ACCA F8 flashcards – set 4

See also ACCA F8 Flashcards: Set 1 | Set 2 | Set 3


Which of the following pairs of evidence are better?

External v entity’s records
Indirect evidence v auditor-direct
Oral v Written

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External is better than entity’s records
Auditor direct is better than indirect evidence
Written is better than oral

Why is it important that audits are properly documented? (Four reasons)

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To show that the audit work has been done properly
To enable senior staff to review the work of junior staff
To help the audit team in future years
To encourage a methodical, high-quality approach.

What range of percentage of profit is often taken as guidance for materiality?

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½ – 1% of revenue
1 – 2% of total assets
5 – 10% of profit before tax

Analytical procedures are used at three stages of an audit. What are these?

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The planning stage; as a source of audit evidence (substantive test); at the final review stage.

What is meant by ‘audit risk’

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Audit risk is the risk that an inappropriate audit opinion is given.

An auditor gives weekly advice to a client on a wide range of matters (financial and non-financial).

What sort of threat can this give rise to?

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A management threat.

What sort of ethical threat arises from the auditor being a close friend of the financial director of the company being audited?

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A familiarity threat

What sort of ethical threat arises from the auditor owning shares in the company audited?

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A self-interest threat because the auditor wants the share price to rise.

What sort of ethical threat arises from the auditor auditing financial statements that the auditor also prepared?

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A self-review threat.

What sort of ethical threat can arise from overdue fees?

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A self-interest threat because the auditor is anxious to be paid.

What are the three elements of the ACCA’s ethical framework?

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Fundamental ethical principles, threats to those and safeguards against the threats.

In a listed company, to whom should internal audit report?

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The audit committee.

Is the following true or false?

Under the UK government code listed companies are required to have an internal audit department

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False. Internal audit is encouraged and the need for it has to be kept under review, but it is not mandatory.

What type of audit report is given if the FS contain a non-material misstatement?

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An unmodified report (if a matter is not material, a ‘clean’ audit report can be issued)

What type of audit report is given if the auditors’ ability to find sufficient appropriate audit evidence is pervasive?

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Disclaimer of opinion

What type of audit report is given if the FS contain a pervasive material misstatement?

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Adverse opinion

Is the following true or false?

The inclusion of an emphasis of matter paragraph in the audit report results in a modified audit opinion.

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False. An emphasis of matter paragraph does not cause a modified opinion nor does it cause the FS to be qualified.

What is the title of the paragraph that can be inserted in an audit report to draw users’ attention to a note in the financial statements?

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An emphasis of matter paragraph

What are the two reasons for which an audit report can be qualified?

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1 The Financial Statements contain a material misstatement
2 The auditor has not been able to obtain sufficient appropriate audit evidence to conclude that the FS are free from material misstatement.

Describe what is meant by ‘fair’ in ‘true and fair’

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Fair: the information is free from discrimination and bias and is in compliance with expected standards and rules. It reflects the commercial substance of the transactions.

Describe what is meant by ‘true’ in ‘true and fair’

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True: the information is factual and conforms with reality.

What are the words missing from the following extract from the audit report?
Auditor’s Responsibility
….we … plan and perform the audit to obtain XXXXXXXXXXXX whether the financial statements are free from XXXXXXXXX.

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Auditor’s Responsibility
… we … plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

In what circumstances would auditors refer to the directors’ report in their audit report?

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Auditors would refer to the directors’ report in their audit report if it contained anything that was at odds or contradictory with the financial statements.

Of what do financial statements consist?

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* Statement of financial position
* Income statement
* Statement of changes in equity
* Cash flow statement
* Notes
* Any other material identified as being part of the financial statements

In what two circumstances might management representations provide the only source of audit evidence?

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Where knowledge is confined to management
Reliance on the judgement/opinion of the directors


Comments

  1. avatar says

    hello, could any plz clear this..Im a bit confused about this.

    What are the two reasons for which an audit report can be qualified?

    1The Financial Statements contain a material misstatement
    2 The auditor has not been able to obtain sufficient appropriate audit evidence to conclude that the FS are free from material misstatement.

    • avatar says

      qualified audit opinion mean its not unqualified
      (Which means free of material misstatements).
      report can can be qualified due to two reasons
      1:when FS are materially misstated but not pervasive
      2:when insufficient audit evidence is obtained but not pervasive

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