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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 151
What are 'accruals' and what is the key audit assertion for them?
Select an option first.
Correct answer: B — Liabilities for goods or services received but not yet invoiced — completeness is the key assertion, tested by reviewing after-date invoices, calculating expected recurring charges, and comparing to prior year to identify any unrecorded liabilities
Explanation: B is correct. Accruals: the key risk is understatement (completeness). Procedures: after-date invoice review (any large invoices in the post-period not accrued?), recalculate recurring charges (rent, utilities, interest), compare total accruals to prior year, and review board minutes for commitments. A describes deferred revenue. C describes receivables. D describes contract assets.
Question 152
What is the purpose of reviewing 'board minutes' during an audit?
Select an option first.
Correct answer: B — To obtain evidence about: major transactions approved, disputes disclosed, dividend decisions, significant business events, contingent liabilities discussed, and management's awareness of going concern issues — all potentially affecting the financial statements
Explanation: B is correct. Board minutes are primary evidence of management decisions and awareness. They can reveal: asset disposals, acquisitions, new borrowings, legal claims, dividend declarations, and going concern discussions. This helps the auditor identify completeness of disclosures and significant risks. A, C and D are too narrow.
Question 153
What are 'related-party transactions' and why do they require special audit attention?
Select an option first.
Correct answer: B — Transactions between the entity and parties who control, are controlled by, or are under common control with the entity — requiring special attention because they may not be at market rates, may not be genuinely arm's length, and require specific financial statement disclosure
Explanation: B is correct. ISA 550: related parties (directors, subsidiaries, major shareholders, key management) can engage in transactions that benefit related parties at the expense of other stakeholders. The auditor must: identify all related parties, verify transactions are properly disclosed, assess arm's length nature, and evaluate whether they affect the financial statements. A assumes arm's length. C and D describe specific characteristics.
Question 154
What is a 'whistle-blower hotline' and how does it function as a control?
Select an option first.
Correct answer: B — An anonymous reporting mechanism allowing employees to report suspected fraud, control failures, or ethical violations to management or the audit committee — operating as a detective control
Explanation: B is correct. Whistle-blower hotlines are important detective controls — they provide a channel for employees to report suspected wrongdoing without fear of retaliation. Strong governance frameworks (UK Corporate Governance Code, Sarbanes-Oxley) encourage or mandate them. They reduce fraud risk and support the control environment. A, C and D are incorrect.
Question 155
What is 'management accounts' evidence and how reliable is it?
Select an option first.
Correct answer: B — Monthly or quarterly financial reports prepared by management for internal decision-making — useful for analytical procedures and understanding the business but less reliable than audited figures because they are unaudited internal documents prepared by management
Explanation: B is correct. Management accounts provide useful analytical evidence (comparing monthly trends, identifying unusual variations) but are internal, unaudited, and prepared by management — meaning they carry moderate reliability. They are more reliable than management assertions alone but less reliable than externally confirmed data. A, C and D are incorrect.
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Question 156
What is 'computer fraud' and what controls mitigate it?
Select an option first.
Correct answer: B — Intentional manipulation of computer systems or data to commit fraud — e.g., unauthorised changes to programs, input of fictitious transactions, or manipulation of data files. Mitigated by: strong access controls, change management controls, audit logs, and segregation of duties in IT
Explanation: B is correct. Computer fraud uses IT as the vehicle — unauthorised access to systems, falsifying transaction data, changing master files (e.g., employee pay rates, supplier bank details). Controls: access controls (who can do what), change management (program changes require testing and approval), audit trails (log of system activity), and IT segregation. A, C and D are incorrect.
Question 157
What is a 'supplier statement reconciliation' and what control objective does it serve?
Select an option first.
Correct answer: B — Comparing the balance shown on a supplier's statement to the balance in the company's purchase ledger — identifying unrecorded invoices, disputed amounts, or timing differences, serving the completeness objective for payables
Explanation: B is correct. Supplier statement reconciliations are detective controls — they compare the supplier's record of what is owed with the company's record. Differences may indicate: invoices not yet recorded (completeness), payments not yet processed, or disputes. For payables, completeness (are all liabilities recorded?) is the key risk. A, C and D are incorrect.
Question 158
What is 'credit control' as an internal control and what does it prevent?
Select an option first.
Correct answer: B — The process of assessing customer creditworthiness before extending credit, setting credit limits, monitoring aged debts, and chasing overdue accounts — preventing bad debts and maintaining the quality of the receivables balance
Explanation: B is correct. Credit control addresses: risk assessment before credit is granted (creditworthiness checks), setting appropriate limits, monitoring outstanding balances (aged debtors report), and collecting overdue amounts. Good credit control reduces the risk of irrecoverable debts, supporting the valuation assertion for receivables. A, C and D are different controls.
Question 159
What is a 'purchase order' (PO) and why is it important for controls?
Select an option first.
Correct answer: B — A formal document raised by the buyer authorising a purchase — providing evidence that goods/services were ordered, enabling three-way matching, and preventing unauthorised purchases or over-ordering
Explanation: B is correct. POs are preventive controls: they authorise purchases before they are made, preventing unauthorised spending. Three-way matching (PO + GRN + invoice) ensures the company only pays for what was ordered and actually received at the agreed price. A and D are other documents in the purchase process. C is a payment instruction.
Question 160
What is an 'aged receivables analysis' and how does it support audit procedures?
Select an option first.
Correct answer: B — A schedule showing trade receivable balances categorised by how long they have been outstanding (current, 30 days, 60 days, 90 days+) — helping the auditor identify potentially irrecoverable balances and assess the adequacy of the allowance for doubtful debts
Explanation: B is correct. The aged debtors listing is essential for receivables audit work: balances outstanding beyond normal credit terms are higher risk. The auditor reviews old/slow-moving balances with credit control and compares to prior year. Long-outstanding balances may require allowance or write-off. A, C and D are narrower concepts.
Question 161
What are 'substantive procedures for depreciation' and what assertions do they address?
Select an option first.
Correct answer: B — Recalculating the depreciation charge for a sample of assets, comparing the charge to prior year, assessing the appropriateness of useful lives and residual values, and reviewing the consistency of accounting policy application — primarily testing accuracy, valuation, and completeness
Explanation: B is correct. Depreciation procedures: (1) proof-in-total — calculate expected depreciation and compare to actual; (2) recalculate for sample; (3) review useful life assumptions (reasonable? Consistent with actual asset use?); (4) compare rates/policies to prior year. Assertions addressed: accuracy (correct calculation), valuation (carrying amount reflects economic use), and completeness (all assets depreciated). A, C and D are too narrow.
Question 162
What is the purpose of testing 'rights and obligations' for non-current assets?
Select an option first.
Correct answer: B — To confirm that the entity legally owns the assets recorded in its non-current asset register — and that any obligations (mortgages, charges) are properly disclosed. Procedures include: inspecting title deeds, registration documents, and security interests
Explanation: B is correct. Rights and obligations is a balance sheet assertion — the company must own or control what it recognises. Procedures: title deeds (property), vehicle registration (motor vehicles), supplier invoices in the entity's name, reviewing charge registers for security interests. A, C and D are different audit considerations.
Question 163
What is 'physical inspection of assets' and what limitations does it have?
Select an option first.
Correct answer: B — Physical verification that an asset exists — but its limitations include: it only confirms existence at the time of inspection (not whether the asset is still there next week), it does not confirm ownership (another party may own the asset), and it does not confirm value
Explanation: B is correct. Physical inspection tests existence — the asset is there. But it does not test: rights (who owns it?), valuation (is it correctly valued?), or completeness (are all assets included?). These require additional procedures. A overstates what physical inspection proves. C is incorrect. D is too narrow.
Question 164
What is a 'goods received note' (GRN) and its role in the purchase process?
Select an option first.
Correct answer: B — A document prepared when goods are delivered, recording what was actually received — used in three-way matching to confirm that goods invoiced were actually delivered, supporting the existence/occurrence assertion for purchases
Explanation: B is correct. GRNs are critical documents in the purchase system: they confirm delivery occurred and match the PO and supplier invoice. Three-way matching (PO + GRN + invoice) prevents paying for goods not received or at wrong quantities/prices. A is a PO. C is a remittance advice. D is a goods despatch note (GDN).
Question 165
What is 'window dressing' in financial reporting and how does the auditor test for it?
Select an option first.
Correct answer: B — Deliberately timing transactions at the period-end to improve the appearance of key financial ratios — e.g., paying down overdrafts temporarily before year-end, delaying supplier payments, or accelerating cash receipts. The auditor tests by reviewing bank statements around year-end for unusual patterns
Explanation: B is correct. Window dressing manipulates period-end balances to show stronger liquidity or lower debt. Procedures: review cash book and bank statements for unusual large payments/receipts around year-end, investigate significant items deposited just before year-end that are quickly reversed. A, C and D are incorrect.
Question 166
What is 'management expert' evidence and when does the auditor use it?
Select an option first.
Correct answer: B — Evidence provided by a specialist employed or engaged by management — e.g., property valuers, actuaries, engineers. The auditor evaluates the expert's competence, objectivity, and the reasonableness of their assumptions and conclusions
Explanation: B is correct. ISA 500: management experts provide specialised valuations (land and buildings, pensions, complex financial instruments). The auditor must evaluate: the expert's qualifications, their independence from management, the reasonableness of methods and assumptions used, and the consistency of the conclusion with other evidence. A is an auditor's expert (different concept). C and D are not management experts.
Question 167
What is an 'auditor's expert' and how does ISA 620 govern the use of their work?
Select an option first.
Correct answer: B — An individual or firm with expertise in a field other than accounting or auditing (e.g., actuarial, engineering, legal) engaged by the audit firm to assist with obtaining evidence — the auditor remains solely responsible for the audit opinion and must evaluate the expert's work
Explanation: B is correct. ISA 620: the auditor may engage their own expert for complex valuations, technical assessments, or legal interpretations. The auditor: agrees the scope of the expert's work, evaluates their competence and objectivity, and assesses the adequacy of their conclusions. Responsibility for the opinion rests entirely with the auditor — not the expert. A and C are different roles. D may be an internal specialist but is a narrower concept.
Question 168
What is 'directional testing' in audit sampling?
Select an option first.
Correct answer: B — Designing tests in one direction based on the assertion being tested: starting from records to confirm existence (preventing overstatement) or starting from source documents to confirm completeness (preventing understatement)
Explanation: B is correct. Direction matters for assertions: to test existence/occurrence (overstatement risk) → start from the recorded item → trace to source document. To test completeness (understatement risk) → start from the source document → trace to the recorded item. If you test in the wrong direction, you test the wrong assertion. A is too narrow. C and D are not directional testing.
Question 169
What is 'inventory cut-off testing' and how is it performed?
Select an option first.
Correct answer: B — Testing that inventory received before the year-end is included in inventory and recorded as a liability, and that inventory despatched before year-end is excluded from inventory and revenue is recognised — performed by noting the last GRN and GDN numbers at the inventory count and tracing them to the financial records
Explanation: B is correct. Cut-off testing bridges the year-end boundary: the auditor records the last few GRN and GDN numbers during the inventory count, then traces them to ensure: (1) last pre-year-end GRN → in inventory and payables; (2) first post-year-end GRN → not in inventory; (3) last pre-year-end GDN → not in inventory, revenue recognised. A, C and D are different inventory procedures.
Question 170
What is a 'letter of representation' (management representation letter) and when must it be obtained?
Select an option first.
Correct answer: B — A written statement from management to the auditor, required before the audit report is signed, confirming specific representations — such as management's acknowledgement of their responsibilities and the completeness of information provided
Explanation: B is correct. ISA 580: the representation letter must be obtained before the report is signed. If management refuses to provide requested representations, this is a scope limitation affecting the opinion. Standard representations: management has provided all information, financial statements are prepared in accordance with the framework, and specific items (e.g., completeness of related parties, no undisclosed liabilities). A, C and D mischaracterise the document.
Question 171
What is 'IT security' as an internal control and give three examples?
Select an option first.
Correct answer: B — Controls protecting the entity's IT systems and data from unauthorised access, cyber attacks, and data breaches — examples include: multi-factor authentication, role-based access controls (users can only access what their role requires), encryption of sensitive data, regular security patching, and intrusion detection systems
Explanation: B is correct. IT security controls are a subset of GITCs and are increasingly important for audit (2025-26 AA syllabus emphasis on technology). They protect data integrity and availability. Without security controls, financial data can be altered, stolen, or destroyed — directly affecting the reliability of all system-generated audit evidence. A, C and D are too narrow.
Question 172
What is 'cloud computing' and what implications does it have for internal controls and auditing?
Select an option first.
Correct answer: B — Computing services delivered over the internet (storage, processing, software) — implications for controls: shared responsibility between the entity and cloud provider, access controls are critical, data residency and security issues, and the auditor must understand which controls are performed by the cloud provider versus the entity
Explanation: B is correct. Cloud computing changes the control environment — the entity relies on the cloud provider's controls (infrastructure security, availability, data protection). The auditor must: understand the service provider's controls (potentially through SOC 2 reports), assess the entity's access controls, and consider data integrity risks. This reflects the 2025-26 AA syllabus emphasis on technology. A, C and D are incorrect.
Question 173
What is 'robotic process automation' (RPA) in accounting and how does it affect the audit?
Select an option first.
Correct answer: B — Software robots automating repetitive, rule-based processes (e.g., invoice matching, bank reconciliations, journal entries) — affecting the audit by: reducing manual processing errors, increasing transaction volumes processed at speed, but also creating risks if the automation is programmed incorrectly or unauthorised changes are made
Explanation: B is correct. RPA automates repetitive tasks faster and more consistently than humans. Audit implications: (1) fewer human errors but risks if the robot's program is incorrect; (2) change management controls critical (who can change the robot's rules?); (3) access controls needed; (4) testing the robot's logic rather than sampling individual transactions. A, C and D are incorrect.
Question 174
What is 'artificial intelligence' (AI) in auditing and how is it changing audit practice?
Select an option first.
Correct answer: B — The use of machine learning and AI algorithms to analyse patterns in large datasets — enabling auditors to: identify anomalies in the full transaction population, predict areas of risk, automate routine audit procedures, and test 100% of transactions rather than samples
Explanation: B is correct. AI in auditing (a key 2025-26 AA topic): auditors can use AI-powered tools to scan entire transaction populations, identify unusual items, assess risk indicators, and predict where misstatements are likely. Benefits: deeper coverage, earlier risk identification, more targeted testing. Limitations: reliance on data quality, risk of 'black box' decisions. A, C and D are incorrect.
Question 175
What is 'segregation of duties' for cash receipts and why is it particularly important?
Select an option first.
Correct answer: B — Ensuring that the person receiving cash, the person posting to the ledger, and the person performing bank reconciliations are three different individuals — preventing any one person from stealing cash and concealing the theft through false bookkeeping
Explanation: B is correct. Cash is the most susceptible asset to misappropriation. Segregation of duties for cash: (1) receive/count — one person; (2) record to ledger — different person; (3) reconcile to bank — third person (or independent review). If one person does all three, they can steal cash, record a false entry, and the reconciliation can be manipulated to conceal the theft. A, C and D are incorrect.
Question 176
What is 'password management' as an IT control and what best practices does it follow?
Select an option first.
Correct answer: B — Controls ensuring that passwords used to access IT systems are strong, confidential, and regularly changed — including: minimum complexity requirements (length, characters), prohibition on sharing, forced periodic change, multi-factor authentication, and lockout after failed attempts
Explanation: B is correct. Password management is a core GITC. Weak passwords are a primary route to unauthorised system access. Best practices: minimum 12 characters, combination of character types, forced change every 90 days, no reuse, multi-factor authentication (MFA) for sensitive systems. A, C and D are other security controls.
Question 177
What is a 'purchase ledger control account' and what reconciliation confirms its integrity?
Select an option first.
Correct answer: B — A general ledger account representing the total of all individual creditor balances — reconciling the purchase ledger control account to the total of individual supplier balances in the purchase ledger confirms that all transactions have been correctly posted and no posting errors exist
Explanation: B is correct. The purchase ledger control account is a key internal control — it should always equal the sum of all individual supplier balances. A reconciliation discrepancy indicates: unposted transactions, duplicate entries, incorrect coding, or potential fraud. This is a detective control confirming completeness and accuracy. A, C and D are incorrect.
Question 178
What are 'analytical procedures at the final review stage' and what do they test?
Select an option first.
Correct answer: B — Procedures performed by a senior team member at the end of the audit to evaluate whether the financial statements, as a whole, are consistent with the auditor's understanding of the entity — identifying any significant items not previously noted that could indicate a misstatement
Explanation: B is correct. ISA 520: final review analytical procedures give the engagement partner/manager a holistic perspective — does everything make sense? Are ratios and trends consistent with what was understood about the business? Any unexplained fluctuations at this stage require follow-up before the report is signed. A is substantive testing, not final review. C and D are incorrect.
Question 179
What is 'disclosure testing' and which assertion does it primarily address?
Select an option first.
Correct answer: B — Evaluating whether the notes and disclosures in the financial statements are complete, accurate, and in accordance with the applicable financial reporting framework — addressing the presentation and disclosure assertion
Explanation: B is correct. Disclosure testing: the auditor checks that disclosures required by the applicable standards (IFRS, UK GAAP) are included, accurate, and understandable. Examples: related-party disclosures, going concern disclosures, pension disclosures, segment disclosures. Missing or misleading disclosures are misstatements. A, C and D are incorrect.
Question 180
What is 'vouching' and what is 'tracing' in audit testing?
Select an option first.
Correct answer: B — Vouching: starting from the accounting record and tracing back to source documents (tests existence/occurrence — prevents overstatement). Tracing: starting from source documents and following through to the accounting records (tests completeness — prevents understatement). They test opposite assertions and are used deliberately to address specific risks
Explanation: B is correct. The direction of testing determines what assertion is being tested. Vouching (record → document) confirms that what is recorded actually happened (existence, occurrence). Tracing (document → record) confirms that what happened was recorded (completeness). Understanding this distinction is fundamental to designing effective audit procedures. A reverses the assertions. C and D are incorrect.
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