CAF-8 · Chapter 2
Obtaining an Engagement MCQs with Answers
10 multiple-choice questions on Obtaining an Engagement for CAF-8 Audit and Assurance Essentials. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Before accepting a new audit engagement, the auditor must establish if the 'preconditions for an audit' are present. Which of the following is a precondition?
- A) Obtaining a guarantee from management that no errors exist.
- B) Establishing if the financial reporting framework to be used is acceptable.
- C) Ensuring the audit fee is paid in advance.
- D) Confirming that the company uses a fully automated IT system.
Show answer & explanation
Answer: B) Establishing if the financial reporting framework to be used is acceptable.
According to ISA 210, establishing the acceptability of the financial reporting framework is a core precondition, alongside obtaining management's agreement to its responsibilities.
Question 2
Management requests the auditor to change the terms of the audit engagement to a limited review because they do not want the auditor testing specific revenue controls. How should the auditor proceed?
- A) Accept the change to maintain a good relationship with the client.
- B) Accept the change but charge the full audit fee.
- C) Refuse the change as it is an unjustified limitation on scope, and withdraw if management does not permit the original audit to continue.
- D) Issue an unmodified opinion immediately.
Show answer & explanation
Answer: C) Refuse the change as it is an unjustified limitation on scope, and withdraw if management does not permit the original audit to continue.
If a proposed change in the terms of the engagement lacks reasonable justification (like intentionally restricting the audit scope to hide issues), the auditor should not agree to it and should withdraw if possible.
Question 3
Which of the following matters is NOT typically included in an audit engagement letter?
- A) The objective and scope of the audit.
- B) The responsibilities of the auditor and management.
- C) A list of the specific sample sizes the auditor plans to use.
- D) Identification of the underlying financial reporting framework.
Show answer & explanation
Answer: C) A list of the specific sample sizes the auditor plans to use.
An engagement letter covers the scope, responsibilities, reporting framework, and form of reports. Specific audit methodologies, like sample sizes, are part of the audit plan, not the contract.
Question 4
For a recurring audit, ISA 210 requires the auditor to consider whether terms need to be revised. Which event is most likely to trigger a revision of the engagement letter?
- A) The client replaces its junior warehouse staff.
- B) There is a significant change in the entity's senior management or ownership.
- C) The company changes its office cleaning contractor.
- D) The auditor updates their internal time-tracking software.
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Answer: B) There is a significant change in the entity's senior management or ownership.
A recent change of senior management, ownership, size, or legal requirements are specific indicators that the entity might misunderstand the audit objective, requiring a revised engagement letter.
Question 5
A firm is offered an audit engagement but realizes that it lacks experience in the client's highly specialized industry. Accepting the engagement without a plan to acquire this expertise creates a threat to which ethical principle?
- A) Confidentiality
- B) Professional Competence and Due Care
- C) Objectivity
- D) Integrity
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Answer: B) Professional Competence and Due Care
Accepting an engagement without the necessary skills or resources creates a self-interest threat to professional competence and due care.
Question 6
When taking on a new audit client previously audited by another firm, the incoming auditor should seek permission to communicate with the predecessor auditor. If the client refuses to grant this permission, what is the most appropriate action?
- A) Contact the predecessor auditor anyway under the whistleblowing act.
- B) Ignore the refusal and rely solely on public records.
- C) Consider the refusal when determining whether to accept the appointment, as it may indicate an integrity issue.
- D) Accept the engagement but charge a higher risk premium.
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Answer: C) Consider the refusal when determining whether to accept the appointment, as it may indicate an integrity issue.
If a client refuses to allow communication with the outgoing auditor, it raises a major red flag regarding management integrity, and the auditor should heavily reconsider accepting the engagement.
Question 7
Management's 'premise' for an audit includes their acknowledgment of responsibility for providing the auditor with:
- A) Unrestricted access to all personnel within the entity from whom the auditor determines it necessary to obtain audit evidence.
- B) A completed set of audit working papers.
- C) Absolute assurance that no fraud has taken place.
- D) The names of the specific auditors they prefer on the engagement team.
Show answer & explanation
Answer: A) Unrestricted access to all personnel within the entity from whom the auditor determines it necessary to obtain audit evidence.
As part of the preconditions, management must agree to provide the auditor with all relevant information and unrestricted access to people within the entity.
Question 8
According to ISA 220, who bears the ultimate responsibility for the overall quality of a specific audit engagement?
- A) The audit junior
- B) The engagement quality control reviewer
- C) The engagement partner
- D) The client's audit committee
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Answer: C) The engagement partner
The engagement partner takes overall responsibility for the overall quality on each audit engagement to which they are assigned.
Question 9
A company requires the auditor to rely on the work of a specialized valuer for its investment properties. What must the auditor evaluate before relying on this expert?
- A) The expert's personal tax returns.
- B) The competence, capabilities, and objectivity of the expert.
- C) Whether the expert uses the same accounting software as the client.
- D) The expert's willingness to sign the final audit report.
Show answer & explanation
Answer: B) The competence, capabilities, and objectivity of the expert.
Under ISA 500 and 620, when relying on the work of a management's or auditor's expert, the auditor must evaluate their competence, capabilities, and objectivity.
Question 10
What is the primary purpose of signing an audit engagement letter?
- A) To legally shield the auditor from any negligence claims.
- B) To agree upon the basis upon which the audit is to be performed and avoid misunderstandings.
- C) To outline the exact sample sizes and testing locations.
- D) To guarantee a clean audit opinion.
Show answer & explanation
Answer: B) To agree upon the basis upon which the audit is to be performed and avoid misunderstandings.
The engagement letter establishes a common understanding between the auditor and management regarding objectives, scope, and responsibilities to minimize misunderstandings.