management letter is not an audit opinion. D: SOX applies to all large listed companies in the US.
Question 143
What is 'revenue recognition' risk and why is it often a significant risk in audits?
Select an option first.
Correct answer: B — Revenue recognition is often a significant risk because: it may be complex (multiple performance obligations, variable consideration), management may have incentives to inflate revenue (bonus targets, market expectations), and it requires significant judgement (timing of recognition, allocation of transaction price). ISA 240 presumes that fraud risk relates to revenue recognition
Explanation: B is correct. Revenue risk: ISA 315 identifies revenue recognition as an area requiring special attention. IFRS 15 adds complexity (five-step model). Audit procedures: test cut-off, review contracts for multiple obligations, test revenue allocated across deliverables, analytical review of margins, check for unusual journal entries near year-end. A: revenue recognition is typically highly complex and judgemental. C and D are wrong.
Question 144
What is 'inventory valuation' and what procedures does the auditor perform to test it?
Select an option first.
Correct answer: B — Confirming that inventory is valued at the lower of cost and net realisable value (NRV), as required by IAS 2 — procedures include: testing cost (tracing raw material and overhead costs to invoices, checking allocation methods), reviewing NRV (comparing to selling prices, identifying slow-moving or damaged items) and assessing write-downs
Explanation: B is correct. Inventory valuation (IAS 2): lower of cost and NRV. Cost: review cost-of-production records (for manufactured goods) or purchase invoices (for bought goods). NRV: review post year-end selling prices, identify items not sold quickly, review aged inventory analyses, check write-down provisions. A is the existence assertion. C is wrong. D: the count confirms existence, not valuation.
Question 145
What is a 'provision' and how does the auditor assess whether a provision is appropriate?
Select an option first.
Correct answer: B — An obligation of uncertain timing or amount recognised when: there is a present obligation from a past event, it is probable that an outflow will occur, and a reliable estimate can be made (IAS 37) — the auditor assesses whether all three criteria are met and whether the amount is reasonable
Explanation: B is correct. Provision audit: existence of obligation — review contracts, board minutes, legal correspondence. Probability — review legal advice, assess likelihood of outflow. Reliable estimate — evaluate management's assumptions and methodology. Auditor may use solicitor's confirmation for legal claims. Check for under-provisioning (incomplete) and over-provisioning (income smoothing). A is incorrect. C gives management too much discretion. D is too narrow.
Question 146
What is the 'audit completion checklist' and what does it verify?
Select an option first.
Correct answer: B — A checklist completed near the end of the audit to confirm that all required procedures have been performed, all significant matters have been resolved, all working papers are complete, and that the financial statements comply with applicable standards — used to ensure nothing has been omitted before the audit report is signed
Explanation: B is correct. Completion procedures: the engagement partner uses a completion checklist to confirm: all audit areas have been signed off, all identified misstatements have been evaluated, going concern assessment is complete, subsequent events review has been performed, written representations have been obtained, key audit matters have been identified (if applicable), and the proposed opinion is appropriate. A is a planning tool. C and D are wrong.
Question 147
What is 'corporate reporting assurance' beyond the traditional financial statement audit?
Select an option first.
Correct answer: B — Assurance services provided over a wider range of corporate reporting beyond financial statements — including: sustainability/ESG reporting, integrated reporting, internal control reports, interim financial information, and prospectuses. Each requires the auditor to evaluate evidence against stated criteria (the reporting framework) and express a conclusion
Explanation: B is correct. Extended assurance: companies are increasingly providing non-financial information (ESG, sustainability) and stakeholders are demanding assurance over this information. The assurance provider evaluates the reported information against the applicable framework (e.g., GRI Standards, ISAE 3000) and issues a conclusion. A is too narrow. C: broader assurance has different scope. D is wrong.
Question 148
What are 'other information' requirements in the audit report (ISA 720)?
Select an option first.
Correct answer: B — Financial and non-financial information included in documents containing the audited financial statements (e.g., the annual report, directors' report) — the auditor reads this 'other information' to identify any material inconsistencies with the audited financial statements or with the auditor's knowledge obtained during the audit
Explanation: B is correct. Other information (ISA 720): the auditor reads the strategic report, directors' report, and other sections of the annual report. If a material inconsistency is found (e.g., the directors' report says profit grew 10% but the financial statements show a decline), the auditor determines whether the financial statements or other information is wrong and acts accordingly. A: the auditor does not ignore it. C is the notes (part of the audited financial statements). D is third-party information.
Question 149
What is the 'auditor's responsibility for fraud' under ISA 240?
Select an option first.
Correct answer: B — The auditor is responsible for obtaining reasonable assurance that the financial statements are free from material misstatement due to fraud — this requires: maintaining professional scepticism, specifically assessing fraud risk, designing procedures responsive to the identified risks, and reporting identified or suspected fraud to appropriate parties
Explanation: B is correct. ISA 240: the auditor is not responsible for preventing fraud (that is management's responsibility), but must assess the risk of material misstatement due to fraud. Required procedures: presumption of revenue recognition fraud risk, consideration of management override risk, specific inquiries of management about fraud. If fraud is detected: report to management (unless management is involved), consider whether to report to regulators. A, C and D are wrong.
Question 150
What is 'analytical review' used for at the overall review stage?
Select an option first.
Correct answer: B — To assess whether the financial statements as a whole are consistent with the auditor's understanding of the entity — performed by a senior team member at the end of the audit, it provides a final check that no significant matters remain unaddressed before the report is signed
Explanation: B is correct. Final analytical review (ISA 520): ensures the financial statements are consistent with the overall knowledge of the entity (industry, economy, prior years). Unexpected fluctuations discovered at this stage require explanation and potentially additional procedures. A: analytical review supplements but does not replace other procedures for significant risks. C and D are wrong.
More free ACCA topics
Management Accounting401
Financial Accounting400
Corporate and Business Law400
Performance Management400
Financial Reporting400
Financial Management400
Strategic Business Reporting400
Advanced Financial Management400
Advanced Performance Management400
Advanced Taxation400
Business and Technology300
Taxation300
Audit and Assurance300
Strategic Business Leader300
Ten questions in
- The ones you miss are saved as a drill you can repeat
- Your place is kept, on this device and any other
- A streak, if that is the thing that gets you back tomorrow
Every question on this page stays free and open either way.