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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 241
What does the 'basis for opinion' section of an audit report contain?
Select an option first.
Correct answer: B — A statement that the audit was conducted in accordance with ISAs, a reference to the ethical requirements the auditor complied with, and confirmation that sufficient appropriate evidence was obtained to provide a basis for the opinion
Explanation: B is correct. ISA 700: the basis for opinion paragraph confirms: (1) ISA compliance; (2) ethical requirement compliance including independence; (3) reasonable assurance obtained; (4) reference to other relevant ISAs. It supports the opinion's credibility. A, C and D do not describe the basis for opinion section.
Question 242
What are the main professional bodies and regulatory bodies overseeing audit quality in the UK?
Select an option first.
Correct answer: B — The Financial Reporting Council (FRC — soon to be ARGA), the recognised supervisory bodies (ICAEW, ACCA, ICAS), and the audit regulators who inspect audit firms and standard-setters
Explanation: B is correct. In the UK: the FRC (being replaced by ARGA — Audit, Reporting and Governance Authority) sets auditing and ethical standards, monitors audit quality, and can investigate and sanction auditors. Recognised supervisory bodies (RSBs) license auditors. A and C are financial regulators. D are international standard-setters.
Question 243
What is the purpose of the 'management's responsibility' section in an audit report?
Select an option first.
Correct answer: B — To explain that management is responsible for preparing the financial statements, maintaining internal controls, and selecting and applying appropriate accounting policies — clarifying the division of responsibilities and helping to reduce the expectation gap
Explanation: B is correct. ISA 700: the management responsibilities section explains what management does — preparation, fair presentation, internal controls. Alongside the auditor's responsibilities section, it clearly delineates what auditors are and are not responsible for, helping to address the expectation gap. A, C and D are incorrect.
Question 244
What is a 'scope limitation' imposed by management and how does it affect the audit?
Select an option first.
Correct answer: B — A management restriction on the auditor's access to information or the ability to perform necessary procedures — it signals a potential integrity concern and may result in a qualified or disclaimer opinion depending on materiality and pervasiveness
Explanation: B is correct. ISA 705: management-imposed scope limitations are particularly serious — they may indicate management is hiding something. The auditor should consider: (1) alternative procedures; (2) if none available, assess materiality and pervasiveness; (3) qualified (material, not pervasive) or disclaimer (material and pervasive); (4) whether to continue the engagement. A, C and D mischaracterise.
Question 245
What is 'fee dependency' and how does it threaten independence?
Select an option first.
Correct answer: B — Excessive financial dependence on one client — if one client represents a substantial proportion of firm income, the firm may be reluctant to challenge management for fear of losing the revenue, compromising objectivity
Explanation: B is correct. IESBA Code: fee dependency creates a self-interest threat. Thresholds: fees from one client exceeding 15% of firm income (lower for PIEs) should trigger additional safeguards — quality review by independent firm, disclosure to TCWG. The firm should plan to reduce dependence. A is contingent fees. C and D are different fee issues.
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Question 246
What is 'advocacy threat' to independence and give an example?
Select an option first.
Correct answer: B — The risk that the auditor's objectivity is compromised by promoting a position on behalf of the client — for example, representing the client in tax disputes or acting as an expert witness on the client's behalf in litigation
Explanation: B is correct. Advocacy threat: acting as the client's advocate in adversarial proceedings compromises the auditor's independence. Examples: representing client in tax tribunal, preparing promotional documents for fundraising, acting as expert witness for the client. The auditor should not take on these roles. A and C describe permitted activities. D is not advocacy.
Question 247
What are the key elements of an 'engagement quality review' (EQR)?
Select an option first.
Correct answer: B — An objective review by a senior person not on the engagement team covering: significant risks identified and addressed, significant judgements made, the appropriateness of the audit report and opinion, and compliance with applicable standards
Explanation: B is correct. ISQM 2: the EQR reviews — not re-performs — the most critical aspects: significant risk assessment and responses, key accounting estimates, going concern assessment, the proposed report, and independence compliance. The EQR must be completed before the report is signed. A, C and D mischaracterise the EQR.
Question 248
What is the role of the 'audit committee' in supporting external audit quality?
Select an option first.
Correct answer: B — Providing independent oversight of: the appointment, remuneration and objectivity of the external auditor; reviewing and challenging management's significant accounting judgements; receiving and reviewing the external auditor's findings; and ensuring effective two-way communication between auditor and governance
Explanation: B is correct. The audit committee (NEDs) bridges external audit and governance: appoints/recommends auditor to shareholders, oversees independence, reviews audit findings and management responses, challenges significant judgements, and ensures auditors can communicate without management interference. A, C and D mischaracterise the committee's role.
Question 249
What is 'sustainability assurance' and why is it increasing in importance?
Select an option first.
Correct answer: B — An engagement providing assurance on sustainability or ESG disclosures — increasing in importance due to mandatory reporting requirements (EU CSRD), investor demand for reliable non-financial information, and regulatory focus on climate-related financial risks
Explanation: B is correct. Sustainability assurance (ISAE 3000, ISSA 5000 in development) provides independent verification of ESG disclosures. Drivers: EU CSRD (mandatory limited assurance from 2024, reasonable from 2028), ISSB standards, investor pressure. This is one of the fastest-growing areas of assurance practice. A, C and D are too narrow.
Question 250
What is an 'emphasis of matter' paragraph and when is it added?
Select an option first.
Correct answer: B — A paragraph added to an otherwise unmodified report to draw users' attention to a matter disclosed in the financial statements that is fundamental to their understanding — without modifying the opinion itself
Explanation: B is correct. ISA 706: EOM paragraphs draw attention to adequately-disclosed matters — e.g., material uncertainty about going concern (adequately disclosed), a significant subsequent event (non-adjusting), early adoption of a standard. The opinion remains unmodified — the statements are fair but the matter needs highlighting. A, B, C mischaracterise EOM.
Question 251
What is 'professional competence and due care' in the context of audit work?
Select an option first.
Correct answer: B — The obligation to maintain professional knowledge and skill at the level needed to competently perform the audit, and to act diligently — applying current standards, best practices, and professional judgement throughout the engagement
Explanation: B is correct. IESBA Code: professional competence has two parts — (1) attaining competence through training and examination; (2) maintaining it through CPD. Due care means applying knowledge carefully, diligently, and in accordance with applicable technical and professional standards. A and C are too narrow. D is not the principle's focus.
Question 252
What is an 'other matter' paragraph in an audit report?
Select an option first.
Correct answer: B — A paragraph drawing users' attention to a matter not disclosed in the financial statements but relevant to their understanding of the audit engagement or report — for example, that prior year accounts were audited by a different firm or that the report's distribution is restricted
Explanation: B is correct. ISA 706: other matter paragraphs cover matters outside the financial statements — e.g., noting that prior year statements were audited by another firm, restricting the audit report's distribution, or reporting on additional regulatory requirements. They do not modify the opinion. A, C and D mischaracterise other matter paragraphs.
Question 253
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 practitioner performs specific procedures agreed with the client and/or third parties, and reports findings factually without providing any assurance opinion — the users draw their own conclusions from the factual findings
Explanation: B is correct. ISRS 4400: in agreed-upon procedures, there is no assurance — the practitioner simply reports what was found (factual findings) from performing agreed procedures. Users assess the findings themselves. This differs from audit (reasonable assurance) and review (limited assurance) because no opinion or conclusion is expressed. A, C and D mischaracterise.
Question 254
What is the auditor's responsibility when going concern is in doubt but management has adequately disclosed material uncertainties?
Select an option first.
Correct answer: B — Issue an unmodified opinion and include a 'Material Uncertainty Related to Going Concern' section in the report to draw users' attention to the disclosed uncertainties
Explanation: B is correct. ISA 570: if management has adequately disclosed the material uncertainty, the auditor issues an unmodified opinion (the disclosure makes the statements fair) but adds the MURGC section. This communicates the uncertainty to users without implying the statements are wrong. A, C and D are inappropriate responses when disclosure is adequate.
Question 255
What is the difference between a 'going concern' disclosure and a modification of the audit opinion for going concern?
Select an option first.
Correct answer: B — If management adequately discloses material uncertainty in the financial statements, the auditor issues an unmodified opinion with a MURGC section; modification (qualified/adverse) only occurs if disclosure is inadequate or the going concern basis is inappropriate
Explanation: B is correct. ISA 570: the key is disclosure adequacy. Adequate disclosure → unmodified + MURGC section. Inadequate disclosure → qualified or adverse. Inappropriate going concern basis → adverse (unless alternative basis used appropriately). This framework prevents unnecessary modifications when companies transparently disclose their uncertainties. A, C and D are incorrect.
Question 256
What is the 'auditor's report on internal controls' required under some corporate governance frameworks?
Select an option first.
Correct answer: B — A separate report required by some regulations (e.g., Sarbanes-Oxley s.404 in the US) where the auditor opines on management's assessment of the effectiveness of internal controls over financial reporting — separate from and in addition to the financial statements audit
Explanation: B is correct. Some regulatory frameworks (US: SOX s.404, PCAOB standards) require external auditor attestation on management's assessment of internal controls. This is separate from the financial statement audit. UK listed companies may include statements on internal control in their annual report but external auditor attestation on controls is not currently mandatory in the UK. A, C and D mischaracterise the concept.
Question 257
What is 'integrated reporting' and how does it relate to assurance?
Select an option first.
Correct answer: B — A reporting framework (IR Framework by IIRC) combining financial and non-financial information (strategy, governance, performance, prospects, and six capitals) into a connected report — creating demand for assurance on both financial and non-financial elements
Explanation: B is correct. Integrated reporting (IIRC framework, adopted by many large companies) covers: financial capital, manufactured capital, human capital, social capital, intellectual capital, and natural capital. As non-financial reporting expands, so does demand for assurance on non-financial disclosures. ISAE 3000 and emerging standards (ISSA 5000) address this. A, C and D are incorrect.
Question 258
What is 'ISA 501' and what specific audit evidence obligations does it create?
Select an option first.
Correct answer: B — A standard on specific evidence requirements for: inventory (attending physical counts), litigation and claims (inquiring of lawyers), and segment information — requiring specific evidence-gathering procedures beyond normal substantive testing
Explanation: B is correct. ISA 501 requires specific procedures for: (1) inventory existence — attending physical counts; (2) litigation and claims — inquiring of management, reviewing correspondence with lawyers, obtaining direct confirmation from lawyers; (3) segment information — understanding how it is prepared. A, C and D identify other ISAs.
Question 259
What is a 'letter of engagement' for a review engagement and how does it differ from an audit engagement letter?
Select an option first.
Correct answer: B — A review engagement letter confirms the same parties, subject matter, and responsibilities but specifies that only limited (negative) assurance will be provided using primarily inquiry and analytical procedures — not the extensive testing of an audit
Explanation: B is correct. ISREs require an engagement letter for review engagements confirming: the scope (limited assurance, not reasonable), the procedures (primarily inquiry and analytical procedures), the form of the conclusion (negative assurance wording), and responsibilities of management and the practitioner. The key difference from an audit engagement letter is the level of assurance. A, C and D are incorrect.
Question 260
What is 'legal privilege' and why is it relevant to audit evidence?
Select an option first.
Correct answer: B — A legal protection preventing disclosure of communications between a client and their lawyers — relevant to audits because management may refuse to allow the auditor to communicate directly with legal advisers, citing privilege
Explanation: B is correct. Legal professional privilege protects confidential communications between a client and their lawyers. Management may rely on this to limit the lawyer's response to the auditor's confirmation request. If the lawyer's response is restricted and alternative evidence is unavailable, the auditor considers the scope limitation implications. A, C and D mischaracterise legal privilege in the audit context.
Question 261
What is 'practice assurance' or 'monitoring' in the context of audit quality?
Select an option first.
Correct answer: B — An external review programme conducted by the professional body or regulator inspecting audit firms' quality management systems and individual engagements to assess whether firms are complying with professional standards
Explanation: B is correct. Practice assurance (monitoring) involves external inspectors reviewing audit firms — checking: quality management systems, policies and procedures, selected completed engagements, and compliance with independence requirements. Findings are used to improve standards across the profession. A is the EQR. C is client feedback. D is documentation review.
Question 262
What is the difference between 'audit independence' and 'objectivity'?
Select an option first.
Correct answer: B — Independence is a formal, structural concept — being free from relationships that could compromise objectivity; objectivity is a personal, attitudinal quality — being unbiased and fair in exercising professional judgement. Both are required: independence creates the conditions for objectivity
Explanation: B is correct. IESBA Code: independence (both in fact and appearance) is the external requirement — no financial interests, no family relationships with client, no prohibited services. Objectivity is the internal quality — forming opinions without bias. Independence supports objectivity but objectivity must also be cultivated regardless of formal independence. A, C and D are incorrect.
Question 263
What is the 'expectation gap' related to fraud detection?
Select an option first.
Correct answer: B — The public expectation that auditors will detect all fraud versus the auditor's actual responsibility — only to obtain reasonable assurance that financial statements are free from material misstatement (which includes material misstatement due to fraud)
Explanation: B is correct. Many stakeholders believe auditors catch all fraud. In reality: the auditor provides reasonable (not absolute) assurance; the primary responsibility for fraud prevention lies with management; and auditors are not trained investigators. This gap is a key driver of the expectation gap and is addressed through the audit report's responsibilities sections. A, C and D are incorrect.
Question 264
What is a 'predecessor auditor' and what must the incoming auditor do before accepting the engagement?
Select an option first.
Correct answer: B — The previous external auditor who held the engagement before the current firm — the incoming auditor should communicate with them (with the client's permission) to discover any professional reasons for not accepting the engagement, including integrity concerns, disagreements, and outstanding fees
Explanation: B is correct. Professional etiquette and ethical guidance require incoming auditors to communicate with predecessor auditors before accepting. This helps identify: reasons for change (was the previous auditor pushed out for refusing to accept an accounting treatment?), integrity concerns, unresolved issues, and prior year audit approach. Client permission is required. A, C and D are incorrect.
Question 265
What is 'audit tendering' and what governance and independence issues does it raise?
Select an option first.
Correct answer: B — The process by which a company invites audit firms to submit proposals for the audit engagement — raising issues including: pressure to price aggressively (fee threats to independence), rotation facilitation (fresh eyes), and whether the selection process is transparent and governed by the audit committee
Explanation: B is correct. Tender processes are recommended in corporate governance codes to provide transparency and accountability. Issues: the audit committee (not management) should oversee tenders; price competition should not compromise quality; rotation through tender ensures fresh perspective. The risk is that commercial pressure to win the tender compromises auditor behaviour. A, C and D are incorrect.
Question 266
What is 'auditor liability to third parties' and what principle limits it?
Select an option first.
Correct answer: B — Auditors may owe a duty of care to third parties who rely on audited accounts, but the Caparo three-stage test limits this to situations where: damage was foreseeable, there was sufficient proximity, and it is fair/just/reasonable to impose a duty
Explanation: B is correct. Post-Caparo v Dickman [1990], auditors' liability to third parties is significantly restricted. Merely producing publicly available accounts does not create a duty to all who might read and rely on them. A specific relationship of proximity is needed. A and D are too wide. C is too narrow (liability to the client company exists in contract).
Question 267
What is 'ISAE 3402' and what type of engagement does it cover?
Select an option first.
Correct answer: B — An assurance standard for service organisations — allowing an independent auditor to report on the controls at a service organisation (e.g., a payroll processor, cloud accounting provider) used by user entities, confirming the controls are suitably designed and operating effectively
Explanation: B is correct. ISAE 3402 / SSAE 18 (SOC 1 reports): many entities outsource processes (payroll, IT, accounting) to service organisations. User entity auditors need confidence in those external controls. A service organisation's auditor can provide a Type 1 (design) or Type 2 (design and operating effectiveness) report. A, C and D identify other standards.
Question 268
What is the 'Sarbanes-Oxley Act (SOX)' and which aspects are most relevant to auditing?
Select an option first.
Correct answer: B — A US federal law enacted following major corporate scandals — requiring: CEO/CFO certification of financial statements, auditor attestation on internal controls (s.404), prohibition of certain non-audit services, mandatory audit committee composed of independent directors, and enhanced auditor independence requirements
Explanation: B is correct. SOX (2002) significantly impacted auditing — particularly s.302 (CEO/CFO certifications), s.404 (internal control assessment), and s.206 (independence rules). While directly applicable only to US-listed companies, it influenced audit practice globally, including independence standards adopted by IESBA. A, C and D misidentify SOX.
Question 269
What is 'modified auditor's report' and list all the ways it can be modified?
Select an option first.
Correct answer: B — An audit report that departs from the standard unmodified report — modifications include: (a) modification of opinion (qualified, adverse, disclaimer); (b) inclusion of emphasis of matter paragraph; (c) inclusion of other matter paragraph; (d) inclusion of material uncertainty related to going concern section
Explanation: B is correct. ISA 700/705/706/570: multiple forms of modification exist. Type (a) — modified opinion: qualified (material except-for), adverse (pervasive misstatement), disclaimer (pervasive scope limitation). Types (b)-(d) — additional paragraphs that do not modify the opinion itself but draw attention to matters. Understanding all forms is essential. A, C and D are too narrow.
Question 270
What is 'objectivity' as a fundamental principle and why is it particularly important for auditors?
Select an option first.
Correct answer: B — The obligation to not allow bias, conflict of interest, or undue influence to override professional or business judgements — particularly important for auditors because their entire value to shareholders rests on the credibility of an independent, unbiased opinion
Explanation: B is correct. Without objectivity, the audit opinion is worthless — it would merely be management's assessment dressed up as independent verification. Objectivity is supported by independence (structural) and enforced through ethical standards. A and C are too extreme. D is too narrow.
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