assurance question bank

Two types of procedures used in gathering evidence are tests of controls and substantive procedures.
For each of the following examples, select the type of procedure illustrated.
Examining the instructions issued for a year-end physical inventory count

Test of control
Substantive procedure

Observing despatch procedures

Test of control
Substantive procedure

Comparing this year's sales figures to those of previous years

Test of control
Substantive procedure
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Terms in this set (18)
Two types of procedures used in gathering evidence are tests of controls and substantive procedures.
For each of the following examples, select the type of procedure illustrated.
Examining the instructions issued for a year-end physical inventory count

Test of control
Substantive procedure

Observing despatch procedures

Test of control
Substantive procedure

Comparing this year's sales figures to those of previous years

Test of control
Substantive procedure
test of control, test of control, substantive procedure
The ICAEW Code of Ethics provides guidance for members regarding their independence.
For each of the following statements, select whether they are most likely to be true or false.
If guidance is principles-based then it does not contain rules prohibiting certain activities

True
False

If guidance is based on general principles then it does not allow for particular or unique situations

True
False

Principles-based guidance may permit multiple correct responses in a given situation

True
False
false, false, true
Which two of the following are reasons why sales are often verified by testing the internal controls in place over sales?

✓There are usually too many individual transactions to test them individually
✓Sales constitute a high volume of similar transactions which are suitable for controls testing
✓Controls over sales in a company are often strong
✓Because there are so many individual transactions, there is a significant risk that sales are misstated
sales constitue a high volume of similar transactions which are suitable for testing
controls over a sales company are often strong
hich two of the following constitute the best quality evidence concerning the net realisable value of inventory?

✓Company's controls over inventory counting
✓Post year-end sales invoices
✓Post year-end sales orders
✓Post year-end sales price list
post year end invoices and sales orders
For each of the following statements concerning written representation letters, select whether they are true or false.
Written confirmations are required from all client staff who have made oral representations.

True
False

The matters to be referred to in the written representation letter shall be discussed by the auditor with senior management.

True
False

Written representations can be used as a substitute for evidence which would be available to the auditor by other means.

True
False
false, true, true
For each of the following statements, select whether they are true or false in respect of procedures to obtain evidence.
Physical examination of property, plant and equipment confirms ownership.

True
False

Recalculation is a strong form of evidence as it is created by the assurance provider.

True
False

Inquiry is always an unreliable means of obtaining evidence.

True
False
false, true, false
Assurance providers obtain evidence using procedures set out in ISA 500.
For each of the following tests, select the type of procedure which is being used.
The assurance provider writes to a sample of customers asking them to inform him of the balance they owe the company at the year end.

✓Inspection
✓Observation
✓Confirmation

The assurance provider looks at a share certificate to confirm that the company has an investment in Company A.

✓Inspection
✓Observation
✓Confirmation
confirmation, inspection, ovbservation
Which two of the following are factors that an assurance provider should take into account when determining the sample size for a test of details?

✓The time available to complete the test
✓The skill of the team member assigned to carry out the test
✓A decrease in the assurance provider's assessment of the risk of material misstatement
✓An increase in the level of expected misstatement
C and D
Which two of the following statements are correct?

✓Inspection of assets confirms rights and obligations
✓Inspection of a purchase invoice confirms the cost of inventory
✓Observation gives strong ongoing evidence of the matter being observed
✓Inquiry of third parties gives better evidence than inquiries of entity insider
B and D
Many auditors use two types of audit file: a current audit file and a permanent audit file.
For each of the following documents, select whether it is most likely to be included in the current audit file, permanent audit file or in both.
Engagement letter

Current audit file
Permanent audit file
Both

Audit plan

Current audit file
Permanent audit file
Both

Manager review notes

Current audit file
Permanent audit file
Both
permanent, current, current
Which three of the following are reasons why assurance providers record their work? ✓To confirm the terms of the engagement ✓To help the assurance team to plan and perform the engagement ✓To retain a record of matters of continuing significance to the engagement ✓To enable an experienced assurance provider to carry out quality control reviewsB,C and DInternal audit helps in achieving corporate objectives. For each of the following statements, select whether or not they are true or false. Having an internal audit function is a requirement of the UK Corporate Governance Code. True False Internal audit can be seen as an internal control in a company. True False Internal auditors should not get involved in operational matters. True Falsefalse, true, trueWhich two of the following roles could internal audit carry out in respect of risk management and still operate effectively? ✓Monitoring the company's overall risk strategy ✓Designing an internal control system in a production department ✓Testing internal controls in the purchasing department ✓Implementing internal controls in the sales departmentA and CBourne Ltd operates a number of control procedures in its sales system. Assuming that all controls are operating effectively, which one of the following control procedures is most likely to ensure that customers are invoiced for goods despatched? Use of pre-printed sequentially numbered sales order documentation Matching of sales orders with despatch records Matching of despatch records with sales invoices Requiring customers to sign for goods receivedCISA (UK) 315, Identifying and Assessing the Risks of Material Misstatement Through Understanding of the Entity and Its Environment 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 process of preparing the financial statements Control environment Information system Control activities Locking the inventory storeroom Control environment Information system Control activitiesB and FFor each of the following statements, select 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 The engagement letter should be sent after the appointment of the auditor but before the commencement of the audit. True False The engagement letter should be sent after the commencement of the audit but before the signing of the auditor's report. True False An engagement letter should be sent to all new clients. True Falsefalse, true, false, truea statutory audit gives reasonable assurance that the financial statements give a true and fair value a negative assurance conclusion gives a limited level of assurance reasonable assurance is absolute assurance of the correctness of the mattertrue, true, falsestatutory audit review on financial information report on profit and cash flow forecastsreasonable, limited, limited