1. Which ONE of the following best describes the concept of assurance?

Assurance refers to:

A. An assurance firm’s high level of satisfaction as to the reliability of an
assertion being made by one party for the use of another party
B. A user’s satisfaction as to the reliability of an assertion being made by
another party
C. An assurance firm’s satisfaction as to the reliability of an assertion
being made by one party for the use of another party
D. An assurance firm’s limited level of satisfaction as to the reliability of an
assertion being made by one party for the use of another party
2. Which ONE of the following statements best describes the evidence
obtained and the opinion given in a reasonable assurance engagement?
A. Sufficient appropriate evidence and a negatively worded opinion
B. Sufficient appropriate evidence and a positively worded opinion
C. A lower level of evidence and a negatively worded opinion
D. A lower level of evidence and a positively worded opinion
3. Which THREE of the following are benefits of an assurance report on
financial information?
A. An assurance report enhances the credibility of the information
being reported on
B. An assurance report reduces the risk of management bias in the
information being reported on
C. An assurance report draws the attention of the user to deficiencies in
the information being reported on
D. An assurance report attests to the correctness of the information being
reported on
4. Which ONE of the following statements is true?
A. A negative assurance conclusions givens a reasonable level of assurance
B. Reasonable assurance is absolute assurance of the correctness of the
subject matter
C. A positive assurance conclusions givens a limited level of assurance
D. A statutory audit gives reasonable assurance that the financial
statements give a true and fair view
5. Which TWO of the following are benefits of an engagement letter in respect
of assurance services?
A. Facilitate review of work
B. Ensure that the audit is properly organized and managed
 C. Defines the extent of the assurance provider’s responsibilities
D. Provides written confirmation of the acceptance of the engagement
6. Which THREE of the following procedures should be carried out after the
audit firm has decided to accept appointment as auditor?
A. Communicate with the predecessor auditors to discover any reasons they
should not accept appointment
B. Set up and submit a letter of engagement to the directors of the
company
C. Ensure that a resolution has been passed at the general meeting to
appoint the new auditors
D. Ensure that the outgoing auditors’ removal/ resignation has been
properly conducted
7. Audit risk can be split into three components: Inherent risk, control risk and
detection risk. For each of the following examples, select one example which
illustrated for control risk
A. The organization is seeking to raise finance for a new venture
B. The auditor will be using samples in testing
C. Inventory balance is the largest balance in the account
D. Management fails to meet up regularly for board meetings
8. When gaining an understanding of the investment operations of an audit
client which ONE of the following matters would an auditor need to consider?
A. Products or services and markets of the client's business
B. Leasing of property, plant or equipment for use in the client's business
C. Accounting principles and industry specific practices relevant to the
client's business
D. Acquisitions or disposals of the client’s business activities
9. Which ONE of the following correctly describes the period for which client
identification documents must be kept under money laundering regulations?
A. For a minimum of five years and until six years have elapsed since
the relationship with the client has ceased

B. For a minimum of six years and until five years have elapsed since the
relationship with the client has ceased
C. For a minimum of seven years and until five years have elapsed since the
relationship with the client has ceased
D. For a minimum of five years and until five years have elapsed since the
relationship with the client has ceased
10. Which ONE of the following statements is correct with regard to the
relationship between the audit plan and the audit strategy for an external audit
engagement?
A. The audit plan should be developed before the audit strategy is
established
B. The audit plan and the audit strategy should be established and developed
at the same time.
C. The overall audit strategy should be more detailed than the audit plan.
D. The audit strategy should be established before the audit plan is
developed

11. Which TWO of the following statements correctly describe the auditors'
responsibilities in accordance with ISA 240 The auditor's responsibilities
relating to fraud in an audit of financial statements?
A. The auditor performs the audit with the aim of deterring fraud
B. The auditor must only obtain evidence regarding the risks of material
misstatement due to error
C. The auditor is responsible for obtaining reasonable assurance that
the financial statements are free from material misstatement
whether caused by fraud or error
D. The auditor is not responsible for the prevention and detection of
fraud and error
12. Grey Ltd’s quick ratio has fallen from 1.9:1 to 1.6:1. Which TWO of the
following might help to explain this decline?
A. Credit control has been poor
B. The allowance for receivables has been reduced
C. The entity has purchased a property for cash
D. The entity has purchased a batch of inventory for cash
13. The auditor of Blue Co has identified an unexpectedly high deviation rate
when carrying out tests of control on a sample of sales invoices. Which TWO of
the following would be a satisfactory course of action?
A. Ignore the deviations as they only affect some of the items tested
B. Replace the sample
C. Extend the sample size
D. Perform alternative substantive procedure
14. The following are examples of computer controls which operate in the
payroll system at Hana Ltd. Which TWO of the following examples are the
types of computer control which illustrate for application control?
 A. Manual checks to ensure that timesheets are authorised before
details are processed
B. Approval of new applications by a sample of users and by magagement
C. Range check on payroll processing
D. Password protection limiting access to data
15. The following is example of internal control which operates at Navy plc:
“The finance director compares monthly expenditure on consumables to
budgeted expenditure”. Select the type of control activity which is illustrated.
A. Information processing
B. Physical control
C. Segregation of duties
D. Performance review
16. Which of the following is not a benefit of establishing an audit committee?
A. Reduced external audit fees, as the presence of the audit committee
reduces audit risk and consequently, the amount of audit procedures
required
B. Greater external audit independence, as the audit committee can be
responsible for appointing the external auditors
C. Monitor and review the effectiveness the effectiveness of the company’s
internal audit function.
D. Reduced opportunity of fraud, as the audit committee can advise the
executive directors on managing the risks in the financial reporting
process
17. Application controls relate to procedures used to initiate, record, process and
report transactions and other financial data. Which two of the following are
application controls?
A. Complete testing procedures
B. Approval of changes by computer users and management
C. Document counts
D. Batch reconciliations
18. Which ONE of the following statements is true regarding the audit
committee?
A. An audit committee must comprise non-executive directors and executive
directors
B. All companies are required to have an audit committee
C. The role and responsibilities of the audit committee are set out in statute
 D. Where there is no internal audit function the audit committee should
consider the need for one on an annual basis
19. For each of the following statements in relation to guidance on professional
ethics. Which THREE of the following statements are true?
A. Ethical guidance from ICAEW is in the form of rules rather than
principles
B. It is in the public interest for accountants to follow a professional
ethics framework
C. Rules - based codes offer a more straightforward ethical framework,
as they cover specific situations
D. Principles - based guidance is more flexible than rules - based
guidance
20. There are two main approaches to a code of professional ethics: rules-based
ethical code and a principles-based code. Which TWO of the following
statements are true?
A. Ethical guidance from ICAEW is in the form of rules rather than
principles
B. A rules-based code requires a professional accountant to identify,
evaluate and address threats to compliance with fundamental ethical
principles
C. Principles - based guidance may permit multiple correct responses in
a given situation
D. Rules - based codes offer a more straightforward ethical framework,
as they cover specific situations
21. In respect of conflicts of interest, Which TWO of the following statements
are true?
A. Where adequate safeguards are available the parties involved do not need
to be informed of the conflict of interest
B. Where a conflict of interest exists between two audit clients, the auditor
must cease to act for one party
C. If the effects of a conflict of interest can be mitigated by safeguards
these should be recorded
D. Where a conflict of interest exists between two audit clients, the
auditor can consider to cease to act for one party
22. Callinicos LLP is a 12-partner assurance firm which has been asked to
consider taking on the audit of the financial statements of two separate
companies. The following potential issues have been identified before
acceptance of any such appointments. Which ONE of the following clients
must not be accepted?
 A. Luxemburg Ltd, which will also require Callinicos LLP to provide a
valuation service in relation to some immaterial financial assets
B. Blue Ltd, which will also require Callinicos LLP to provide a training
service in relation to accounting standards
C. White Ltd, which will also require Callinicos LLP to provide a corporate
governance consulting services
D. Cliff plc, a listed company which will also require you to provide
routine bookkeeping work
23. Which THREE of the following threats to independence might arise on the
current audit when an audit team member is involved in employment
negotiations with an audit client during the course of the audit?
A. Self-review
B. Self - interest
C. Intimidation
D. Familiarity
24. ATC & Co is the statutory auditor of Blue Co, a public interest entity.Which
of the following services is ATC & Co prohibited from providing to Blue Co
under any circumstances?
A. Internal audit services
B. Assistance in the resolution of tax disputes
C. Valuation services
D. Preparing accounting records and financial statement
25. Which TWO of the following are limitations of the provision of assurance?
A. Assurance work is carried out by people independent of the entity
B. Unqualified staff may be used on assurance engagements
C. Sampling is used in assurance work
D. Client systems have inherent limitations
 TEST 2
1. When gaining an understanding of the investment operations of an audit
client which ONE of the following matters would an auditor need to
consider?
A. Products or services and markets of the client's business
B. Acquisitions or disposals of the client's business activities
C. Leasing of property, plant or equipment for use in the client's business
D. Accounting principles and industry specific practices relevant to the
client's business
2. The auditor of Blue Co has set performance materiality at $200,000. Which
ONE of the following could be the materiality level set for the financial
statements as a whole for Blue Co?
A. $210,000
B. $200,000
C. $100,000
D. $120,000
3. Which TWO of the following are true in respect of related party
transactions?
A. Related party transactions must be completely disclosed in the
financial statements
B. Related party transactions tend to be low-risk to the auditor
C. There may be a significant control risk in relation to related party
transactions
D. Disclosure of related party transactions is unlikely to be material to the
financial statements
4. Which TWO of the following statements regarding tests of controls is true?
A. Tests of controls are designed to detect material misstatements in the
financial statements
B. When the auditor believes controls are operating effectively,
C. Tests of controls are used to collect audit evidence about effectiveness
of internal control
D. Tests of controls must be used in auditing financial statements of all
clients
5. Auditors obtain evidence using procedures set out in ISA (UK) 500, Audit
Evidence. When audit the financial statements of Blue Ltd, the auditor is
present while a sales order is being processed to test if the controls are
carried out. Which ONE of the following procedures is being used?
A. Inspection
B. Observation
C. Inquiry
D. Re-performance
6. The auditor of Blue Co has concluded that the use of the going concern
assumption is appropriate and that the material uncertainty has been
adequately disclosed. What is the impact of this conclusion on the auditor's
report?
A. Qualified opinion
B. Adverse opinion
C. Unmodified opinion without an emphasis of matter paragraph
D. Unmodified opinion with an emphasis of matter paragraph.
7. ISA 705 Modification to the opinion in the independent auditor's
report identifies three possible types of modification. In which of the
following circumstances would a disclaimer of opinion be issued?
A. The auditor has not been able to obtain sufficient appropriate audit
evidence on which to base an opinion but has concluded that the possible
effects of any undetected misstatements could be material but not
pervasive.

B. The auditor concludes that the financial statements include misstatements

which are both material and pervasive to the financial statements
C. The auditor concludes that the financial statements include misstatements
which are material but not pervasive to the financial statements
D. The auditor has not been able to obtain sufficient appropriate audit
evidence on which to base an opinion and has concluded that the
possible effects of any undetected misstatements could be both
material and pervasive
8. The auditor may wish to draw the users' attention to a matter which is not
presented or disclosed in the financial statements but which is relevant to the
users' understanding of the auditor's report. How would this affect the
auditor's report?
A. The auditor's report would not be affected as the auditor's report only
refers to matters presented or disclosed in the financial statements
B. An emphasis of matter paragraph would be included
C. The audit opinion would be qualified
D. An other matters paragraph would be included
9. The auditor of White Co is performing audit procedures to confirm the
completeness of recording the motor vehicles. Which ONE of the following
would provide the most persuasive evidence of this?
A. Inspection of vehicle registration documents
B. Review of vehicle insurance documentation
C. Physical inspection of the motor vehicles
D. Checking that the motor vehicles are recorded in the non-current
asset register
10.The following is example of internal control which operates at Castle plc:
“The finance controller conducts a monthly review of authorization controls
over dispatch notes”. Select the type of control activity which is illustrated.
A. Performance review
B. Information processin
C. Physical control
D. Segregation of duties
11.Which TWO of the following represent weakness of a system of internal
controls?
A. Lack of controls over the purchases system
B. Lack of understanding of the purposes of controls
C. Lack of staff to ensure segregation of duties
D. The possibility that staff members will collude in fraud.
12.Which THREE of the following should an auditor consider if there is a threat
to independence?
A. Making disclosures to the client
B. Making disclosures to ICAEW
C. Applying specific safeguards
D. Withdrawing from the engagement

13.A private company has requested that its auditor prepare a valuation report
on a prospective acquisition target in order to help it obtain finance for the
acquisition from its bank. Which TWO of the following threats may arise if
the auditor agrees to take on this assignment?
A. Self-review threat
B. Familiarity threat
C. Advocacy threat
D. Self-interest threat
14.Which TWO of the following are the principal reasons why confidentiality is
so important to accountants?
A. Accountants need their clients to be comfortable to make full
disclosure of company affairs to them
B. It is a fundamental principle of all the major ethical code
C. It means that accountants can work for competitors
D. Failure to keep information confidential reflects badly on the account
15.Which of the following statements best reflects the auditor's duty of
confidentiality?
A. Auditors may disclose any matters in relation to criminal activities to the
police or taxation authorities, if requested to do so by the police or a tax
inspector
 B. Auditors may only disclose matters to third parties without their client's
consent if the public interest or national security is involved
C. Auditors may disclose matters to third parties without their client's
consent if it is in the public interest, and they must do so if there is a
statutory duty to do so.
D. Auditors must never, under any circumstances, disclose any matters of
which they become aware during the course of the audit to third parties,
without the permission of the client.
16.Which THREE of the following statements in respect of risk are true?
A. Auditors can impact on inherent risk to bring audit risk to an acceptable
audit risk
B. Auditors cannot impact on inherent risk to bring audit risk to an
acceptable audit risk
C. Identifying business risks is part of the company's risk assessment
processes
D. Inherent and control risks are components of audit risk.
17.Which ONE of the following statements regarding analytical procedures is
correct?
A. Analytical procedures are only used as risk assessment procedures
B. Analytical procedures must be used as part of the overall review of
the financial statements
C. Analytical procedures may be used as part of the overall review of the
financial statements
D. Analytical procedures must be used at the implementing phase
18.Analytical procedures must be used as part of the overall review of the
financial statements. In the financial statement audit of independent auditor,
which TWO of the following would ordinarily be contained in the overall
audit strategy?
A. The results of audit risk assessment
B. The contract between the audit firm and the client
C. List of staff to be involved with the audit
D. Detailed plan of audit procedures to be carried out
19.For each of the following statements in relation to guidance on professional
ethics. Which THREE of the following statements are true?
A. It is in the public interest for accountants to follow a professional
ethics framework
B. Rules-based codes offer a more straightforward ethical framework,
as they cover specific situations
C. Ethical guidance from ICAEW is in the form of rules rather than
principles
D. Principles-based guidance is more flexible than rules-based guidance.
20.Which THREE of the following would be found in the overall audit strategy
document?
A. Timetable
B. Calculation of preliminary materiality thresholds
C. Detailed plan of audit procedures
D. Budget and fee
21.When audit inventory, auditor detected that inventory is overstated. The
overstatement is material but not pervasive to the financial statements.
Management has refused to make an adjustment to the financial statements.
What form of modified opinion should the auditor issue?
A. Qualified opinion due to a material misstatement
B. Qualified opinion due to insufficient appropriate evidence on which to
base an opinion
C. Adverse opinion
D. Disclaimer of opinion
22.During the planning stages of the final audit, the auditor believes that
the probability of giving an inappropriate audit opinion is too high.
Which ONE of the following should the auditor amend the audit plan to
resolve this issue?
A. Increase the materiality level
B. Decrease the inherent risk
C. Decrease the control risk
D. Decrease the detection risk
23.Which TWO of the following are not elements of a general assurance
engagement?
A. A three-party relationship
B. Sufficient appropriate evidence
C. Determination of materiality
D. An engagement letter
24.According to the Companies Act 2006 in UK, which THREE of the
following criteria can be used to decide the audit exemption?
A. Turnover <£10.2millions
B. Total assets <£5.1millions
C. Turnover <£10.1millions
D. Number of employees<50
25.Which THREE of the following are benefits of an engagement letter in
respect of assurance services?
A. Clearly defines the extent of the assurance provider’s responsibilities
B. Confirms the scope of the engagement
C. Provides written confirmation of the acceptance of the engagement
D. Certifies the assurance provider’s opinion