CPA - Assurance
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Question 1 |
Identify two limitations of the provision of assurance:
Assurance work is carried out by people independent of the entity | |
Sampling is used in assurance work | |
Client systems have inherent limitations | |
Unqualified staff may be used on assurance engagements |
Question 1 Explanation:
Option A is not a limitation rather assurance work is carried out by independent people is a strength. Option D is also incorrect as the use of unqualified staff increases the detection risk of the auditor as opposed to being an inherent limitation of the provision of assurance.
Question 2 |
Which of the following are the key elements of a general assurance engagement? (Choose three)
A user | |
A subject matter | |
Suitable criteria | |
An assurance file |
Question 2 Explanation:
An assurance engagement is one in which a practitioner expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria.
Question 3 |
Which of the following qualification 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 |
Question 4 |
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 are 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 |
Question 4 Explanation:
Reasonable assurance is a high, but not absolute, level of assurance. The other options available represent various aspects of the expectations gap which is the gap between what the assurance provider understands he is doing and what the user of the information believes he is doing.
Question 5 |
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
Determine the suitable criteria
Determine the suitable criteria
User | |
Practitioner | |
Responsible party |
Question 6 |
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
Provides an opinion on whether the subject matter complies with the criteria
Provides an opinion on whether the subject matter complies with the criteria
User | |
Practitioner | |
Responsible party |
Question 7 |
Which of the following statements best describes the evidence obtained and the opinion given in a reasonable 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 |
Question 7 Explanation:
Sufficient appropriate audit evidence is gathered and a positive opinion issued in a reasonable assurance engagement. A lower level of evidence coupled with a negative opinion applies to a limited assurance engagement.
Question 8 |
For each of the following statements select which are true.
A) A statutory audit gives reasonable assurance that the financial statements give a true and fair view
B) A negative assurance conclusion gives a limited level of assurance
C) Reasonable assurance is absolute assurance of the correctness of the subject matter.
A) A statutory audit gives reasonable assurance that the financial statements give a true and fair view
B) A negative assurance conclusion gives a limited level of assurance
C) Reasonable assurance is absolute assurance of the correctness of the subject matter.
A and B | |
B and C | |
A and C | |
A, B and C |
Question 8 Explanation:
Whereas the statutory audit provides reasonable assurance through a positive assurance conclusion, in a review engagement, limited assurance is provided with the issue of the negative assurance conclusion. This can be seen in the wording of the two conclusions. The positive assurance conclusion includes wording "the financial statements give a true and fair view", whereas the negative assurance conclusion includes the wording "nothing has come to our attention", emphasising the limited nature of the assignment.
Reasonable assurance is high level of assurance provided on the truth and fairness of the subject matter as opposed to absolute assurance of the correctness of the subject matter.
Reasonable assurance is high level of assurance provided on the truth and fairness of the subject matter as opposed to absolute assurance of the correctness of the subject matter.
Question 9 |
Azad & Co is the external auditor of Shahin PLC, a listed company. The directors of Shahin PLC have requested that Azad & Co carry out a review engagement assessing the effectiveness of its corporate governance policies against the UK Corporate Governance Code.
For the above review engagement, select which part of the engagement description constitutes the subject matter, which describes the suitable criteria and which party is the responsible party.
The subject matter
For the above review engagement, select which part of the engagement description constitutes the subject matter, which describes the suitable criteria and which party is the responsible party.
The subject matter
Shahin PLC | |
The UK Corporate Governance Code |
Question 10 |
Azad & Co is the external auditor of Shahin PLC, a listed company. The directors of Shahin PLC have requested that Azad & Co carry out a review engagement assessing the effectiveness of its corporate governance policies against the UK Corporate Governance Code.
For the above review engagement, select which part of the engagement description constitutes the subject matter, which describes the suitable criteria and which party is the responsible party.
The suitable criteria
For the above review engagement, select which part of the engagement description constitutes the subject matter, which describes the suitable criteria and which party is the responsible party.
The suitable criteria
Shahin PLC's corporate governance code | |
The UK Corporate Governance Code |
Question 11 |
Azad & Co is the external auditor of Shahin PLC, a listed company. The directors of Shahin PLC have requested that Azad & Co carry out a review engagement assessing the effectiveness of its corporate governance policies against the UK Corporate Governance Code.
For the above review engagement, select which part of the engagement description constitutes the subject matter, which describes the suitable criteria and which party is the responsible party.
The responsible party
For the above review engagement, select which part of the engagement description constitutes the subject matter, which describes the suitable criteria and which party is the responsible party.
The responsible party
Azad & Co. | |
The directors of Shahin PLC |
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