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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 211
What is the 'self-review threat' and give an example?
Select an option first.
Correct answer: B — The risk that an auditor evaluates work previously performed by themselves or their firm — reducing objectivity because they are unlikely to find fault with their own prior work
Explanation: B is correct. Self-review arises when: the audit firm prepares the financial statements it then audits; an auditor designed IT systems now being relied upon; the firm performs internal audit and then acts as external auditor. Objectivity is compromised because the auditor is unlikely to identify and correct their own errors. A understates the concept. C is self-interest. D is advocacy.
Question 212
What is the 'confidentiality' principle for professional accountants?
Select an option first.
Correct answer: B — The obligation to refrain from disclosing client information acquired during professional work to third parties without proper authority — unless there is a legal or professional right or duty to disclose
Explanation: B is correct. The IESBA Code's confidentiality principle protects client information but permits disclosure when: required by law (e.g., court order, money laundering reporting), authorised by the client, or required as a professional duty (e.g., quality control review). A, C and D are too narrow or incorrect.
Question 213
Under what circumstances must an auditor break confidentiality and disclose client information?
Select an option first.
Correct answer: B — When required by law or regulation (e.g., court order, statutory duty to report suspected money laundering or terrorism financing), or when there is a professional duty to disclose
Explanation: B is correct. Confidentiality must be broken when law requires it — anti-money laundering legislation (reporting suspicious activity to the NCA), court orders, or statutory investigations. The IESBA Code also allows disclosure when authorised by the client. A, C and D do not justify breach of confidentiality.
Question 214
What is 'money laundering' and what obligations does it place on an auditor?
Select an option first.
Correct answer: B — The process of concealing the origin of criminally obtained money — auditors have a legal obligation to submit a Suspicious Activity Report (SAR) to the relevant authority if they suspect money laundering, and must not 'tip off' the client about the report
Explanation: B is correct. Anti-money laundering legislation (e.g., Proceeds of Crime Act 2002 in the UK) requires reporting of suspicions. Tipping off the client is a criminal offence. The auditor must not continue acting for the client without authority if they suspect active laundering. A, C and D are incorrect.
Question 215
What is a 'review engagement' and how does it differ from a statutory audit?
Select an option first.
Correct answer: B — A review engagement provides limited (negative) assurance that nothing has come to the practitioner's attention suggesting the financial statements are not in accordance with the framework — it uses inquiry and analytical procedures rather than the extensive testing of an audit
Explanation: B is correct. ISREs: a review provides limited/negative assurance — less evidence than a full audit, using primarily inquiry and analytical procedures. The assurance conclusion is phrased negatively. An audit provides reasonable/positive assurance through extensive, risk-based procedures. A, C and D are incorrect.
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Question 216
What are the auditor's responsibilities regarding 'other information' included in an annual report alongside audited financial statements?
Select an option first.
Correct answer: B — The auditor must read the other information and consider whether it is materially inconsistent with the financial statements or the auditor's knowledge — reporting a material inconsistency if identified
Explanation: B is correct. ISA 720: the auditor reads (but does not audit) other information in the annual report (directors' report, chairman's statement, strategic report) and identifies material inconsistencies with the audited financial statements. If a material inconsistency exists, the auditor considers whether the financial statements or other information should be amended. A understates the obligation. C overstates it. D understates the reporting requirement.
Question 217
What is an auditor's responsibility for fraud detection?
Select an option first.
Correct answer: B — To design and perform procedures to obtain reasonable assurance that financial statements are free from material misstatement due to fraud — maintaining professional scepticism, identifying fraud risks, and responding appropriately to identified or suspected fraud
Explanation: B is correct. ISA 240: the primary responsibility for fraud prevention lies with management. The auditor's responsibility is to obtain reasonable assurance material misstatements due to fraud are not in the statements. The auditor is not responsible for detecting all fraud or for prevention. A, C and D overstate or mischaracterise the auditor's role.
Question 218
What actions should an auditor take when they identify a suspected material fraud during the audit?
Select an option first.
Correct answer: B — Report the matter to an appropriate level of management or those charged with governance, consider the impact on the audit approach and opinion, and consider whether legal or professional reporting obligations apply
Explanation: B is correct. ISA 240: on identifying suspected fraud: (1) communicate with appropriate management/governance level (not the suspected person); (2) consider the impact on risk assessment and evidence; (3) evaluate effect on the audit opinion; (4) consider legal reporting obligations. A is premature. C could compromise the investigation. D would breach confidentiality.
Question 219
What is the difference between 'error' and 'fraud' in terms of auditor response?
Select an option first.
Correct answer: B — When fraud is suspected, the auditor needs to exercise heightened professional scepticism, re-evaluate the reliability of evidence and management representations, consider broader implications for the audit, and address reporting responsibilities that do not arise for errors
Explanation: B is correct. Error response: correction requested; evaluate impact on opinion. Fraud response: additional scepticism (management representations may be untrustworthy), reassess risk across the entire audit, consider regulatory/legal reporting, evaluate implications for continued association. A ignores the difference. C and D are incorrect.
Question 220
What is the auditor's responsibility regarding compliance with laws and regulations?
Select an option first.
Correct answer: B — To obtain sufficient appropriate evidence about material compliance matters, recognise that non-compliance may affect the financial statements, and respond appropriately — but not to provide assurance on all legal compliance
Explanation: B is correct. ISA 250: the auditor is not a legal expert. Responsibility is limited to: being alert to non-compliance that may have a material effect on financial statements, obtaining evidence on compliance with laws directly affecting account balances, and reporting identified/suspected non-compliance to management and (where appropriate) regulators. A and C overstate the role. D is too absolute.
Question 221
What is 'auditor liability' and in what circumstances might an auditor be liable?
Select an option first.
Correct answer: B — Auditors may be liable in contract to their client and in the tort of negligence to foreseeable third parties who relied on the audit report — subject to defences and limitations
Explanation: B is correct. Auditor liability includes: contract (to client — if audit terms breached); tort of negligence (to third parties who rely on accounts — subject to proximity, foreseeability, and fair/just/reasonable — Caparo test). Liability can be limited by contractual terms, statute, or limited liability partnership structure. A is too narrow. C and D are incorrect.
Question 222
What is the 'Caparo test' for establishing auditor negligence liability to third parties?
Select an option first.
Correct answer: B — Three conditions that must all be met: damage to the claimant was reasonably foreseeable, there was a sufficiently proximate relationship, and it is fair, just, and reasonable to impose a duty of care
Explanation: B is correct. Caparo Industries v Dickman [1990]: established that auditors do not owe a duty of care to investors in the market who rely on published accounts. The three Caparo conditions must all be satisfied. This case significantly limited auditor liability to third parties. A, C and D are incorrect.
Question 223
What is an 'audit committee' and what functions does it perform?
Select an option first.
Correct answer: B — A committee typically composed of independent non-executive directors that oversees financial reporting, monitors the external audit process, oversees internal audit, and reviews internal controls and risk management
Explanation: B is correct. The audit committee (corporate governance requirement for listed entities) provides independent oversight — external auditor appointment/remuneration, review of audit findings, oversight of financial reporting, internal audit oversight, and review of significant judgements. A confuses executive and non-executive roles. C and D are unrelated.
Question 224
What is 'corporate governance' and why is it relevant to the audit?
Select an option first.
Correct answer: B — The system of rules, practices, and processes by which a company is directed and controlled — it is relevant to the audit because strong governance structures reduce the risk of material misstatement and fraud
Explanation: B is correct. Strong governance (independent board, effective audit committee, ethical culture) reduces audit risk — it improves the control environment and reduces inherent risk. Weak governance signals higher risk, requiring more extensive audit procedures. A, C and D are too narrow.
Question 225
What is a 'quality control' review in auditing and what does it involve?
Select an option first.
Correct answer: B — A firm's review of its own audit processes and engagements — including ongoing monitoring of individual engagements, cold reviews, and practice assurance/regulatory inspections — to ensure consistent compliance with standards
Explanation: B is correct. Quality control operates at multiple levels: firm-wide system (ISQM 1), engagement-level (ISQM 2 EQR), monitoring (periodic review of completed engagements), and external regulatory inspection. These ensure consistent audit quality across all engagements. A, C and D are too narrow or incorrect.
Question 226
What is 'ISA 315 Revised' and what significant change did it introduce?
Select an option first.
Correct answer: B — A revised standard on identifying and assessing risks of material misstatement, introducing a spectrum of inherent risk factors, emphasising the importance of IT systems and data in risk assessment, and requiring more explicit consideration of classes of transactions, account balances, and disclosures
Explanation: B is correct. ISA 315 (Revised 2019, effective 2022): major changes include: spectrum of inherent risk replacing 'higher/lower' binary; greater emphasis on IT/automated controls; explicit required understanding of information systems; mandatory assessment of risk at assertion level for all significant classes of transactions and balances. A, C and D are incorrect.
Question 227
What is the purpose of communicating with those charged with governance (TCWG) during the audit?
Select an option first.
Correct answer: B — To assist in understanding matters significant to the audit, obtain information relevant to the audit, maintain a constructive working relationship, and fulfil reporting requirements including communicating significant deficiencies and audit opinion modifications
Explanation: B is correct. ISA 260: communication with TCWG is two-way — the auditor obtains information (from TCWG's governance perspective) and provides information (audit approach, risks identified, significant findings, control deficiencies, independence confirmation). This supports effective oversight of the financial reporting process. A, C and D mischaracterise the communication's purpose.
Question 228
What is 'sustainability assurance' and why is it becoming increasingly important?
Select an option first.
Correct answer: B — An engagement where a practitioner provides assurance on sustainability or ESG (Environmental, Social, Governance) information reported by an entity — increasingly important because investors and regulators demand reliable non-financial information alongside financial statements
Explanation: B is correct. Sustainability assurance (ISAE 3000, and new ISSA 5000 under development) is growing in significance: the EU's CSRD, SEC climate rules, and ISSB standards are driving mandatory sustainability reporting. Assurance on ESG data provides credibility for investor and regulatory purposes. A, C and D are too narrow. This is a key contemporary topic for 2025–26 AA.
Question 229
What is ISQM 1 and how does it differ from its predecessor ISQC 1?
Select an option first.
Correct answer: B — ISQM 1 (Quality Management for Firms) replaced ISQC 1 with a risk-based, more proactive approach to quality management — requiring firms to identify quality risks and design responses, rather than simply implementing prescribed procedures
Explanation: B is correct. ISQM 1 (effective December 2022) requires a risk-based quality management system — firms must assess their own quality objectives, identify risks to achieving them, and design tailored responses. ISQC 1 was more prescriptive. ISQM 1 is more proportionate but also more demanding in terms of customised thinking. A, C and D are incorrect.
Question 230
What is the role of the audit engagement partner and what responsibilities do they hold?
Select an option first.
Correct answer: B — The partner responsible for the quality and completeness of the specific engagement — signing the audit report, ensuring sufficient appropriate evidence is obtained, the opinion is appropriate, and team members have proper direction, supervision, and review
Explanation: B is correct. The engagement partner (ISQM 2, ISA 220) has ultimate responsibility for the engagement — setting the right tone, reviewing significant judgements, ensuring compliance with standards, approving the audit report. They take personal professional responsibility for the opinion. A describes a firm-level role. C is regulatory. D is too narrow.
Question 231
What is an auditor's responsibility regarding 'estimates' made by management?
Select an option first.
Correct answer: B — The auditor must evaluate whether estimates are reasonable — considering whether the estimate method is appropriate, the assumptions are supportable, disclosures are adequate, and whether there are indicators of possible management bias
Explanation: B is correct. ISA 540: accounting estimates (depreciation, provisions, fair values, allowances) involve judgement and are susceptible to management bias. The auditor evaluates: method appropriateness, data reasonableness, whether assumptions are supportable, and any indicators of bias. A and D are incorrect. C is only one of three acceptable approaches.
Question 232
What is the purpose of a 'management representation letter' and what does it contain?
Select an option first.
Correct answer: B — A written confirmation from management acknowledging their responsibilities, confirming information provided, and representing specific matters that the auditor cannot fully verify through other evidence — such as completeness of related-party disclosures and absence of undisclosed liabilities
Explanation: B is correct. ISA 580: the management representation letter (signed by senior management, typically CEO/CFO) formalises management's acknowledgement and confirms specific representations. It is required evidence — if management refuses to provide it, the auditor considers the effect on the audit opinion. A, C and D mischaracterise the letter.
Question 233
What are the 'ACCA fundamental principles' and how do they apply to auditors?
Select an option first.
Correct answer: B — Integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour — these apply to all ACCA members including auditors, governing their conduct in all professional matters
Explanation: B is correct. The IESBA Code (ACCA adopts these) requires: Integrity (straightforward, honest), Objectivity (no bias, conflicts of interest), Professional Competence and Due Care (maintain knowledge, act diligently), Confidentiality (protect client information), Professional Behaviour (comply with laws, avoid discreditable actions). A and D are too narrow. C is incorrect.
Question 234
What is an 'engagement quality reviewer' and what is their role?
Select an option first.
Correct answer: B — A senior auditor (partner or experienced person) who is not part of the engagement team and objectively evaluates the significant judgements made by the engagement team and the conclusions reached — providing an additional layer of quality assurance
Explanation: B is correct. ISQM 2: the EQR provides independent, objective evaluation of significant audit judgements. They review: significant risks identified, key audit decisions, appropriateness of the report, and compliance with standards. For listed entities, the EQR cannot sign the report until their review is complete. A, C and D are incorrect.
Question 235
What is 'professional competence and due care' as a fundamental principle?
Select an option first.
Correct answer: B — The obligation to maintain professional knowledge and skill at the level required for clients, and to act diligently — applying professional standards and current best practice in providing services
Explanation: B is correct. Professional competence has two components: (1) attaining competence through appropriate training and examination; (2) maintaining competence through continuing professional development (CPD). Due care means applying knowledge diligently, carefully, and in accordance with applicable technical and professional standards. A, C and D are too narrow.
Question 236
What is the auditor's responsibility under ISA 240 regarding the risk of fraud?
Select an option first.
Correct answer: B — To assess fraud risk at the planning stage, maintain professional scepticism, identify and respond to significant fraud risks (including revenue recognition and management override), and respond appropriately to identified or suspected fraud
Explanation: B is correct. ISA 240 requires: (1) fraud risk assessment (team discussion, enquiry, analytical procedures); (2) presumed significant risks: revenue recognition and management override; (3) specific responses to assessed fraud risks; (4) maintaining scepticism. Responsibility is reasonable assurance, not guaranteed detection. A, C and D are incorrect.
Question 237
What is a 'contingent liability' and what audit procedures apply?
Select an option first.
Correct answer: B — A possible obligation depending on whether a future uncertain event occurs — audit procedures include reviewing legal correspondence, enquiring of lawyers, reading board minutes, and evaluating management's accounting treatment and disclosure
Explanation: B is correct. IAS 37 defines contingent liabilities (possible obligation from past event, outflow not probable or cannot be measured reliably) — they are disclosed but not recognised. Audit procedures test: whether a present obligation exists, probability of outflow, adequacy of disclosure, and whether it should instead be recognised as a provision. A, C and D mischaracterise contingent liabilities.
Question 238
What is the purpose of the 'ISA 701 Key Audit Matters' requirement for listed entities?
Select an option first.
Correct answer: B — To improve the communicative value of the audit report by describing the matters most significant in the audit — helping users understand the entity, focus on areas of judgement, and facilitating dialogue with management and those charged with governance
Explanation: B is correct. ISA 701 (mandatory for listed entities): KAMs communicate matters the auditor considers most significant — not modifications. They describe: why the matter was significant, and how it was addressed. This transparency enhances the usefulness of the report to investors and other stakeholders. A, C and D mischaracterise KAMs.
Question 239
What is 'technology-enhanced auditing' and how is it changing audit practice?
Select an option first.
Correct answer: B — The use of advanced tools — data analytics, artificial intelligence, robotic process automation, and cloud-based audit platforms — to enable more comprehensive testing, better risk identification, and greater efficiency
Explanation: B is correct. Technology is transforming audit: data analytics enables population-level testing; AI can identify unusual patterns; RPA automates repetitive procedures. The 2025–26 AA syllabus emphasises understanding IT controls, digital evidence, and the implications of technology for audit quality and risk. A, C and D are too narrow.
Question 240
What are the auditor's reporting responsibilities when a company's going concern is in doubt?
Select an option first.
Correct answer: B — If disclosure is adequate — unmodified opinion with a material uncertainty related to going concern paragraph; if disclosure is inadequate — qualified or adverse opinion; if going concern basis is inappropriate — adverse opinion
Explanation: B is correct. ISA 570 sets out a decision matrix: (1) Disclosure adequate, uncertainty disclosed → unmodified + MURGC paragraph; (2) Disclosure inadequate → qualified/adverse (depending on pervasiveness); (3) Going concern basis inappropriate, alternative basis adequate → unmodified; (4) Going concern basis inappropriate, no alternative basis → adverse. A, C and D do not reflect this framework.
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