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Free ACCA Audit and Assurance Practice Questions & Answers
300 exam-style 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 271
What is 'working paper review' and why is it essential for audit quality?
Select an option first.
Correct answer: B — A process where more senior team members review the work of junior team members — confirming that procedures were properly executed, evidence supports conclusions, significant issues were escalated, and documentation is adequate
Explanation: B is correct. ISA 220: review of working papers is essential quality control — supervisors review for: (1) procedures performed match the plan; (2) evidence sufficient and appropriate; (3) conclusions properly supported; (4) issues properly escalated; (5) documentation adequate for an experienced auditor to understand. A and D are incorrect. C — clients generally do not review working papers (confidential to the auditor).
Question 272
What is 'integrity' as a fundamental principle for auditors?
Select an option first.
Correct answer: B — Being straightforward and honest in all professional and business relationships — not making misleading statements, not associating with false or misleading information, and acting with moral courage when challenged
Explanation: B is correct. IESBA Code: integrity requires honesty and straightforwardness. An auditor with integrity will refuse to sign off on misleading financial statements regardless of commercial pressure, will communicate uncomfortable findings, and will not make statements they know to be false. A, C and D are too narrow or describe other principles.
Question 273
What is 'professional behaviour' as a fundamental principle?
Select an option first.
Correct answer: B — Complying with relevant laws and regulations, avoiding actions that discredit the profession, and not making exaggerated claims about services or disparaging other firms
Explanation: B is correct. IESBA Code: professional behaviour includes: compliance with laws and regulations, avoiding actions that bring the profession into disrepute, not making false claims about competence, and not disparaging competitors. It is about protecting the reputation of the profession as a whole. A, C and D are too narrow.
Question 274
What is 'continuing professional development' (CPD) and how does it relate to professional competence?
Select an option first.
Correct answer: B — An ongoing commitment by professional accountants to maintain and develop their knowledge and skills throughout their careers — ensuring their competence remains current with evolving standards, regulations, and practices
Explanation: B is correct. IESBA Code: maintaining professional competence requires CPD. Standards change (new ISAs, IFRS, regulations), technology evolves, and business environments shift. Without CPD, professional competence degrades. Professional bodies set CPD requirements and record them. A restricts it to employees. C and D are consequences but not the definition.
Question 275
What is 'audit quality' and what factors determine it?
Select an option first.
Correct answer: B — The degree to which an audit provides valuable, relevant, and reliable outputs — determined by: the professionalism and scepticism of the team, the adequacy of procedures performed, the sufficiency of evidence obtained, quality management systems, and communication with those charged with governance
Explanation: B is correct. Audit quality (FRC, IAASB) encompasses: inputs (skills, values, time), process (procedures, evidence, review), outputs (appropriate opinion), and context (ethical culture, governance). A misidentifies quality with efficiency. C and D confuse quality with specific outcomes — a high-quality audit may still find misstatements or qualify.
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Question 276
What is the 'audit expectation gap' and what are its three main components?
Select an option first.
Correct answer: B — The difference between what the public believes audits achieve and what auditors are professionally required to do — comprising: a knowledge gap (public ignorance of what audits are), a performance gap (auditors not meeting professional standards), and a standards gap (professional standards not matching public expectations)
Explanation: B is correct. The audit expectation gap has multiple dimensions: (1) knowledge gap — the public doesn't understand what an audit is; (2) performance gap — auditors sometimes fall below required standards; (3) standards gap — even properly executed audits don't provide what the public expects. Solutions: better communication through audit reports, KAMs, and public education. A, C and D are incorrect.
Question 277
What is 'ISA 265' and what obligations does it create for the auditor?
Select an option first.
Correct answer: B — A standard requiring the auditor to communicate identified significant deficiencies in internal control to those charged with governance in writing, and other deficiencies (not significant) to appropriate management
Explanation: B is correct. ISA 265: the auditor must communicate significant deficiencies (in writing, to TCWG) — these are the most serious control weaknesses meriting governance attention. Other deficiencies (below significant threshold) must be communicated to appropriate management. The communication should describe the deficiency, explain the potential impact, and recommend action. A, C and D identify other ISAs.
Question 278
What is the 'IESBA Code of Ethics' and which professional bodies adopt it?
Select an option first.
Correct answer: B — The international code of ethics for professional accountants issued by the International Ethics Standards Board for Accountants — adopted by professional bodies including ACCA, ICAEW, ICAS, and many others globally, establishing the fundamental principles and independence requirements
Explanation: B is correct. The IESBA Code (revised 2019, frequently updated) is the global benchmark for professional ethics. It establishes: five fundamental principles, independence requirements (Parts 4A and 4B), and the conceptual framework (identify, evaluate, address threats). ACCA and most professional bodies adopt it, sometimes with additional national requirements. A, C and D are too narrow.
Question 279
What is 'anti-money laundering' legislation and what obligations does it create for auditors?
Select an option first.
Correct answer: B — Legislation (e.g., POCA 2002, Terrorism Act 2000 in the UK) requiring auditors in the regulated sector to: report suspicions of money laundering or terrorist financing to the MLRO/NCA via a SAR, avoid tipping off the client, and maintain a risk-based approach to client acceptance and monitoring
Explanation: B is correct. AML obligations for auditors: (1) file SAR if they suspect money laundering; (2) tipping off offence (telling the client about the SAR); (3) client due diligence at acceptance; (4) ongoing monitoring for suspicious activity. Failure to report is a criminal offence. A, C and D are incorrect.
Question 280
What is the difference between 'ISA-based' and 'non-ISA-based' assurance engagements?
Select an option first.
Correct answer: B — External audits of financial statements are governed by ISAs; other assurance engagements (sustainability assurance, agreed-upon procedures, reviews) are governed by ISAEs, ISREs, or ISRSs — the applicable standard depends on the type of subject matter and the level of assurance provided
Explanation: B is correct. IAASB's standard hierarchy: ISAs (external audit), ISREs (reviews of historical financial information), ISAEs (other assurance — e.g., ISAE 3000, ISAE 3402), ISRSs (related services — agreed-upon procedures, compilations). Each has different evidence requirements reflecting the level of assurance provided. A, C and D are incorrect.
Question 281
What is 'ISSA 5000' and why is it significant for the audit profession?
Select an option first.
Correct answer: B — A new international standard specifically designed for sustainability assurance engagements — providing requirements and guidance for assurance on sustainability disclosures, addressing the particular challenges of non-financial subject matter, and supporting both limited and reasonable assurance
Explanation: B is correct. ISSA 5000 (approved 2024, effective from 2026) is purpose-built for sustainability assurance — recognising that existing assurance standards (ISAE 3000) needed to be supplemented with specific guidance for ESG disclosures. This is a key development given mandatory sustainability reporting requirements in the EU and globally. A, C and D are incorrect.
Question 282
What is 'auditor rotation' and what evidence exists about its impact on audit quality?
Select an option first.
Correct answer: B — Mandating changes of audit partner or firm after a specified period — with mixed evidence: proponents argue it increases independence and brings fresh perspectives; critics argue it reduces knowledge of the client and therefore audit quality, particularly in the early years of a new engagement
Explanation: B is correct. Research on rotation effects: positive — auditors less likely to build close relationships with management that compromise independence; negative — 'low-balling' (offering low fees to win tender), loss of client knowledge leading to quality dip in early years. Many jurisdictions require partner rotation; some require firm rotation for public interest entities. A, C and D are incorrect.
Question 283
What is the concept of 'materiality in relation to the audit report' and when does a misstatement affect the opinion?
Select an option first.
Correct answer: B — A misstatement affects the opinion only if it is material (capable of influencing economic decisions of users) — immaterial misstatements, even if uncorrected, do not require a modification. The auditor evaluates both individually material items and the aggregate of uncorrected misstatements
Explanation: B is correct. ISA 450: the auditor evaluates accumulated uncorrected misstatements at the end of the audit. If the aggregate exceeds materiality, the auditor requests correction. If management refuses and the aggregate is material, the opinion is modified. Individual immaterial items may become material in aggregate. A and C are incorrect. D is one scenario but not the only one.
Question 284
What is 'professional liability insurance' for auditors and why is it required?
Select an option first.
Correct answer: B — Insurance covering the audit firm against claims from clients or third parties for financial loss arising from negligent audit work — required because audit firms face significant potential liability if errors in the audit opinion cause financial loss to those who relied on it
Explanation: B is correct. Professional indemnity insurance (PII) is required by professional bodies and audit regulations. It protects the firm (and indirectly those who sue it) against claims arising from professional negligence. Given the potential magnitude of claims against audit firms (particularly for large listed entity audits), PII is an important protection. A, C and D are incorrect.
Question 285
What is an 'internal audit charter' and what elements should it contain?
Select an option first.
Correct answer: B — A formal document approved by the board or audit committee defining: the purpose, authority, and responsibility of the internal audit function — including: its independence, scope of activities, access to records, reporting lines, and the standards it follows
Explanation: B is correct. The internal audit charter (IIA International Professional Practices Framework) formally establishes the function's place within the organisation. Key elements: mission, independence (reporting to audit committee, not management), authority (access to all records), responsibility (scope of work), and accountability. Without a charter, internal audit lacks formal authority. A, C and D are too narrow.
Question 286
What is the 'audit of opening balances' and why is it required when a new auditor is appointed?
Select an option first.
Correct answer: B — ISA 510 requires the incoming auditor to obtain sufficient appropriate evidence about opening balances — since they carry forward from prior periods, any errors in opening balances may affect the current year's financial statements and the audit opinion
Explanation: B is correct. ISA 510: opening balances must be verified because: they affect current year profit (depreciation, inventory movements, provisions) and the balance sheet. Procedures: review prior year financial statements and audit report, review predecessor auditor's working papers (with permission), and perform specific substantive procedures on material opening balances. A, C and D mischaracterise the requirement.
Question 287
What is 'independence' from the perspective of ISA 200?
Select an option first.
Correct answer: B — A fundamental requirement for external auditors — comprising independence of mind (actual independence in forming the opinion) and independence in appearance (freedom from facts and circumstances that a reasonable observer would consider to compromise objectivity), supporting the credibility of the audit opinion
Explanation: B is correct. ISA 200: independence is not just structural (no prohibited relationships) — it must also be perceived as such by stakeholders. Both in mind and appearance are required because the value of an audit depends entirely on stakeholders' confidence that the opinion is genuinely unbiased. A, C and D mischaracterise independence.
Question 288
What are 'quality management' requirements at the engagement level under ISQM 2?
Select an option first.
Correct answer: B — Requirements for the engagement team to apply quality management at the individual engagement level — including: appropriate supervision, review of work, consultation on difficult matters, and, for qualifying engagements, an engagement quality review before the report is signed
Explanation: B is correct. ISQM 2: engagement-level quality includes: the engagement partner taking responsibility for overall quality, appropriate direction and supervision of team members, timely review, consultation on difficult or contentious issues, and an EQR for qualifying engagements. A, C and D are incorrect.
Question 289
What is an 'assurance report' and what elements must it contain?
Select an option first.
Correct answer: B — A written report by the practitioner to the intended users containing: a description of the engagement and its scope, the criteria used, the practitioner's conclusion (positive or negative assurance), the basis for the conclusion, and identification of the subject matter and responsible party
Explanation: B is correct. ISAE 3000 / ISA 700: an assurance report must include: the addressee, a description of the engagement and subject matter, identification of criteria, the practitioner's conclusion, the basis for the conclusion, and the date and signature. These elements give users the information needed to understand the nature and limits of the assurance provided. A, C and D are too narrow.
Question 290
What is 'limitation on scope' imposed by circumstances and how is it different from a management-imposed limitation?
Select an option first.
Correct answer: B — A circumstantial limitation arises from factors beyond management's control (e.g., records destroyed by fire, auditor appointed after inventory count) — the auditor performs alternative procedures where possible; a management-imposed limitation is deliberate and may indicate a wider integrity concern, potentially leading to withdrawal from the engagement
Explanation: B is correct. ISA 705: the cause of a scope limitation affects the auditor's response. Circumstantial: genuinely beyond control — auditor uses alternatives if possible, else qualifies or disclaims. Management-imposed: deliberate restriction — the auditor considers whether this reflects a broader integrity issue and may need to withdraw. A, C and D are too absolute.
Question 291
What is 'digital transformation' and how is it reshaping the audit profession?
Select an option first.
Correct answer: B — The fundamental shift to digital technologies across all aspects of business — reshaping audit by: requiring auditors to understand clients' digital systems, use data analytics for evidence, apply judgement to AI-generated outputs, and develop new competencies in technology and cybersecurity
Explanation: B is correct. Digital transformation (2025-26 AA emphasis): auditors must: understand cloud systems, ERP platforms, and automation in client businesses; use technology to gather and analyse evidence; understand cybersecurity risks; and develop digital competencies (data analysis, IT control testing). The audit process itself is becoming more technology-enabled. A, C and D are too narrow.
Question 292
What is 'the auditor's report on sustainability' and what level of assurance is typically provided?
Select an option first.
Correct answer: B — An assurance report on an entity's sustainability disclosures — currently most commonly providing limited (negative) assurance, though EU CSRD requires a transition to reasonable assurance over time. The report confirms that nothing has come to the practitioner's attention suggesting the disclosures are not in accordance with the applicable framework
Explanation: B is correct. Sustainability assurance is evolving: current practice is mostly limited assurance (ISAE 3000). EU CSRD requires limited assurance from the first year, transitioning to reasonable assurance later. ISSA 5000 provides the dedicated standard. As ESG reporting matures, reasonable assurance will become the norm. A overstates current practice. C and D are incorrect.
Question 293
What is 'audit of consolidated financial statements' and what additional considerations arise?
Select an option first.
Correct answer: B — An audit of the financial statements of a group (parent + subsidiaries) — additional considerations: component auditors may audit subsidiaries, group materiality differs from component materiality, intercompany transactions must be eliminated, and the group engagement team must evaluate component auditors' work and independence
Explanation: B is correct. ISA 600: group audits involve coordination of multiple entities. The group engagement partner oversees the whole, directs component auditors, evaluates their competence and independence, and reviews evidence for significant components. Component materiality is set lower than group materiality. Intercompany balances and transactions must be confirmed and eliminated. A, C and D are incorrect.
Question 294
What is a 'cold review' (or 'post-issuance review') and why is it important for audit quality?
Select an option first.
Correct answer: B — A review of completed audit files after the report has been issued, performed by a team member not involved in the engagement — assessing whether the documentation demonstrates that the audit was properly planned, executed, and concluded
Explanation: B is correct. Cold reviews are part of a firm's monitoring of quality (ISQM 1). They evaluate completed engagements to identify: systematic weaknesses in audit approach, documentation deficiencies, and areas where professional standards were not met. Results inform firm-wide training and quality improvements. A is the EQR (pre-issuance). C and D are different reviews.
Question 295
What is 'ISRE 2410' and what type of engagement does it govern?
Select an option first.
Correct answer: B — A standard governing the review of interim financial information (e.g., half-year results) performed by the entity's auditor — providing limited (negative) assurance using primarily inquiry and analytical procedures rather than the full audit
Explanation: B is correct. ISRE 2410 applies when the entity's auditor is engaged to review interim financial information. Because the auditor knows the entity from the annual audit, they can apply inquiry and analytical procedures efficiently to provide limited assurance. This differs from a full audit (reasonable assurance) and from ISRE 2400 (used when a different practitioner reviews the statements). A, C and D identify other standards.
Question 296
What is a 'special purpose framework' for financial statements and how does the audit report differ?
Select an option first.
Correct answer: B — A financial reporting framework designed to meet the particular financial information needs of specific users — such as tax-basis accounting, regulatory accounting, contractual accounting, or cash-basis statements. The audit report must describe the framework and may include a restriction on distribution
Explanation: B is correct. ISA 800: special purpose frameworks serve specific users (a bank wanting statements on a cash basis, a regulator requiring regulatory accounting). The audit report for such statements must: identify the special purpose framework, describe how it differs from GAAP, and typically restrict distribution to the intended users to prevent others from relying on it inappropriately. A, C and D are incorrect.
Question 297
What is a 'multi-location audit' and what additional challenges does it present?
Select an option first.
Correct answer: B — An audit where the entity operates in multiple locations — presenting challenges: allocating testing across locations (coverage decisions), coordinating teams, consistent application of materiality, and ensuring that component auditors (if any) receive adequate instructions and their work is properly reviewed
Explanation: B is correct. Multi-location audits require: decisions about which locations to visit (significant vs non-significant), coordinating procedures across locations, maintaining consistent quality, and — if using other auditors for remote locations — evaluating their competence and the sufficiency of their work. Coverage decisions must be documented and justified. A, C and D are too narrow.
Question 298
What is 'professional scepticism' and how should it be documented?
Select an option first.
Correct answer: B — An attitude of alertness to conditions that may indicate possible misstatement, involving critical assessment of evidence without assuming management is either honest or dishonest. Documented through: describing the challenges made to management, the evidence evaluated to corroborate or contradict management's explanations, and the reasoning behind significant judgements
Explanation: B is correct. ISA 200/ISQM: professional scepticism must be active — the auditor questions, challenges, and corroborates. Documentation should show: what questions were asked, what evidence was obtained to test management's assertions, and how contradictions were resolved. Undocumented scepticism cannot be demonstrated to reviewers or regulators. A is too extreme. C and D are incorrect.
Question 299
What is the audit implication of a company having 'material related-party transactions not at arm's length'?
Select an option first.
Correct answer: B — They may require specific disclosure under the applicable framework; if the transactions are not properly disclosed, this is a misstatement; if they involve conflicts of interest for directors, additional governance concerns arise. The auditor evaluates: identification, proper authorisation, disclosure adequacy, and whether they affect the financial statements
Explanation: B is correct. ISA 550: related-party transactions not at arm's length are not automatically wrong — but they must be properly authorised, transparent, and appropriately disclosed. If disclosure is inadequate, the financial statements are misstated. If they suggest fraud or management override, the auditor reassesses risk. A, C and D are too categorical.
Question 300
What is 'ISA 610' and what criteria must be met before the external auditor relies on internal audit work?
Select an option first.
Correct answer: B — A standard governing the extent to which external auditors can use the work of the internal audit function — requiring evaluation of: objectivity (does internal audit report to TCWG not management?), technical competence, application of a systematic and disciplined approach, and whether the specific work is appropriate for the external audit
Explanation: B is correct. ISA 610: using internal audit requires careful evaluation. The external auditor cannot simply accept internal audit findings — they must assess quality and then determine how much to rely on specific pieces of work. Even after relying on internal audit, the external auditor retains sole responsibility for the opinion. A, C and D are incorrect.
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