CAF-8 · Chapter 16
Review and Assurance Engagements MCQs with Answers
14 multiple-choice questions on Review and Assurance Engagements for CAF-8 Audit and Assurance Essentials. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
An independent practitioner is engaged to review the interim financial statements of BlueWave Ltd. According to ISRE 2400, what are the primary procedures the practitioner will perform to obtain sufficient appropriate evidence?
- A) Tests of controls and substantive analytical procedures.
- B) Inquiry and analytical procedures.
- C) 100% vouching of all major expenses and capital expenditures.
- D) Physical inventory observation and external confirmations.
Show answer & explanation
Answer: B) Inquiry and analytical procedures.
In a review engagement, the procedures performed are substantially less than those performed in an audit. They are primarily limited to designing and performing inquiries of management and applying analytical procedures to the financial data.
Question 2
Which of the following accurately describes the fundamental difference in the level of assurance provided by a statutory audit compared to a review engagement?
- A) An audit provides absolute assurance, while a review provides reasonable assurance.
- B) An audit provides reasonable assurance expressed positively, while a review provides limited assurance expressed negatively.
- C) Both engagements provide reasonable assurance, but a review is less expensive.
- D) A review provides negative assurance, which represents a higher level of confidence than a positive audit opinion.
Show answer & explanation
Answer: B) An audit provides reasonable assurance expressed positively, while a review provides limited assurance expressed negatively.
An audit is designed to provide a high (reasonable) level of assurance expressed in a positive form. A review provides a moderate (limited) level of assurance, expressed in a negative form (e.g., 'nothing has come to our attention').
Question 3
An assurance engagement relies on five key elements to be valid. Which of the following accurately represents the 'three-party relationship' element?
- A) The practitioner, the responsible party, and the intended users.
- B) The external auditor, the internal audit department, and the board of directors.
- C) The shareholders, the tax authorities, and the management.
- D) The external valuer, the practitioner, and the responsible party.
Show answer & explanation
Answer: A) The practitioner, the responsible party, and the intended users.
The three-party relationship in an assurance engagement consists of the practitioner (who provides the assurance), the responsible party (who prepares the subject matter), and the intended users (who rely on the assurance report).
Question 4
Under ISSA 5000, if an entity engages a practitioner to provide sustainability assurance only on its climate-related disclosures rather than the entire sustainability report, how should the practitioner handle the scope?
- A) Reject the engagement because partial assurance on sustainability reports is strictly prohibited.
- B) Accept the engagement but issue an adverse conclusion on the omitted parts of the report.
- C) Identify or describe exactly which disclosures are subject to the assurance engagement in the written report.
- D) Audit the entire sustainability report anyway to ensure overall completeness.
Show answer & explanation
Answer: C) Identify or describe exactly which disclosures are subject to the assurance engagement in the written report.
ISSA 5000 allows the scope of a sustainability assurance engagement to cover either all or only a part of the sustainability information. The practitioner is required to clearly identify or describe the specific information subject to assurance in the report.
Question 5
The International Ethics Standards for Sustainability Assurance (IESSA) applies specifically to sustainability assurance practitioners. Which of the following is NOT one of the five fundamental ethical principles?
- A) Integrity
- B) Objectivity
- C) Absolute transparency
- D) Professional competence and due care
Show answer & explanation
Answer: C) Absolute transparency
The five fundamental ethical principles under IESSA (and the general Code of Ethics) are Integrity, Objectivity, Professional competence and due care, Confidentiality, and Professional behavior. Absolute transparency is not one of the formal principles.
Question 6
During a review engagement of interim financial statements, the practitioner is completely unable to obtain sufficient appropriate evidence because management refuses to provide key accounting records. If the practitioner concludes the possible effects are both material and pervasive, what is the required reporting action?
- A) Express a qualified conclusion.
- B) Express an adverse conclusion.
- C) Disclaim a conclusion on the financial statements.
- D) Issue an unmodified conclusion with an Emphasis of Matter paragraph.
Show answer & explanation
Answer: C) Disclaim a conclusion on the financial statements.
If the practitioner is unable to form a conclusion due to an inability to obtain sufficient appropriate evidence, and the possible effects of undetected misstatements could be both material and pervasive, ISRE 2400 requires the practitioner to disclaim a conclusion.
Question 7
During a sustainability assurance engagement under ISSA 5000, if sufficient appropriate evidence cannot be obtained regarding a major environmental metric, and a qualified conclusion would be inadequate due to pervasiveness, what must the practitioner do?
- A) Disclaim a conclusion or withdraw from the engagement, subject to what applicable law permits.
- B) Express an unmodified conclusion but add a detailed 'Other Matter' paragraph.
- C) Rely entirely on management's verbal representations to form a conclusion.
- D) Issue a reasonable assurance report based on standard industry averages.
Show answer & explanation
Answer: A) Disclaim a conclusion or withdraw from the engagement, subject to what applicable law permits.
Under ISSA 5000, when sufficient appropriate evidence cannot be obtained and the impact is pervasive enough that a qualified conclusion is inadequate, the practitioner must either disclaim a conclusion or withdraw from the engagement entirely.
Question 8
In a sustainability assurance engagement, if the practitioner personally measures and evaluates the entity's greenhouse gas emissions directly against the criteria, rather than evaluating an emissions report prepared by management, what type of engagement is this?
- A) An attestation engagement
- B) A direct reporting engagement
- C) A limited review engagement
- D) An agreed-upon procedures engagement
Show answer & explanation
Answer: B) A direct reporting engagement
In a direct reporting engagement, the practitioner directly measures or evaluates the underlying subject matter against the criteria. In contrast, in an attestation engagement, the responsible party (management) performs the measurement, and the practitioner evaluates their report.
Question 9
In a review engagement under ISRE 2400, what specific written representation must the practitioner request from management regarding subsequent events?
- A) That all subsequent events have been completely ignored to save time.
- B) That all events occurring subsequent to the date of the financial statements that require adjustment or disclosure have been adjusted or disclosed.
- C) That management guarantees no subsequent events will ever occur.
- D) That the practitioner is held legally liable for any subsequent events discovered later.
Show answer & explanation
Answer: B) That all events occurring subsequent to the date of the financial statements that require adjustment or disclosure have been adjusted or disclosed.
ISRE 2400 explicitly requires the practitioner to request a written representation from management confirming that all subsequent events requiring adjustment or disclosure under the applicable financial reporting framework have been properly accounted for.
Question 10
During a review engagement, the practitioner discovers a material uncertainty regarding the entity's ability to continue as a going concern. Management has fully and adequately disclosed this uncertainty in the financial statements. How should the practitioner report this?
- A) Issue an adverse conclusion.
- B) Express a modified conclusion due to the inherent risk of bankruptcy.
- C) Include an Emphasis of Matter paragraph drawing users' attention to the relevant disclosure.
- D) Withdraw from the review engagement immediately.
Show answer & explanation
Answer: C) Include an Emphasis of Matter paragraph drawing users' attention to the relevant disclosure.
If a matter is appropriately presented or disclosed in the financial statements, but is of such fundamental importance that users need their attention drawn to it (like a material uncertainty on going concern), the practitioner adds an Emphasis of Matter paragraph.
Question 11
Which of the following is an appropriate evidence-gathering technique for verifying the numerical accuracy of an entity's reported greenhouse gas (GHG) intensity ratios under ISSA 5000?
- A) Sending negative confirmations to all factory floor employees.
- B) Re-performance and recalculation of the intensity ratios.
- C) Only checking the mathematical addition of the general ledger.
- D) Assuming the ratios are accurate if the overall revenue has increased.
Show answer & explanation
Answer: B) Re-performance and recalculation of the intensity ratios.
Re-performance or recalculation is a standard evidence-gathering technique in sustainability assurance. It allows the practitioner to independently verify the numerical accuracy of complex metrics like GHG intensity ratios or emission factors.
Question 12
Under ISRE 2400, when performing a review of financial statements, the practitioner's inquiries of management should specifically include inquiries concerning which of the following?
- A) The exact statistical sample sizes the internal audit department used during the year.
- B) The personal tax returns of all majority shareholders.
- C) The identification of related parties, related party transactions, and their purpose.
- D) The strategic marketing plan and budget for the next five years.
Show answer & explanation
Answer: C) The identification of related parties, related party transactions, and their purpose.
In a review engagement, standard inquiries of management specifically include asking how significant accounting estimates are made and identifying related parties and the purpose of related party transactions.
Question 13
Which of the following services provided by a chartered accountant clearly falls OUTSIDE the scope of an assurance engagement?
- A) A statutory audit of historical financial statements.
- B) A review of interim financial information.
- C) Verification of a company's greenhouse gas emissions for carbon trading.
- D) Assisting the client in recruiting a new Chief Financial Officer.
Show answer & explanation
Answer: D) Assisting the client in recruiting a new Chief Financial Officer.
Recruitment services, consulting, tax planning, and preparation of tax returns are non-assurance services. They do not involve expressing an independent conclusion on a subject matter to instill confidence in intended users.
Question 14
During a sustainability assurance engagement, the practitioner receives a report from an external environmental agency that directly contradicts the emissions data provided by management. According to assurance standards, what must the practitioner do?
- A) Ignore the external report because management's data is always considered primary.
- B) Weigh the reliability of each piece of evidence and perform additional procedures to resolve the inconsistency.
- C) Immediately issue an adverse opinion without discussing it with management.
- D) Average the two differing figures together to present a fair compromise in the report.
Show answer & explanation
Answer: B) Weigh the reliability of each piece of evidence and perform additional procedures to resolve the inconsistency.
When evidence is contradictory (e.g., external sources conflict with internal management data), the practitioner must evaluate the reliability of the sources and perform additional procedures to resolve the inconsistency before forming a conclusion.