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Free Questions › ACCA › Audit and Assurance
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 31
Which assertion is being tested when an auditor selects a sample of purchase invoices and confirms they relate to goods the company has actually received?
Select an option first.
Correct answer: B — Occurrence
Explanation: B is correct. The occurrence (or existence) assertion tests whether recorded transactions actually happened. Starting from a recorded invoice and checking physical receipt tests that the expense occurred. Completeness (A) would start from goods received and check invoices are recorded. Valuation (C) tests amounts. Cut-off (D) tests the period.
Question 32
What is the difference between 'tests of controls' and 'substantive procedures'?
Select an option first.
Correct answer: B — Tests of controls assess whether internal controls are operating effectively; substantive procedures gather evidence directly about the amounts and disclosures in the financial statements
Explanation: B is correct. Tests of controls (compliance tests) check whether controls operate as intended — reducing assessed control risk. Substantive procedures (tests of detail and substantive analytical procedures) directly verify financial statement figures. A relates to timing but doesn't define the difference. C and D are incorrect.
Question 33
When would an auditor rely primarily on substantive procedures rather than testing controls?
Select an option first.
Correct answer: B — When the entity lacks relevant controls, controls are ineffective or cannot be relied upon, or it is more efficient to go directly to substantive testing
Explanation: B is correct. The auditor may opt for a predominantly substantive approach when: controls are weak or absent, the entity is small, it is more cost-effective to test transactions directly, or interim testing shows controls are not operating. A would support control reliance. C and D describe practical constraints, not the strategic choice.
Question 34
What is the purpose of conducting an 'interim audit'?
Select an option first.
Correct answer: B — To perform procedures earlier in the year — including risk assessment, control testing, and transaction testing — to spread workload and identify issues before the year-end
Explanation: B is correct. The interim audit occurs before the year-end and typically includes: risk assessment procedures, documentation and testing of internal controls, testing of transactions for the period, and identifying potential issues. B, not A or C, is the primary purpose. D is not a valid reason.
Question 35
What is an 'analytical procedure' and what are the main types?
Select an option first.
Correct answer: B — An evaluation of financial information through analysis of plausible relationships — including ratio analysis, trend analysis, and reasonableness checks against non-financial data
Explanation: B is correct. ISA 520: analytical procedures involve comparing financial data with: prior periods, budgets/forecasts, industry information, and non-financial data. Types include ratio analysis, trend analysis, and predictive models. A, C and D are too narrow or incorrect.
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Question 36
At which three stages of the audit are analytical procedures used?
Select an option first.
Correct answer: B — Planning (risk assessment), substantive testing (as a source of evidence), and final review (forming an overall conclusion)
Explanation: B is correct. ISA 315 and ISA 520 identify three stages: (1) planning — to understand the entity and identify risks; (2) substantive procedures — as substantive analytical procedures to obtain evidence; (3) final review — to assess whether financial statements are consistent with the auditor's understanding. A, C and D are incorrect.
Question 37
What is 'audit sampling' and when is it used?
Select an option first.
Correct answer: B — Applying audit procedures to less than 100% of items in a population, with all items having a chance of selection, to draw conclusions about the whole population
Explanation: B is correct. ISA 530: audit sampling allows auditors to test a representative portion of a population and extrapolate conclusions. It is used because testing 100% of items is often impractical and because auditors provide reasonable (not absolute) assurance. A is 100% testing. C is specifically targeting rather than sampling. D is incorrect.
Question 38
What is the difference between 'statistical' and 'non-statistical' sampling?
Select an option first.
Correct answer: B — Statistical sampling uses probability theory to measure sampling risk and evaluate results mathematically; non-statistical sampling relies on professional judgement for sample selection and evaluation
Explanation: B is correct. Both approaches are valid under ISA 530. Statistical sampling provides a mathematical quantification of sampling risk. Non-statistical (judgemental) sampling relies on the auditor's judgement — it can be equally rigorous if applied properly. A, C and D are incorrect.
Question 39
What is 'sampling risk' and 'non-sampling risk' in auditing?
Select an option first.
Correct answer: B — Sampling risk is the risk that the auditor's conclusion from the sample differs from the conclusion that would be reached testing the whole population; non-sampling risk covers all other risks — e.g., applying an inappropriate procedure or misinterpreting evidence
Explanation: B is correct. Sampling risk is inherent in all sampling — conclusions from a sample may not reflect the full population. Non-sampling risk arises from human error regardless of sampling — wrong procedures, misjudgement, incorrect conclusions. Both can be reduced but not eliminated. A, C and D are incorrect.
Question 40
What factors affect the sample size in audit sampling?
Select an option first.
Correct answer: B — The level of sampling risk the auditor is willing to accept, the tolerable misstatement/error rate, the expected rate of deviation, and the population size
Explanation: B is correct. Sample size increases when: acceptable sampling risk decreases, tolerable error decreases, expected error increases, and population size increases (to a lesser extent). The auditor balances thoroughness with efficiency. A, C and D are irrelevant to sample size determination.
Question 41
What is a 'going concern' basis of accounting and why does the auditor care about it?
Select an option first.
Correct answer: B — The assumption that the entity will continue in operation for the foreseeable future (at least 12 months from the reporting date) — the auditor must assess whether this assumption is appropriate
Explanation: B is correct. Going concern (ISA 570) requires the auditor to identify events or conditions that may cast significant doubt on the entity's ability to continue as a going concern, evaluate management's assessment, and determine implications for the audit report. A, C and D misstate the concept.
Question 42
What are indicators of going concern uncertainty?
Select an option first.
Correct answer: B — Net liabilities, inability to pay debts when due, losing a key customer, significant operating losses, working capital deficiency, and withdrawal of credit facilities
Explanation: B is correct. ISA 570 identifies financial indicators (net liabilities, cash flow difficulties), operational indicators (loss of key staff, supply disruptions), and other indicators (legal proceedings, regulatory issues). A is minor and does not raise doubt. C and D are not going concern indicators.
Question 43
What is the purpose of a 'written representation' from management?
Select an option first.
Correct answer: B — To acknowledge management's responsibilities and confirm information provided to the auditor — it is one form of audit evidence but cannot be the sole evidence for material matters
Explanation: B is correct. ISA 580: management representations confirm management's acknowledgement of their responsibilities and specific information (e.g., completeness of related-party transactions). They are audit evidence, but for material matters, corroboration is needed. A and C misstate their role. D is incorrect — representations do not replace substantive testing.
Question 44
What is 'fraud' in a financial reporting context and what are the two main types?
Select an option first.
Correct answer: B — An intentional act involving deception — comprising fraudulent financial reporting (manipulating financial statements to mislead users) and misappropriation of assets (theft of company assets)
Explanation: B is correct. ISA 240: fraud involves intentional deception. Fraudulent financial reporting includes manipulation of figures, omissions, or false disclosures. Misappropriation involves theft of cash, inventory, or other assets. A describes error (unintentional). C and D are incorrect.
Question 45
What is 'management override of controls' and why is it a significant fraud risk?
Select an option first.
Correct answer: B — When management uses their authority to circumvent otherwise effective internal controls — it is a fraud risk because those who design and implement controls can bypass them, making it difficult for auditors to rely on controls to prevent fraud
Explanation: B is correct. ISA 240 identifies management override as a significant risk in virtually all audits. Controls that protect against employee fraud can be bypassed by management. Procedures addressing this risk include: testing journal entries, reviewing accounting estimates for bias, and evaluating significant transactions.
Question 46
What is the difference between 'fraud' and 'error' in auditing?
Select an option first.
Correct answer: B — Fraud is intentional; error is unintentional — both can cause material misstatement of financial statements
Explanation: B is correct. The key distinction is intent. Error is accidental — a computational mistake, misapplication of an accounting standard, or oversight. Fraud is deliberate — designed to deceive. Both can cause material misstatement. The auditor's response to suspected fraud is more extensive. A, C and D are incorrect.
Question 47
What sources of information does the auditor use to understand the entity?
Select an option first.
Correct answer: B — Prior year financial statements and audit files, discussions with management, industry publications, review of board minutes, budgets and management accounts, and the entity's website
Explanation: B is correct. ISA 315: sources include prior year files, management discussions, industry information, board minutes, regulatory filings, analytical procedures on current year data, and internal audit reports. Using multiple sources gives a broader, more reliable understanding. A, C and D are too narrow.
Question 48
What is 'audit documentation' and what is its primary purpose?
Select an option first.
Correct answer: B — The record of the audit procedures performed, evidence obtained, and conclusions reached — enabling an experienced auditor not involved in the audit to understand the work done and conclusions drawn
Explanation: B is correct. ISA 230: audit documentation (working papers) serves multiple purposes — it provides evidence of the audit's basis, supports supervision and review, enables accountability, facilitates quality reviews, and retains knowledge for future audits. A, C and D do not describe audit documentation's primary purpose.
Question 49
How long must audit working papers be retained?
Select an option first.
Correct answer: B — For at least five years from the date of the auditor's report (or longer if required by law or regulation)
Explanation: B is correct. ISA 230 requires working papers to be retained for at least 5 years from the audit report date. This enables quality reviews, regulatory inspections, and resolution of disputes. A, C and D specify insufficient or incorrect periods.
Question 50
What is a 'value for money audit' and what are its three components?
Select an option first.
Correct answer: B — An audit examining whether resources are used economically (acquiring resources at lowest cost), efficiently (maximising output from resources), and effectively (achieving objectives) — known as the three Es
Explanation: B is correct. VFM audits (common in public sector) assess: Economy (are resources acquired at the right cost?), Efficiency (are resources well used to produce outputs?), and Effectiveness (are objectives being achieved?). These are the three Es. A, C and D mischaracterise VFM audits.
Question 51
What is an 'agreed-upon procedures' engagement and how does it differ from an audit?
Select an option first.
Correct answer: B — An engagement where the auditor performs procedures agreed with the client (and possibly third parties) and reports findings factually — without expressing an opinion or conclusion
Explanation: B is correct. In agreed-upon procedures (ISRS 4400), the auditor reports factual findings from specified procedures, but does not provide an assurance opinion. Users draw their own conclusions from the findings. A overstates the assurance. C and D mischaracterise the engagement.
Question 52
What is a 'compilation engagement' in assurance?
Select an option first.
Correct answer: B — An engagement where the accountant assists management in preparing financial statements using management's information — without verifying or providing assurance on that information
Explanation: B is correct. A compilation (ISRS 4410) involves the accountant assembling financial statements from management's information. No assurance is provided — the report simply states the statements were compiled from management's information. A and C overstate the assurance. D is not a compilation engagement.
Question 53
What is the relationship between an audit firm's quality management system and individual audit quality?
Select an option first.
Correct answer: B — A firm-wide quality management system establishes policies and procedures to ensure audit engagements comply with professional standards — it directly underpins the quality of individual engagements through consistent application of standards and review processes
Explanation: B is correct. ISQM 1 (International Standard on Quality Management) requires firms to have a quality management system addressing: governance, ethics, acceptance, engagement performance, resources, and monitoring. This system supports consistently high-quality individual audits. A, C and D are incorrect.
Question 54
What is 'engagement quality review' (EQR) and when is it required?
Select an option first.
Correct answer: B — An objective review by a partner or senior individual not involved in the engagement — required for listed entity audits and other high-risk engagements — to evaluate significant judgements and conclusions
Explanation: B is correct. ISQM 2: an EQR (formerly 'hot review') provides additional oversight on judgement-intensive audits. The reviewer evaluates: significant judgements, the appropriateness of the audit report, and compliance with standards. It is mandatory for listed entities. A, C and D mischaracterise the process.
Question 55
What is 'acceptance and continuance' of audit clients and what factors are considered?
Select an option first.
Correct answer: B — The process by which the audit firm evaluates whether to accept a new engagement or continue with an existing one — considering client integrity, competence of the firm, ethical requirements, and significant risks
Explanation: B is correct. Before accepting or continuing, the firm considers: management integrity, ability to serve competently and comply with ethical requirements, whether engagement risk is acceptable, and whether preconditions for an audit are present. A, C and D are too narrow.
Question 56
What information might the auditor seek from the predecessor auditor when taking on a new client?
Select an option first.
Correct answer: B — Whether there are any professional reasons why the appointment should not be accepted — including matters about client integrity, reasons for change of auditor, and any unresolved accounting or auditing disagreements
Explanation: B is correct. The incoming auditor should communicate with the predecessor (with the client's permission) to discover: reasons for change, any disagreements, management integrity concerns, and significant audit issues. This enables an informed acceptance decision. A, C and D are not the primary concerns.
Question 57
What is 'digital audit evidence' and why is its use increasing?
Select an option first.
Correct answer: B — Evidence in electronic format obtained or generated using technology — its use increases because entities increasingly process all transactions electronically, making traditional paper-based evidence rare and requiring auditors to use technology to access and test digital data
Explanation: B is correct. As entities move to fully digital operations, auditors must obtain evidence from electronic sources — ERP systems, cloud platforms, digital invoices. This requires auditors to use data analytics, CAATs, and understand IT controls. A, C and D mischaracterise digital evidence.
Question 58
What are 'computer-assisted audit techniques' (CAATs) and give two examples?
Select an option first.
Correct answer: B — Techniques using computer software or data to perform audit procedures — examples include audit software (interrogating client files) and test data (processing test transactions through the client's system)
Explanation: B is correct. CAATs (ISA 330) include: (1) audit software — programmes to analyse data files, extract samples, and perform calculations; (2) test data — auditor-created transactions processed through the client's system to test controls. They increase the efficiency and effectiveness of testing large datasets. A, C and D are incorrect.
Question 59
What is a 'due diligence' engagement and who commissions it?
Select an option first.
Correct answer: B — An investigation engagement commissioned by a potential acquirer to examine the target company's financial position, operations, and risks before completing an acquisition — providing information rather than assurance
Explanation: B is correct. Due diligence is typically commissioned by an acquiring company to independently investigate the target before finalising a deal. It examines: financial statements, liabilities, contracts, operations, and risks. It is an investigation/advisory engagement, not a statutory audit. A, C and D are different engagements.
Question 60
What is the COSO framework's 'risk assessment' component?
Select an option first.
Correct answer: B — The entity's own process for identifying and managing risks relevant to its financial reporting objectives
Explanation: B is correct. COSO risk assessment is internal — management identifies risks to accurate financial reporting, estimates significance, and decides responses. This is distinct from the auditor's risk assessment. A confuses the two. C and D are narrower activities.
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