1. Is the following statement regarding stewardship true or false?

Directors are stewards of the investment made by shareholders in a company.

A. True
B. False
2. Which two of the following are elements of an assurance engagement?
(1) A three-party relationship
(2) Suitable criteria
(3) Determination of materiality
(4) An engagement letter
A. (1) and (2) only
B. (1) and (3) only
C. (2) and (3) only
D. (1) and (4) only
3. What is the correct order of the following stages involved in the development of
an ISA?
(1) Distribution of exposure draft for public comment
(2) Consideration of comments received as a result of the exposure draft
(3) Approval by IAASB members
(4) Establishment of task force to develop draft standard
(5) Discussion of proposed standard at a public meeting
A. (1), (5), (4), (3), (2)
B. (3), (4), (1), (2), (5)
C. (4), (5), (1), (2), (3)
D. (5), (4), (2), (1), (3)
4. Who normally appoints the external auditors of a company?
A. Directors
B. Shareholders
C. Audit committee
D. Senior management
5. Which of the following is the most appropriate definition of the external audit?
A. The external audit is an exercise carried out by auditors in
order to give an opinion on whether the financial statements of
a company are materially misstated.
B. The external audit is an exercise carried out in order to give an
opinion on the effectiveness of a company's internal control
system.
C. The external audit is performed by management to identify areas of
deficiency within a company and to make recommendations to
mitigate those deficiencies.
 D. The external audit provides negative assurance on the truth and
fairness of a company's financial statements.
1. The level of assurance provided by an external audit is absolute. Is this statement
true or false?
A. True
B. False
2. Which of the following is/are not a statutory right of the auditors of a limited
liability company?
(1) A right to attend all directors' meetings and receive all notices and
communications relating to such meetings.
(2) A right to speak at general meetings on any part of the business that
concerns them as auditors.
(3) A right to attend any general meeting and receive all notices and
communications relating to such meetings.
a. (1) only
b. (1) and (3)
c. (2) only
d. (2) and (3)
3. Is the following statement true or false?
In an effective system of corporate governance the directors take
responsibility for risk management strategies within the business.
A. True
B. False
4. Which of the following are recognised threats to independence and
objectivity as identified in ACCA's Code of Ethics and Conduct?
(1) Familiarity
(2) Self-interest
(3) Integrity
(4) Advocacy
A. (1), (2), (3) and (4)
B. (1), (2) and (4)
C. (2), (3) and (4)
D. (2) and (4) only
5. In which of the following situations would the auditor be able to disclose
confidential information about a client?
(1) Disclosure is required by law.
(2) Disclosure is permitted by law but the auditor has not
requested the client's permission.
 (3) The auditor suspects that the client has committed money-
laundering offences.
a. and (2) only
b. (1) and (3) only
c. (2) and (3) only
d. (1), (2) and (3)
6. Andrew Jones has been the key audit partner of X Co, a public interest
entity, for seven years. For how long must he be rotated off the audit as a
minimum to comply with ACCA's Code of Ethics and Conduct?
A. 1 year
B. 2 years
C. 3 years
D. 4 years
7. AAB & Co is the statutory auditor of Y Co, a public interest entity.
Which of the following services is AAB & Co prohibited from providing to Y Co
under any circumstances?
A. Provision of bookkeeping services
B. Assistance in the resolution of tax disputes
C. Internal audit services
D. Valuation services where the valuation will have a material effect
on the financial statements
8. Who is ultimately responsible for a company's system of internal controls?
A. External auditors
B. Board of directors
C. Internal auditors
D. Audit committee
9. Every company must have an audit committee.
Is this statement true or false?
A. True
B. False
10. Which of the following statements is true regarding the audit committee?
A. An audit committee must comprise at least four independent non-executive
directors.
B. Where there is no internal audit function the audit committee
should consider the need for one on an annual basis.
C. The role and responsibilities of the audit committee are set out in
statute
11. Which of the following are valid disadvantages of having an audit committee?
A. It can undermine the authority of the board of directors.
B. The internal audit function may communicate directly with the
audit committee rather than with management.
 C. It may be difficult to find non-executive directors with the
relevant experience.
12. AB & Co audits DEF Co. In accordance with ACCA Code of Ethics and
Conduct which two of the following circumstances would constitute a
threat to objectivity?
(1) An employee of AB & Co owns shares in DEF Co but is not part of the
audit team
(2) The best friend of the engagement partner owns a significant indirect
financial interest in DEF Co
(3) The audit manager of DEF Co owns a small number of shares in DEF Co
(4) The husband of the audit partner owns shares in DEF Co
A. and (2)
B. (1) and (4)
C. (2) and (3)
D. (3) and (4)
13. Which of the following internal audit assignments is described below?
The examination of the economy, efficiency and effectiveness of activities and
processes.
A. Regulatory compliance audit
B. Value for money audit
C. Financial audit
D. IT audit
14. Which two of the following characteristics apply to internal audit?
(1) The purpose is to improve the company's operations.
(2) Reports to shareholders on whether the financial statements give a true
and fair view of affairs.
(3) Auditors may be employees of the company.
(4) Evidence is collected in accordance with relevant ISAs.
A. (1) and (3)
B. (2) and (4)
C. (1) and (4)
D. (2) and (3)

15. Which type of risk is the internal auditor normally responsible for monitoring?
A. Audit risk
 B. Business risk
C. Audit risk and business risk
D. Neither audit risk nor business risk
16. Which of the following internal audit assignments aims to monitor
management's performance and ensure that company policy is
followed?
A. Value for money
B. Fraud investigation
C. Financial
D. Operational
17. The format of the internal audit report is governed by statute.
Is this statement true or false?
A. True
B. False
18. Which of the following is a limitation of the internal audit function?
A. The internal audit report is not circulated to the members.
B. Internal audit assignments are designed to meet the needs of the business.
C. Internal auditors may be employees of the company.
D. Internal auditors may report to an audit committee.
19. Is the following statement about outsourcing the internal audit function true or
false?
One of the advantages of outsourcing the internal audit function is that
the company will not need to exercise any controls over the
outsourced department.
A. True
B. False

20. Which of the following activities should the internal audit function not be
involved in?
A. Monitoring of management's performance
B. Reviewing adequacy of management information for decision-making
purposes
C. Taking responsibility for the implementation of a new sales ledger
system
D. Assessing compliance with regulation relevant to the business
21. The role of the internal audit function in risk management is to identify
risk and implement strategies to minimise risks.
Is this statement true or false?
A. True
B. False
22. Which of the following is not a benefit of establishing an audit committee?
A. Reduced opportunity of fraud, as the audit committee can advise the
executive directors on managing the risks in the financial reporting
process.
B. Greater external audit independence, as the audit committee can be
responsible for appointing the external auditors
C. Reduced external audit fees, as the presence of the audit committee
reduces audit risk and consequently, the amount of audit procedures
required.
23. 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?
(1) Self-review threat
(2) Advocacy threat
(3) Familiarity threat
(4) Self-interest threat
A. (1) and (2)
B. (1) and (3)
C. (2) and (4)
D. (3) and (4)
24. Which of the following statements best reflects the auditor's duty of
confidentiality?
A. 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.
B. 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.
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 may only disclose matters to third parties without their client's
consent if the public interest or national security is involved.
25. Which two of the following are fundamental principles as stated in the ACCA's
Code of Ethics and Conduct?
(1) Objectivity
(2) Independence
(3) Confidentiality
 (4) Professional scepticism
A. A (1) and (4)
B. B (1) and (2)
C. C (2) and (3)
D. D (1) and (3)
26. Which of the following statements relate to review engagements?
(1) Subject matter is plausible
(2) Reasonable assurance
(3) Nothing has come to our attention which would indicate that
the subject matter contains material misstatements
(4) Positive assurance
A. (1) and (3)
B. (2) and (4)
C. (2) and (3)
D. (1) and (4)

27. When gaining an understanding of the specific business operations of an

audit client which of the following matters would an auditor need to
consider?
A. A Accounting principles and industry specific practices relevant
to the client's business
B. B Acquisitions or disposals of the client's business activities
C. C Leasing of property, plant or equipment for use in the client's business
D. D Products or services and markets of the client's business
28. Which of the following statements about materiality are correct?
(1) Information is material if its omission or misstatement could influence
the economic decisions of users of the financial statements.
(2) Materiality is based on the auditor's experience and judgement.
(3) Materiality is always based on revenue.
(4) Materiality should only be calculated at the planning stage of the audit.
A. (1), (2) and (3)
B. (1), (3) and (4)
C. (1) and (2)
D. (2) and (4)
29. Which of the following procedures must the auditor use to obtain an
understanding of the entity and its environment in accordance with
ISA 315 Identifying and assessing the risks of material misstatement
through understanding the entity and its environment?
 (1) Analytical procedures
(2) Inquiry
(3) Confirmation
(4) Reperformance
A. (1), (2) and (3)
B. (1) and (2)
C. (2), (3) and (4)
D. (1) and (4)
30. What are the purposes of planning the audit?
(1) To ensure appropriate attention is devoted to different areas of the audit
(2) To identify potential problem areas
(3) To facilitate delegation of work to audit team members
(4) To ensure the audit is completed within budget and time restraints
A. (1), (2), (3) and (4)
B. (1), (3) and (4)
C. (1), (2) and (3)
D. (2) and (3)

31. Which of the following factors influence the form and content of audit working
papers?
(1) Risks of material misstatement
(2) Exceptions identified
(3) Nature of the package used for documentation
(4) Cost to the audit
A. (1), (2) and (4)
B. (1), (3) and (4)
C. (1) and (2)
D. D (2) and (4)
32. Performance materiality levels are higher than the materiality for the
financial statements as a whole. Is this statement true or false?
A. True
B. False
33. 'Audit risk' represents the risk that the auditor will give an inappropriate
opinion on the financial statements when the financial statements are
materially misstated. Which of the following categories of risk can be
controlled by the auditor?
Category of risk:
(1) Control risk
(2) Detection risk
 (3) Sampling risk
A. (1) and (2)
B. (2) only
C. (1) and (3)
D. (2) and (3)
34. Which of the following statements are correct with regard to the
relationship between the audit plan and the audit strategy for an external
audit engagement?
(1) The audit plan should be developed before the audit strategy is established.
(2) The audit plan and the audit strategy should be established and
developed at the same time. (3) The overall audit strategy
should be more detailed than the audit plan.
(4) The audit strategy should be established before the audit plan is developed.
A. (1) and (3)
B. (2) only
C. (3) and (4)
D. (4) only
35. The definition of the risk of material misstatement is 'Inherent Risk ×
Control Risk × Detection Risk'. Is this statement true or false?
A. True
B. False
36. Which of the following would normally be included in the audit plan?
A. Reporting objectives
B. Industry-specific financial reporting requirements
C. Nature, timing, and the extent of planned risk assessment procedures
37. Is the following statement regarding the interim audit true or false?
The higher the risk of material misstatement the more likely it is that
the auditor will decide to perform substantive procedures during the
interim audit rather than at the period end.
A. True
B. False
38. The auditor of Z Co has set performance materiality at $100,000.
Which of the following could be the materiality level set for the
financial statements as a whole for Z Co?
A. $80,000
B. $95,000
C. $100,000
D. $120,000
39. Which of the following statements is/are true with respect to analytical
procedures?
 (1) Analytical procedures can be used throughout the audit.
(2) Analytical procedures must be used as risk assessment procedures.
A. (1) only
B. (2) only
C. (1) and (2)
D. Neither (1) nor (2)
40. Who is responsible for the prevention and detection of fraud?
A. Internal auditors
B. External auditors
C. Those charged with governance and management
D. The audit committee
41. Which of the following is an appropriate response to the risks of
material misstatement at the assertion level?
A. Emphasising the need to maintain professional scepticism
B. Increasing supervision on the audit
C. Increasing sample sizes for inspecting recorded assets where assets are
more susceptible to theft
D. Making changes to the nature of the audit procedures
42. The auditor of A Co wishes to reduce audit risk. Which of the
following actions could the auditor take to achieve this?
(1) Increase sample sizes
(2) Reduce control risk
(3) Assign more experienced staff to the engagement team
A. (1) only
B. (2) only
C. (1) and (3)
D. (2) and (3)

43. Which of the following correctly describes the auditors' responsibilities

in accordance with ISA 240 The auditor's responsibilities relating to
fraud in an audit of financial statements?
A. The auditor is responsible for the prevention and detection of fraud and error .
B. The auditor is not responsible for the prevention of fraud and error but is
responsible for detection.
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 responsible for detecting all errors and should attempt to
detect fraud where information comes to light as a result of standard audit
procedures.
 44. Is the following statement true or false regarding the retention of
working papers? ACCA recommends that working papers
should be retained for a minimum period of five years.
A. True
B. False
45. When determining whether the preconditions for an audit are present the
auditor obtains management's agreement that it acknowledges and
understands its responsibilities. Which of the following is not included in
the agreement obtained by the auditor?
A. Management's responsibility for preparing the financial statements
B. Management's responsibility for internal control to enable the
preparation of financial statements which are free from material
misstatement
C. Management's responsibility to provide the auditor with all information
relevant to the preparation of the financial statements
D. Management's responsibility to prevent and detect fraud
46. Which of the following must be included in an audit engagement letter?
A. Arrangements concerning the use of experts
B. Obligations to make audit working papers available to other
parties
C. Expected form and content of any reports
D. Basis on which fees are computed
47. It is not the auditor's responsibility to ensure that the entity complies
with relevant laws and regulations. Is this statement true or false?
A. True
B. False
48. F Co owns a chain of four restaurants, and is subject to national regulation
concerning hygiene in the food preparation process. Non-compliance can
result in a large fine, or closure of the restaurant concerned.

As F Co's external auditor, what is your responsibility regarding the company's

compliance with the hygiene regulations?
A. Actively prevent and detect non-compliance with the
regulations
B. Perform specific audit procedures to identify possible
non-compliance
C. Obtain sufficient appropriate audit evidence about F
Co's compliance with the regulations
D. Nothing – the food hygiene regulations do not have a
direct effect on the financial statements
49. In accordance with ISA 250 Consideration of laws and regulations in an
audit of financial statements what are the responsibilities of the external
auditor?
 A. To obtain sufficient appropriate evidence regarding compliance with laws
and regulations that have both a direct and indirect effect on the financial
statements
B. To obtain sufficient appropriate evidence regarding compliance with
laws and regulations that have a direct effect on the financial
statements only
C. To obtain sufficient appropriate evidence regarding compliance with laws
and regulations that have an indirect effect on the financial statements only
regulations which affect the business
50. Auditors usually carry out their audit work at different stages known as
the interim audit and the final audit. Which of the following statements, if
any, is/are correct?
(1) Carrying out tests of control on the company's sales day books would
normally be undertaken during an interim audit.
(2) Review of aged receivables ledger to identify balances requiring
write down or allowance would normally be undertaken during a
final audit.
A. Neither (1) or (2)
B. Both (1) and (2)
C. (1) only
D. (2) only
51. During the planning stages of the final audit, the auditor believes
that the probability of giving an inappropriate audit opinion is too
high.
How should the auditor amend the audit plan to resolve this issue?
A. Increase the materiality level
B. Decrease the inherent risk
C. Decrease the detection risk
52. Is the following statement regarding the assurance provided by an internal control
system true or false?
An effective internal control system provides the auditor with absolute
assurance that control objectives have been achieved.
A. True
B. False
53. Which of the following methods of recording an accounting and
controls system is a series of questions used to determine whether
controls exist which meet specific control objectives?
A. Internal control questionnaire
B. Internal control evaluation questionnaire
C. Flowchart
54. 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?
(1) Records of program changes
(2) Virus checks
(3) Batch reconciliations
(4) Document counts
A. (1) and (2)
B. (1) and (4)
C. (2) and (3)
D. (3) and (4)
55. General IT controls are policies and procedures that relate to many
applications and support the effective functioning of application
controls.
Which two of the following are general IT controls?
(1) Testing procedures using test data
(2) One for one checking
(3) Disaster recovery procedures
(4) Hash totals
A. (1) and (3)
B. (1) and (4)
C. (2) and (3)
D. (2) and (4)
56. One of the control objectives of the sales system of B Co is to ensure
that goods and services are sold to credit-worthy customers.
Which of the following control activities would assist B Co in achieving this
objective?
A. All sales orders are based on authorised price lists.
B. Credit limits are checked before sales orders are
accepted.
C. Overdue debts are chased each month by the credit
controller.
D. The aged-debt listing is reviewed by the finance
director on a monthly basis.
57. A control objective of the purchases system of D Co is to ensure that all
liabilities for purchases are valid obligations of the company.
Which of the following control activities would help to ensure that this
objective is achieved?
 A. Reconciliation of the payables control account to the
purchase ledger
B. Matching of suppliers' invoices to purchase orders and
goods received notes
C. Checking of the mathematical accuracy of the supplier
invoice
D. Sequential numbering of goods received notes
58. Which of the following controls helps to ensure that payroll
payments are only made to bona fide employees?
(1) Personnel records maintained for all employees
(2) Comparison of bank transfer listing with payroll
(3) Segregation of duties between staff involved in human
resources and payroll functions (4) Reperformance of the
calculation of a sample of payroll deductions
A. (1) and (2)
B. (1) and (3)
C. (2) and (4)
D. (3) and (4)
59. B Co maintains perpetual inventory records.

Which of the following control activities would contribute to the auditor's confidence
that inventory recorded in the financial statements exists?
(1) Procedures to identify obsolete and damaged inventory
(2) Physical safeguards to protect inventory from theft
(3) Sequential numbering of goods dispatched notes
(4) Reconciliation of inventory records to results of inventory counts
A. (1) and (2)
B. (1) and (3)
C. (2) and (3)
D. (2) and (4)
60. C Co ensures that two individuals are always present when the post is
opened. Which control objective does this help to achieve?
A. That cash is banked on a regular basis .
B. That cash and cheques are accurately recorded in the general ledger.
C. That cash and cheques are not misappropriated.