ACCA AA · Chapter 5
Engagement acceptance and audit planning MCQs with Answers
9 multiple-choice questions on Engagement acceptance and audit planning for ACCA AA Audit and Assurance. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Which of the following would NOT normally be included in an audit engagement letter under ISA 210?
- A) The expected form and content of any reports to be issued
- B) The objective and scope of the audit
- C) The responsibilities of management, including for internal control
- D) The level of materiality that the auditor will apply
Show answer & explanation
Answer: D) The level of materiality that the auditor will apply
ISA 210 requires the engagement letter to cover the objective and scope of the audit, the responsibilities of auditor and management, the financial reporting framework and the expected form of reports. Materiality is a matter of the auditor's professional judgement determined during planning and is not agreed with the client.
Question 2
Under ISA 210, which of the following is a precondition for an audit?
- A) Management acknowledges its responsibility for preparing the financial statements, for internal control and for giving the auditor access to information
- B) The entity has an internal audit function
- C) The audit fee has been approved in advance by the shareholders
- D) The entity has a positive cash balance at the year end
Show answer & explanation
Answer: A) Management acknowledges its responsibility for preparing the financial statements, for internal control and for giving the auditor access to information
The preconditions for an audit are that the financial reporting framework is acceptable and that management agrees to its responsibilities, including providing the auditor with access to all relevant information and to people. Liquidity, the existence of internal audit and fee approval are not preconditions.
Question 3
For a recurring audit, which of the following would most likely cause the auditor to issue a revised engagement letter?
- A) A small increase in the audit fee in line with inflation
- B) A significant change in the ownership of the entity
- C) A change in the audit junior assigned to the engagement
- D) The opening of a new bank account by the entity
Show answer & explanation
Answer: B) A significant change in the ownership of the entity
ISA 210 lists factors that may make it appropriate to revise the terms of engagement, including a significant change in ownership or senior management, changes in the nature or size of the business, changes in legal requirements or the framework, and indications that the client misunderstands the audit. Routine staffing changes and minor operational events do not require a new letter.
Question 4
Which document sets out the nature, timing and extent of the planned risk assessment procedures and further audit procedures at assertion level?
- A) The audit plan
- B) The overall audit strategy
- C) The management letter
- D) The engagement letter
Show answer & explanation
Answer: A) The audit plan
Under ISA 300, the overall audit strategy sets the scope, timing and direction of the audit, and the audit plan is the more detailed document setting out the procedures to be performed. The engagement letter agrees the terms of the audit and a management letter reports deficiencies after the work is done.
Question 5
Consider the following procedures: 1. Enquiries of management and others within the entity 2. Analytical procedures 3. Observation and inspection 4. External confirmation Which of these does ISA 315 specify as risk assessment procedures?
- A) 1 and 2 only
- B) 1, 2 and 3
- C) 1, 3 and 4
- D) 2, 3 and 4
Show answer & explanation
Answer: B) 1, 2 and 3
ISA 315 states that risk assessment procedures include enquiries of management and others, analytical procedures, and observation and inspection. External confirmation is a further audit procedure used to respond to assessed risks, for example confirming receivables or bank balances, rather than a risk assessment procedure.
Question 6
What is the main purpose of the engagement team discussion required by ISA 315 and ISA 240?
- A) To agree the audit fee and staffing budget with the client's finance director
- B) To decide the wording of the auditor's report before fieldwork begins
- C) To allocate responsibility for preparing the financial statements
- D) To consider how and where the financial statements may be susceptible to material misstatement, including due to fraud
Show answer & explanation
Answer: D) To consider how and where the financial statements may be susceptible to material misstatement, including due to fraud
The discussion among key team members, led by the engagement partner, shares knowledge and experience about the entity and considers how the financial statements could be misstated through error or fraud. It also helps team members understand the effect of their own work on other areas of the audit.
Question 7
Which of the following procedures would normally be performed at the final audit visit rather than at the interim audit?
- A) Updating the documentation of the entity's accounting systems
- B) Testing controls over purchases for the first eight months of the year
- C) Reviewing events occurring after the reporting period up to the date of the auditor's report
- D) Performing walk-through tests on the sales system
Show answer & explanation
Answer: C) Reviewing events occurring after the reporting period up to the date of the auditor's report
The interim audit normally focuses on understanding the entity, documenting systems and testing controls during the year. The final audit concentrates on year-end balances, the financial statements and matters such as subsequent events, which by definition can only be reviewed after the period end.
Question 8
At the interim audit of Quoin Co, the auditor tested controls over payroll for the first nine months of the year and found them operating effectively. The auditor plans to rely on these controls for the whole year. What does ISA 330 require for the remaining three months?
- A) No further work is needed because nine months is a sufficient proportion of the year
- B) Repeat the full tests of controls for the entire year using a new sample
- C) Obtain evidence about significant changes to the controls after the interim period and determine what additional evidence is needed for that period
- D) Obtain a written representation from management that the controls did not change
Show answer & explanation
Answer: C) Obtain evidence about significant changes to the controls after the interim period and determine what additional evidence is needed for that period
When evidence about the operating effectiveness of controls is obtained during an interim period, ISA 330 requires the auditor to obtain evidence about significant changes to those controls in the remaining period and to determine the additional audit evidence to be obtained. Written representations cannot replace that evidence, and re-testing the whole year is not automatically required.
Question 9
Which of the following is a benefit of adequate audit planning?
- A) It helps the auditor devote appropriate attention to important areas of the audit
- B) It guarantees that all fraud will be detected
- C) It allows the auditor to issue the auditor's report before the year end
- D) It removes the need to obtain audit evidence at the final audit
Show answer & explanation
Answer: A) It helps the auditor devote appropriate attention to important areas of the audit
ISA 300 explains that planning helps the auditor focus on important areas, identify potential problems on a timely basis, organise and staff the engagement, and direct and supervise the team. Planning cannot guarantee fraud detection or replace the evidence-gathering stage.