1.

The level of assurance given by an assurance engagement will depend on the

type of engagement. For Report on profit and cash flow forecasts, select what
level of assurance you would expect to be given:
Limited
Resonable
2. Which three of the following describe aspects of the expectations gap with
respect to the external audit
Users do not understand the meaning of the audit opinion
Users do not aware of the limitations of the audit process
Users do not appreciate that reasonable assurance is a low level of
assurance
Users do not understand what the audit process involves
3. In any assurance engagement there are three parties involved: The responsible
party, the practitioner and the user. In respect of given subject matter state
which party prepares the subject matter
responsible party
practitioner
User
4. In any assurance engagement there are three parties involved: the responsible
party, the practitioner and user. In respect of given subject matter state which
party determines the suitable criteria?
User
Practitioner
Responsible party
5. In the context of a statutory audit which THREE of the following are examples
of the expectaion gap? The belief that:
The auditor's report certifies the financial statements as correct
The auditor's principal duty is to detect fraud
 The auditor is employed by the directors
The auditor checks all transactions
6. Which one of the following qualifications is required for individuals working on
audits in the UK?
University degree
Professional qualification
Membership of a recognised supervisory body
Employment by a firm controlled by qualified persons
7. The statement: "The criteria for all assurance engagements will be the same" is
true or false?
True
False
8. For each of the following statements select whether they are true or false. A
statutory audit gives reasonable assurance that the FSs give a true and fair view?
True
False
9. Which one of the following is NOT a benefit of an assurance report on Financial
information? An assurance report
Enhances the credibility of the information being reported upon
Reduces the risk of management bias in the information being
reported upon
Attets to the correctness of the information being reported upon
Draws the attention of the user to deficiencies in the information
being reported upon
10. Which one of the following best describes the concept of assuarance?
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
 An assurance firm's satisfaction as to the reliability of an
assertion being made by one party for the use of another party
A user's satisfaction as to the reliability of an assertion being made by
another party
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
11. Which two of the following are limitations of the provision of assurance?
Assrurance work is carried out by people independent of the entity
Sampling is used in assurance work
Client system have inherent limitations
Unqualified staff may be used on assurance engagements
12. The following is an extract from an independent accountant's unmodified
report on a profit forecast: "Base on our examination of the evidence supporting
the assumptios, nothing has come to our attention which causes us to believe that
these assumptions do not provide a reasonable basis for the forecast".
Which ONE of the following BEST describes the type of assurance provided by
this statement?
Positive assurance expressed negatively
Negative assurance expressed positively
High level of assurance expressed negatively
Limited level of assurance expressed negatively
13. For each of the following statements select whether they are true or false.
A negative assurance conclusion gives a limited level of assurance
True
False
14. The level of assurance given by an assurance engagement wwill depend on the
type of engagement. For Review of financial information, select what level
of assurance you would expect to be given:
 Reasonable
Limited
15. Which ONE of the following statements best describes the evidence obtained
and the opinion given in a resonable assurance engagement?
Sufficient appropriate evidence and a negative opinion
Sufficient appropriate evidence and a positive opinion
A lower level of evidence and a negative opinion
A lower level of evidence and a positive opinion
16. The level of assurance given by an assurance engagement wwill depend on the
type of engagement. For statutory audit, select what level of assurance you would
expect to be given:
Absolute
Reasonable
17. There are two types of assurance engagement: reasonable assurance
engagements and limited assurance engagements. There are two types of
assurance conclusion: Positive and Negative. For reasonable assurance
engagement, select the appropriate conclusion given?
Positive
Negative
18. For each of the following statements select whether they are true or false.
Reasonable assurance is absolute assurance of the correctness of the subject matter
True
False
19. There are two types of assurance engagement: reasonable assurance
engagements and limited assurance engagements. There are two types of
assurance conclusion: Positive and Negative. For limited assurance engagement,
select the appropriate conclusion given?
Positive
 Negative
20. The statement: "Suitable criteria can only be identified for assurance
engagements relating to financial statements" is true or false?
True
False
21. In any assurance engagement there are three parties involved: The responsible
party, the practitioner and the user. In respect of given subject matter state which
party gathers evidence on the subject matter?
Responsible party
Practitioner
User
22. Which three of the following are key elements of a general assurance
engagement?
A user
A subject matter
Suitable criteria
An assurance file
23. In any assurance engagement there are three parties involved: the responsible
party, the practitioner and user.
In respect of given subject matter state which party provides an opinion on whether
the subject matter complies with the criteria?
User
Practitioner
Responsible party
24. The statement: "Relevant criteria for assurance engagements relating to FSs are
likely to be accounting standards" is true or false?
True
False
25. Which THREE of the following are purposes of a letter of engagement?
Setting out the form of any report to be issued
Providing constructive suggestions to management concerning
improvements in internal control
Documenting and confirming acceptance of the appoitment
Narrowing the expectations gap
Providing evidence on matters where other evidence is not expected to
exist
26. Which TWO of the following might indicate that an assurance client could be
higher than normal inherent or control risk?
Poor recent performance
Strong internal controls
Unusual transactions
The existence of an internal audit department
27. C&C company, an assurance firm, has the following two clients among its
client portfolio. For each client, seclect whether inherent risk is high or low.
Hana Ltd is currently facing financial difficulties and is seeking alternative forms
of finance.
High risk
Low risk
28. Which THREE of the following procedures should be carried out after the
audit firm has decided to accept appointment as auditor?
Ensure that the outgoing auditors' removal/resgination has been
properly conclucted
Ensure that a resolution has been passed at the general meeting to
appoint the new auditors
Perform checks to ensure that there are no legal or ethical reasons why
the new audit firm cannot act as auditor
 Submit a letter of engagement to the directors
29. For each of the following statements seclect whether they are two of false in
respect of the audit engagement letter: The engagement letter should be sent after
commencement of the audit but before the signing of the auditor's report
True
False
30. For each of the following statements seclect whether they are true or false in
respect of the audit engagement letter: The engagement letter should be sent before
acceptance of appointment
True
False
31. Which ONE of the following correctly describes the period for which client
identification documents must be kept under money laundering regulation?
For a minimum of five years and until five years have elaped since
the relationship with the client has ceased
For a minimum of seven years and until seven years have elaped since
the relationship with the client has ceased
For a minimum of five years and until seven years have elaped since
the relationship with the client has ceased
For a minimum of seven years and until five years have elaped since
the relationship with the client has ceased
32. For each of the following factors at a prospective client seclect whether that
factor indicates that client is high risk or low risk: Company carries out unusual
transactions
High risk
Low risk
33. Which TWO of the following are auditors always required to do on being
invited to accept an audit engagement?
Ensure they are professionally existing resources to carry out the
audit
 Ensure they have adequate existing resources to carry out the
audit
Obtain references for key personnel within the entity to be audited
Communicate with the existing auditors to discover any reasons they
should not accept appointement
34. For each of the following statements seclect whether they are two of false in
respect of the audit engagement letter: The engagement letter should be sent after
the appointment of the auditor but before the commencement of the audit
True
False
35. For each of the following factors at a prospective client seclect whether that
factor indicates that client is high risk or low risk: Company currently has no
finance director
High risk
Low risk
36. For each of the following statements seclect whether they are two of false in
respect of the audit engagement letter: An engagement letter should be sent to all
new clients
True
False
37. C&C company, an assurance firm, has the following two clients among its
client portfolio. For each client, seclect whether inherent risk is high or low.
Tulip Ltd is planning to list on the local stock exchange within the next two years.
High risk
Low risk
38. Which of the following best describes professional scepticims. The assurance
provider shoud:
Not believe anything that management tells him
 Not believe anything that management tells him, without obtaining
supporting evidence
Apply a questioning mind to the information and evidence he
obtains
Always assume the worst outcome in cases of uncertainty
39. For each of the following factors at a prospective client seclect whether that
factor indicates that client is high risk or low risk: Company has prudent
accounting policies
High risk
Low risk
40. Which ONE of the following is NOT a benefit of an engagement letter in
respect of assurance services?
Clearly defines the extent of the assurance provider's responsibilities
Provides written confirmation of the acceptance of the engagement
Confirms the scope of the engagement
Certifies the assurance provider's opinion
41. Which one of the following is normally designed to detect possible material
monetary errors in the figures in financial statements?
Test of control
Walk - through test
Analytical procedure
Observation of a procedures
42. In each of the following case, select whether inherent riskn is higher or lower
than normal: The business is of the company is cash - based
Inherent risk higher than normal
Inherent risk lower than normal
43. Which of the following statements correctly describes the principal purpose of
an external audit of a limited company?
 To assist in the preparation of the company's financial statements
To prevent fraud within the company
To examine and express an opinion on the company's financial
statements
To assist the directions in improving the company's financial reporting
process
44. Audit risk can be a split into three components: inherent risk; control risk and
detection risk. For each of the following examples, select the types of risk
Illustrated: The organisation is seeking to raise finance for a new venture
Inherent
Control
Detection
45. Which three of the following constitutes analytical procedures
Considerations of comparable comparable information for prior
periods
Considerations of relationships between elements of financial
information that are expected to conform to a predicted pattern
Consideration of whether a balance has been calculated correctly
Consideration of similar industry information
46. In each of the following case, select whether inherent riskn is higher or lower
than normal: The company operates a profit related by scheme:
Inherent risk higher than normal
Inherent risk lower than normal
47. Which three of the following would normally be included in the overall audit
strategy?
Details of economic factors and industry conditions
The results of initial analytical procedures
 Confirmation of management's responsibility for the financial
statements
Identification of specific audit risks
48. For each of the following statements, select whether they are true or false in
respect of the concept of materiality: material should be calculated at the planning
stage of all audits
True
False
49. Which three of the following would increase inherent risk
Sample size have been calulated incorrectly by the auditor and are too
small
A significant number of balances are based on estimates
The financial statements include complex transactions
Audit staff are inexperienced
A company is seeking to raise Finance
50. For the following statements, select whether they are true or false in respect of
the concept of materiality.
Materiality depends only on the monetary amount of an item?
True
False
51. For the following statements, select whether they are true or false in respect of
the concept of materiality.
Materiality is a matter of professional judgment
True
False
52. Which TWO of the following are true in respect of related party transactions?
Related party transactions tend to be low-risk to the auditor
 Disclosure of related party transactions is unlikely to be material to
the financial statements
Related party transactions must be competely disclosed in the
financial statements
There may be a significant control risk in relation to related party
transactions
53. Which TWO of the following options are signs of overtrading?
Inventory decreasing
Cash decreasing
Payalbe decreasing
Receivalbes increasing
54. For each of the following statements, select whether they are true or false in
respect of the concept of materiality: Once established, the materiality level
initially set cannot be revised during the course of the audit
True
False
55. Audit risk can be a split into three components: inherent risk; control risk and
detection risk. For each of the following examples, select the types of risk
Illustrated: The auditor will be using samples in testing
Inherent
Control
Detection
56. For of the following statements, select whether they are true or false in respect
of the concept of materiality: Materiality should be considered when planning audit
procedures and when evaluating discovered misstatement
True
False
57. With respect to ISA 315, which three of the following procedures shall be used
in understanding the entity and its environment
 Inquiries of management and others within the entity
Inquiries the third party
Analytical procedures
Observation and Inspection
58. In each of the following case, select whether inherent riskn is higher or lower
than normal: Financial statements contain balances with straighfoward Financial
Accounting requirements
Inherent risk higher than normal
Inherent risk lower than normal
59. Audit risk can be split into three components: inherent risk, control risk and
detection risk.
For the following example, seclect the types of risk illustrated: The organisation
operates in a fast - moving, high tech enviroment
Inherent risk
Control risk
Detection risk
60. Audit risk can be a split into three components: inherent risk; control risk and
detection risk. For each of the following examples, select the types of risk
Illustrated: The organisation has a number of estimate in its financial statements.
Inherent
Control
Detection
61. Select the MOST appropriate approach which should be used by the assurance
firm in the given circumstance.
The auditor of a long - standing client with a sophisticated IT system and an
internal department?
Test of control only
Substantive proceduress only
 A mix of tests of control and substantive procedures
62. For the following statements, select whether they are true or false in respect of
the concept of materiality.
Materiality may depend on either the nature of an item or its monetary amount
True
False
63. Select the MOST appropriate approach which should be used by the assurance
firm in the given circumstance.
The auditor of a new client, recently started up, with few employees in its
accounting department?
Test of control only
Substantive proceduress only
A mix of tests of control and substantive procedures
64. For of the following statements, select whether they are true or false in respect
of the concept of materiality: Materiality is always expressed as a proportion of
profit
True
False
65. In the following case, select whether inherent is higher or lower than normal:
The company operates in a slow - moving, stable industry
Inherent risk higher than normal
Inherent risk lower than normal
66. Which two of the following would be used in understanding the entity in
accordance with ISA 315?
Industry, regulatory and other external factors
A preliminary review of internal controls
 The results of tests of details
The results of a review events after the date of the financial statements
67. Audit risk can be a split into three components: inherent risk; control risk and
detection risk. For each of the following examples, select the types of risk
Illustrated: Senior management regularly override the system of controls
Inherent
Control
Detection
68. Audit risk can be a split into three components: inherent risk; control risk and
detection risk. For each of the following examples, select the types of risk
Illustrated: The organisation has a high turnover of staff in the accounts department
Inherent
Control
Detection
69. In the following case, select whether inherent is higher or lower than normal:
Inventory is largest balance on the statement of financial position
Inherent risk higher than normal
Inherent risk lower than normal
70. ABC Ltd's quick ratio has fallen from 1.8:1 to 1.5:1.
Which ONE of the following might help to explain this decline?
The allowance for receivalbes has been reduced
Credit control has been poor
The entity has purchased a property for cash
Inventory levels have fallen
71. Which three of the following are of the objectives of the audit planning
To determine the scope of the engagement
 To ensure appropriate attention it devoted to the important areas
of the audit
To identify potential problems and resolve them on the timely
basis
To assign work to remembers of the audit team
72. Which one of the following does setting a preliminary materiality threshold not
help auditors to decide?
What audit staff to assign to the audit
How many items to examine
Whether to use sampling
What level of errors is likely to lead the auditor not being able to give
an unqualified opinion
73. In the following case, select whether inherent is higher or lower than normal:
The company has recently listed on the local stock exchange with high profit
expectations from analysts.
Inherent risk higher than normal
Inherent risk lower than normal
74. For of the following statements, select whether they are true or false in respect
of the concept of materiality: materiality may depend on the size of the error in the
context of its omission or misstatement
True
False
75. Audit risk can be a split into three components: inherent risk; control risk and
detection risk. For each of the following examples, select the types of risk
Illustrated: Directors' pay is related to company profitability
Inherent
Control
Detection
76. Which ONE of the following best describes the principal difference between
fraud and errors?
Fraud may result in the financial statements being material misstated
Fraud is an intentional act whereas error is unintentional
A misstatement can be material whether it is caused by fraud or by
error
Fraud may be the result of negligence whereas error is unintentional
77. Audit risk can be split into three components: inherent risk, control risk and
detection risk.
For the following example, seclect the types of risk illustrated: The organisation
has few employees in its accounting department.
Inherent risk
Control risk
Detection risk
78. Which ONE of the following is NOT a test that could be used by assurance
providers to provide evidence relating to a balance in the financial statement?
Walk-through test
Test of control
Test of detail
Analytical procedure
79. Which TWO of the following are valid comments about the quality of
assurance evidence?
Evidence from external sources is more reliable than evidence
obtained from the entity's records
Evidence from internal sources is more reliable when related
internal controls operate effectively
 Evidence from internal sources is more reliable than evidence created
by the assurance provider
Photocopies are more reliable than facsimiles
80. Which THREE of the following are assertions used by the auditor about classes
of transactions?
Occurence
Existence
Completeness
Cut - off
Rights and obligations
81. Which THREE of the following statements are valid?
Positive assurance will be given on a statutory audit assignment
Positive assurance requires more rigorous work to be undertaken
than negative assurance does
Positive assurance will be given on a review assignment
Negative assurance is assurance given in the absence of any
indications to the contrary
82. Which TWO of the following descirbe manifestations of the expectations gap
Users blaming the auditors for a fraud discovered in a company
subsequent to an audit
Users discovering that the directors refuse to cooperate in providing
the auditor with the evidence he requests
Shareholders approving the appointment of the auditor at an annual
general meeting
Users relying on the audited financial statements as a fair
valuation of the company
83. The level of assurance given by an assurance engagement will depend on the
type of engagement.
For each of the following examples, select the level of assurance you would expect
to be given: Statutory audit
Absolute
Reasonable
Limited
84. The level of assurance given by an assurance engagement will depend on the
type of engagement.
For each of the following examples, select the level of assurance you would expect
to be given:
Report on prospective financial information
Absolute
Reasonable
Limited
85. The level of assurance given by an assurance engagement will depend on the
type of engagement.
For each of the following examples, select the level of assurance you would expect
to be given:
Report on review of interim financial information
Absolute
Reasonable
Limited
86. For each of the following situations select the most appropriate approach which
should be used by the assurance firm in the given circumstances:
The auditor of a client where controls have been assesed as deficient.
Test of controls only
Substantive procedures only
A mix of test of controls and substantive procedures
87. The following are types of test that might be carried out by an assurance
provider. For each example select the financial statement assertion that is being
tested:
Review of the financial statements using a Companies Act checklist
Existence
Completeness
Classification
88. The following are types of test that might be carried out by an assurance
provider. For each example select the financial statement assertion that is being
tested:
Tracing non- current assets which have been observed in use back to the non-
current asset register:
Existence
Completeness
Classification
89. For each of the following situations select the most appropriate approach which
should be used by the assurance firm in the given circumstances:
The auditor of a client where controls have been assesed as strong
Test of controls only
Substantive procedures only
A mix of test of controls and substantive procedures
90. Which TWO of the following are assertions used by the auditor about account
balances at the period end?
Existence
Accuracy
Cut-off
Completeness
91. Which TWO of the following are assertions used by the audito about
presentation and disclosure?
Allocation
Accuracy
Cut-off
Completeness
92. For each of the following statements select whether they are true of false in
respect of substanctive procedures.
The auditor must carry out substantive procedures on all material items
True
False
93. For each of the following statements select whether they are true of false in
respect of substanctive procedures.
The auditor only carry out substantive procedures if the results of test of controls
are inconclusive
True
False
94. For each of the following statements select whether they are true of false in
respect of substanctive procedures.
Substantive procedures include both analytical procedures and test of details
True
False
95. Two types of procedures used in gathering evidence are test of controls and
substantive procedures.
For each of the following examples select the type of procedure illustrated.
Observation of opening the post
Test of control
 Substantive procedure
96. Two types of procedures used in gathering evidence are test of controls and
substantive procedures.
For each of the following examples select the type of procedure illustrated.
Calculation of the gross profit margin and comparison with that of the previous
accounting period
Test of controls
Substantive procedure
97. Two types of procedures used in gathering evidence are test of controls and
substantive procedures.
For each of the following examples select the type of procedure illustrated.
Reviewing invoices paid for evidence of authorisation
Test of control
Substantive procedure
98. An auditor's report prepared in accordence with ISA 700 (UK & Ireland). The
auditor's report on financial statements expresses an opinion on a number of
matters. Some of these matters are required by the Companies Act 2006 to be
reported on by exception only.
Which TWO of the following are reported on by exception only?
The financial statements have been prepared in accordance with the
requirements of the Companies Act 2006
Adequate accounting records have been kept
Director's remuneration has been disclosed correctly
Information in the director's report is consistent with the financial
statement
99. The following are examples of computer controls which operate at PQ plc.
For the example, select the type of computer control which it illustrates: Manual
checks to ensure that input data was authorised
 General
Application
100. Which regards to internal control systems in small entities, select whether
each of the following statements is true or false:
Smaller companies are more likely to be successful in the implementation of
segregation of duties controls
True
False
101. ABC plc is large organisation with a complex accounting and information
system. Critical to an understanding of the system are the reporting lines and
relationships between different departments.
In this situation which ONE of the following methods is most likely to be used by
the auditor to record the system of document flow?
Narrative notes
Flowcharts
Questionnaires
Organisational charts
102. For each of the following statements, select whether they are true or false in
respect of the information system in a company.
The information system includes the process of preparing the financial statements,
such as the production of journals
True
False
103. For each of the following statements select whether they are true or false in
respect of the limitations of a system of internal control.
Standard controls may not be designed to deal with unusual transactions
True
False
104. The following are examples of computer controls which operate at PQ plc.
For the example, select the type of computer control which it illustrates:
Programmes to check data fields on input transactions
General
Application
105. Which Three of the following would be the best sources of information about
a company's systems?
The company's procedures manual
The internal audit function's system notes
The prior year audit file
Inquiries made of company staff
The company's website
106. The following are examples of internal controls which operate at ABC plc.
For each example, select the type of control activity which it illustrates: The
financial controller counts petty cash on a monthly basis
Authorisation
Information processing
Physical control
107. An effective system of internal control requires segregation of basic functions.
Which THREE of the following functions should ideally be segregated?
Authorisation of transactions
Preparation of financial statements
Custody or handling of assets
Recording of transactions
Budgetary control
108. For each of the following statements select whether they are true or false in
respect of the limitations of a system of internal control.
Internal controls are only applied to material items
True
False
109. The following are examples of internal controls which operate at XYZ plc.
For each example, select the type of control activity which it illustrates: The
receivables ledger clerk posts invoices to the receivables ledger. The cash book
clerk posts cash receipts to the receivables ledger
Performance review
Information processing
Segregation of duties
110. In each of the following three cases, select whether control risk is higher or
lower than normal. The company has a history of reviewing financial performance
on a regular basis at board level
Control risk is higher than normal
Control risk is lower than normal
111. For each of the following statements select whether they are true or false in
respect of the limitations of a system of internal control.
The cost of implementing controls may be more expensive than the cost of any
potential risk arising
True
False
112. Which ONE of the following is NOT a general control?
Disaster recovery procedures
Back-up copies of programs stored at an alternative safe location
Procedures for resubmission of rejected data
Staff training in the use of new/revised programs
113. The following are examples of computer controls which operate in the payroll
system at ABC Ltd.
For example, select the type of computer control which it illustrates: Password
protection limiting access to data
General
Application
114. Which TWO of the following are reasons why organisations need to have
effective systems of control?
To assist the organisation in
Minimising business risks
Maximising its profitability
Managing its assets and liabilities
Cutting down the time needed for the audit
Complying with laws and regulations
115. The following are examples of internal controls which operate at ABC Ltd.
For example, select the type of control activity which it illustrates: The finance
director compares monthly expenditure on consumables to budgeted expenditure
Authorisation
Performance review
116. ISA 315 states that an internal control system in an organisation consists of
five components: the control environment, the entity's risk assessment process, the
information system, control activities and monitoring of controls.
For each of the following examples select the component which it illustrates:
Review of actual performance against budget
Control environment
Control activity
Monitoring of controls
117. For each of the following statements select whether they are true or false in
respect of business risk:
Business risk is of no relevance to the auditor. The auditor is only concerned with
audit risk
True
False
118. According to ISA 315 which THREE of the following are respects of an
entity's control environment?
The attitude of the directors to internal controls
The attitude of staff to internal controls
The awareness of internal control issues in the company
The actions of senior management in relation to internal control
119. An audit committee is a committee with responsibility for audit related
matters.
Which ONE of the following should be members of an audit committee?
Executive directors only
Non-executive directors only
Non-executive directors and internal auditors
Non-executive directors and external auditors
120. The following are examples of internal controls which operate at ABC plc.
For example, select the type of control activity which it illustrates: The payables
ledger clerk posts invoices to the payables ledger. The cash book clerk posts cash
receipts to the payables ledger
Segregation of duties
Performance review.
121. ISA 315 states that an internal control system in an organisation consists of
five components: the control environment, the entity's risk assessment process, the
information system, control activities and monitoring of controls.
For each of the following examples select the component which it illustrates:
Training programme for all staff
 Control environment
Control activity
Monitoring of controls
123. For each of the following statements select whether they are true or false in
respect of the limitations of a system of internal control.
The effectiveness of many controls rely on the integrity of those applying them
True
False
124. For each of the following statements select whether they are true or false in
respect of business risk:
Management are responsible for identifying and controlling business risks
True
False
125. Which ONE of the following is not part of an entity's risk assessment process?
Identify relevant business risks
Estimate the impact of risks
Assess the likelihood of occurrence
Decide upon actions to manage the risks
Report the process to the auditors
126. For each of the following statements, select whether they are true or false in
respect of the information system in a company.
The information system companies only the IT system in a company
True
False
127. The following are examples of computer controls which operate in the payroll
system at ABC Ltd.
For example, select the type of computer control which it illustrates: Range checks
on payroll processing
General
Application
128. In each of the following three cases, select whether control risk is higher or
lower than normal:
(3) Entry to the inventory storeroom is only for authorised personnel
Control risk is higher than normal
Control risk is lower than normal
129. The following are examples of internal controls which operate at ABC Ltd.
For example, select the type of control activity which it illustrates: The financial
accountant signs the bank reconciliation, which has been prepared by a member of
his staff.
Authorisation
Performance review
130. Most entities make use of IT systems for financial reporting and operational
purposes. Controls operating in an IT environment can be split into general
controls and application controls.
Which ONE of the following is an application control?
Use of passwords
Testing of new systems
Authorisation of data for input
Disaster recovery plan
131. One of the five elements of internal controls is monitoring of controls.
Which TWO of the following are activities which would be used to monitor
controls
Management's review of whether bank reconciliations are being
prepared on a timely basis
 Internal auditor's evaluation of whether the sales team are
following company policy regarding customer discounts
Authorisation of purchase invoices before they are paid
Authorisation of purchase orders by the department manager
132. For each of the following internal controls, which is the principal limitation?
The preparation of a bank reconciliation
Human error
Collusion
133. Which TWO of the following represent inherent limitations of a system of
internal control?
Lack of controls over the purchases system
Lack of understanding of the purposes of controls
Lack of staff to ensure segregation of duties
The possibility that staff members will collude in fraud
134. The following are examples of internal controls which operate at ABC plc.
For example, select the type of control activity which it illustrates: The financial
controller reconciles the payables ledger to the payables ledger control account on
a monthly basis
Performance review
Information processing
135. ISA 315 states that an internal control system in an organisation consists of
five components: the control enviroment, the entity's risk assessment process, the
information system, control activities and monitoring of controls.
For each of the following examples, select the component which it illustrates:
The process of preparing the financial statements.
Control enviroment
Information system
 Control activities
136. In each of the following three cases, select whether control risk is higher or
lower than normal:
(2) Management often override internal controls
Control risk is higher than normal
Control risk is lower than normal
137. ISA 315 states that an internal control system in an organisation consists of
five components: the control enviroment, the entity's risk assessment process, the
information system, control activities and monitoring of controls.
For each of the following examples, select the component which it illustrates:
Locking the inventory storeroom.
Control enviroment
Information system
Control activities
138. In each of the following three cases, select whether control risk is higher or
lower than normal:
(1) The paybles ledgers is not regularly reconciled to the payables ledger control
account
Control risk is higher than normal
Control risk is lower than normal
139. In each of the following three cases, select whether control risk is higher or
lower than normal.
The company has an established and well resourced internal audit function
Control risk is higher than normal
Control risk is lower than normal
140. Which regards to internal control systems in small entities, select whether
each of the following statements is true or false:
Management override is more likely to take place in smaller companies
 True
False
141. Most entities make use of IT systems for financial reporting and operational
purposes. Controls operating in an IT environment can be split into general
controls and application controls.
Which ONE of the following is an application control?
Training staff in new IT procedures
Taking back - up copies of programs
Maintenance agreements over IT equipment
Cyclical reviews of all master files
142. In each of the following three cases, select whether control risk is higher or
lower than normal.
Purchase invoices are not authorised prior to payment
Control risk is higher than normal
Control risk is lower than normal
143. Which TWO of the following are authorisation control activities
A bank reconciliation signed by the finance director
A cheque payment run approved by the finance director
An appraisal of the sales ledger clerk by the finance director
A trial balance complied by the finance director
144. Which THREE of the following statements about audit committees are
correct?
At least 50% of the members of an audit committee must be non-
executive directors
Listed companies are required to have an audit committee
Audit committees are considered to be good practice for all large
companies
 If a company has an internal audit function, the chief internal auditor
should sit on the audit committee
Audit committees are an important aspect of a company's control
enviroment
145. Which TWO of the following will reduce password effectiveness as a means
of restricting access to a computer system?
Frequent changes of passwords
User selection of passwords
Automatic disconnection after failed attempts to access system
Disciplinary offence if passwords revealed
Displaying the password on screen
146. For each of the following statements select whether they are true or false in
respect of business risk:
Business risk is the risk inherent to the company in its operations.
True
False
147. The following are examples of internal controls which operate at XYZ plc.
For each example, select the type of control activity which it illustrates: The
controller reconciles the receivables ledger to the receivables control account
montly
Performance review
Information processing
Segregation of duties
148. ISA 315 states that an internal control system in an organisation consists of
five components: the control environment, the entity's risk assessment process, the
information system, control activities and monitoring of controls.
For each of the following examples select the component which it illustrates:
Review by management of monthly bank reconciliations
 Control environment
Control activity
Monitoring of controls.
149. The following are examples of internal controls which operate at ABC plc.
For each example, select the type of control activity which it illustrates: There are
two keys to the locked finance department safe: one held by the finance director
and the other by the managing director
Authorisation
Information processing
Physical control
150. Which one of the following would be the simlpest way of recording a
straightforward system not subject to a great deal of change annually?
Flowchart
Narrative notes
Questionnaire
Family tree
151. The following are examples of computer controls which operate at PQ plc.
For the example, select the type of computer control which it illustrates: Storing
extra copies of programs and data files off-site
General
Application
152. For each of the following internal controls, which is the principal limitation?
Segregation of duties in a sales system
Human error
Collusion
153. ISA 315 states that an internal control system in an organisation consists of
five components: the control environment, the entity's risk assessment process, the
information system, control activities and monitoring of controls.
For each of the following examples select the component which it illustrates: The
entity's organisational structure
Control environment
Control activity
Monitoring of controls.
154. The following are examples of computer controls which operate in the payroll
system at ABC Ltd.
For example, select the type of computer control which it illustrates: Manual
checks to ensure that timesheets are authorised before details are processed
General
Application
155. Which of the following if the most appropriate definition of the exernal audit
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.
156. Is the following statement regarding stewardship true or false? Directors are
stewards of the investment made by shareholders in a company
True
False
157. Which two of the following are elements of an assurance egagement?
(1) A three – party relationship; a conclusion or an opinion
(2) Suitable criterial; subject matter; evidence collection
(3) Determination of materiality
(4) An engagement letter
(1) and (2) only
 (1) and (3) only
(2) and (3) only
(1) and (4) only
158. Who normally appoints the external auditors of a company?
Directors
Shareholders
Audit committee
Senior management
159. The level of assurance provided by an external audit is absolute. Is statement
true or false?
True
False
160. Which of the following could cause ADVOCACY?
Audit team to be offered a balloon flight entertainment
Tax fee to be based on a percentage of tax saved
Firm to represent client ‘ABC’ in a dispute with the tax
authorities
170. You are an audit manager of A&B and have just been assigned the audit of
XYZ Co (XYZ). In an initial meeting with the finance director of XYZ, you learn
that the audit team will not be entertained on XYZ's yacht this year, instead, he has
arranged a balloon flight costing less than one-tenth of the expense of using the
yacht and hopes this will be acceptable. Which of the following actions should be
taken to ensure the firm complies with ACCA's Code of Ethics and Conduct?
'The gift may be accepted as XYZ has taken appropriate measures to
reduce the value of the gift compared to previous years.
'The value of the gift should be assessed to determine whether it is of
material value to the financial statements.
'The gift should only be accepted if its value is trivial and
inconsequential to the recipients.
 'Only the audit partner and audit manager should accept the gift
171. Which two of the following are fundamental principles as stated in the
ACCA’ s Code of Ethics and Conducts?
(1) objective
(2) independence
(3) confidentiality
(4) professional skepicism
(1) and (3)
172. 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
(1), (2) and (4)
173. 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.
(1) and (2)
174. The auditor of A Co wishes to reduce audit rish. 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
 (2) and (3)
175. 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.
176. Which of the following factors influence the form and content of audit
working paper?
Risks of material misstatement
Exceptions identified
Nature of the package used for documentation
Cost to the audit