Acca audit & assurance chapter 1 quiz mcq

🎓 ACCA Audit & Assurance

📋 Exam Instructions

This practice test contains 50 multiple choice questions

Each question has 4 options (A, B, C, D) unless otherwise stated

Choose the best answer for each question

All questions are based on ACCA Audit & Assurance Chapter 1

Answers and explanations are provided at the end

📚 Study Tips

Read each question carefully before selecting an answer

Review the explanations to understand the concepts

Focus on areas where you scored lower

Practice regularly to improve retention

📝 PART 1: QUESTIONS (50 Questions)

Question 1: Which of the following is NOT one of the five

elements of an assurance engagement?

A A written report in the appropriate form

B Sufficient, appropriate evidence

Chapter 1: What is Assurance? - Practice Quiz (50 Questions)

Question 3: What type of assurance is expressed in: 'The

insurance claim presents a true and fair estimate of the

amount of inventory lost in the warehouse fire'?

Question 6: Which is the correct definition of an audit?

A The independent examination of and expression of opinion on thefinancial statements of an entity by a duly appointed auditor

B The process by which the auditor can state that the financial

statements show a true and fair view

C The examination and certification of opinion on the financialstatements

D A process that produces a report stating that nothing has beenfound wrong

Question 7: What is the primary purpose of an assurance engagement?

A To guarantee the accuracy of information

B To enhance the degree of confidence of intended users in thesubject matter

C To eliminate all risks associated with the subject matter

D To provide absolute certainty about the subject matter

Question 8: In an assurance engagement, who is the

'practitioner'?

A The person responsible for the subject matter

B The intended user of the assurance report

C The professional accountant performing the assurance

engagement

D The entity being examined

Question 9: What distinguishes reasonable assurance from limited assurance?

A The cost of the engagement

B The level of evidence required and procedures performed

C The length of the engagement

D The number of people involved

Question 10: Which of the following best describes 'subject matter' in an assurance engagement?

A The auditor's opinion

B The information or condition that is being examined

C The criteria used for evaluation

D The assurance report itself

Question 11: What are 'suitable criteria' in an assurance engagement?

A The qualifications of the practitioner

B The benchmarks used to evaluate or measure the subject matter

C The procedures performed during the engagement

D The intended users of the report

Question 12: Who are the 'intended users' in an assurance engagement?

A Only the management of the entity

B The person or persons for whom the practitioner prepares theassurance report

C The regulatory authorities only

D The practitioner performing the engagement

Question 13: What is required for evidence to be considered 'sufficient and appropriate'?

A It must be obtained from external sources only

B It must be in written form

C It must be adequate in quantity (sufficient) and relevant and

reliable (appropriate)

D It must be obtained through inquiry procedures only

Question 14: Which type of engagement provides the highest level of assurance?

Question 15: What is the key characteristic of an independent practitioner?

A They must be employed by the entity being examined

B They must have no financial or other interest that would

compromise objectivity

C They must be located in the same country as the entity

D They must have worked for the entity previously

Question 16: In which form should an assurance report be presented?

A Oral communication only

B Written form only

C Either written or oral form

D Electronic format only

Question 17: What is 'professional skepticism'?

A Assuming management is dishonest

B An attitude that includes a questioning mind and critical

assessment of evidence

C Refusing to accept any evidence from management

D Being suspicious of all accounting estimates

Question 18: Which of the following is an example of a financial subject matter for assurance?

non-A Revenue recognition

B Environmental impact report

C Cash flow statement

D Accounts receivable balance

Question 19: What is the difference between an audit and a review?

A There is no difference

B Audits provide reasonable assurance, reviews provide limitedassurance

C Reviews are more expensive than audits

D Audits are performed quarterly, reviews annually

Question 20: Who is responsible for the subject matter in an assurance engagement?

A The practitioner

B The intended users

C The responsible party (usually management)

D The regulatory authority

Question 21: What does 'materiality' mean in the context of assurance engagements?

A The physical substance of assets

B Information that could influence economic decisions of users

C The cost of performing procedures

D The time required to complete the engagement

Question 22: Which of the following is NOT a characteristic of suitable criteria?

A Relevant

B Complete

C Expensive

D Reliable

Question 23: What is an 'assertion' in the context of financial statement audits?

A A statement made by the auditor

B A representation by management about the financial statements

C A requirement of accounting standards

D A type of audit procedure

Question 24: What is the purpose of obtaining an

understanding of the entity and its environment?

A To reduce audit fees

B To identify and assess risks of material misstatement

C To eliminate the need for substantive procedures

D To guarantee the accuracy of financial statements

Question 25: Which of the following best describes 'audit risk'?

A The risk that the auditor will be sued

B The risk that the auditor expresses an inappropriate opinion

C The risk that the entity will fail

D The risk that audit fees will increase

Question 26: What are the components of audit risk?

A Business risk and financial risk

B Inherent risk, control risk, and detection risk

C Sampling risk and non-sampling risk

D Engagement risk and client risk

Question 27: What is 'detection risk'?

A The risk that a misstatement will occur

B The risk that internal controls will fail

C The risk that auditor's procedures will not detect a materialmisstatement

D The risk that management will commit fraud

Question 28: Which of the following is an example of an analytical procedure?

A Confirming accounts receivable balances

B Comparing current year ratios with prior year ratios

C Observing inventory counts

D Inspecting contracts

Question 29: What is the primary purpose of tests of controls?

A To detect material misstatements in account balances

B To evaluate the operating effectiveness of internal controls

C To confirm account balances with third parties

D To calculate financial ratios

Question 30: What is 'substantive testing'?

A Testing the design of internal controls

B Procedures designed to detect material misstatements in

assertions

C Testing the implementation of controls

D Procedures to understand the entity

Question 31: Which of the following factors increases inherent risk?

A Strong internal controls

B Experienced management

C Complex accounting estimates

D Stable business environment

Question 32: What is the relationship between audit risk and materiality?

A They are unrelated concepts

B Higher materiality requires lower audit risk

C Lower materiality requires lower audit risk

D They always move in the same direction

Question 33: What is 'sampling risk'?

A The risk of selecting inappropriate audit procedures

B The risk that the auditor's conclusion based on a sample differsfrom the conclusion if the entire population were examined

C The risk that the sample size is too large

D The risk that sampling is not appropriate

Question 34: Which type of audit procedure provides the most reliable evidence?

A To guarantee that no fraud exists

B To detect all instances of fraud

C To obtain reasonable assurance that financial statements are freefrom material misstatement due to fraud

D To investigate all suspicious transactions

Question 36: What is 'management override of controls'?

A Management's ability to ignore established controls

B Controls implemented by management

C Management's review of control effectiveness

D Automated controls that management cannot influence

Question 37: Which of the following is a red flag for potential fraud?

A Consistent financial performance

B Strong internal controls

C Unusual transactions near year-end

D Experienced accounting staff

Question 38: What is the difference between error and fraud?

A There is no difference

B Error is intentional, fraud is unintentional

C Error is unintentional, fraud is intentional

D Error affects financial statements, fraud does not

Question 39: What is 'professional judgment'?

A Following audit procedures exactly as written

B The application of relevant training, knowledge and experience inmaking informed decisions

C Accepting management's explanations without question

D Using only quantitative analysis

Question 40: What is the purpose of audit documentation?

A To increase audit fees

B To provide evidence of the auditor's basis for conclusions andcompliance with auditing standards

C To replace the need for audit procedures

D To guarantee audit quality

Question 41: Which of the following best describes the concept of 'reasonable assurance'?

A 100% certainty that no misstatements exist

B A high, but not absolute, level of assurance

C 50% confidence in the financial statements

D Assurance that only material misstatements are detected

Question 42: What are the inherent limitations of an audit?

A Lack of auditor competence

B Insufficient audit fees

C The persuasive nature of evidence, use of sampling, and possibility

of management override

D Inadequate audit software

Question 43: What is the auditor's responsibility for

subsequent events?

A No responsibility after the balance sheet date

B To identify events occurring between the balance sheet date andthe date of the auditor's report

C To predict future events

D To audit events occurring after the audit report date

Question 44: What is a 'going concern' assumption?

A The entity will be sold within 12 months

B The entity will continue in operational existence for the

foreseeable future

C The entity will increase profitability

D The entity will expand operations

Question 45: What should an auditor do if they identify a material uncertainty related to going concern?

A Issue an adverse opinion

B Withdraw from the engagement

C Include an emphasis of matter paragraph in the audit report

D Ignore the uncertainty

Question 46: What is the primary purpose of an audit committee?

A To perform the audit

B To oversee the financial reporting process and audit function

C To prepare financial statements

D To set audit fees

Question 47: What is 'audit quality'?

A The speed of completing an audit

B The cost-effectiveness of audit procedures

C The likelihood that an auditor will discover and report materialmisstatements

D The length of the audit report

Question 48: Which of the following enhances audit quality?

A Reducing audit procedures to save time

B Proper supervision and review of audit work

C Accepting management explanations without verification

D Minimizing audit documentation

Question 49: What is the role of ethics in assurance

engagements?

A Ethics are not relevant to assurance engagements

B Ethics only apply to audit engagements

C Ethical requirements ensure integrity, objectivity, and professionalcompetence

D Ethics only concern fee arrangements

✅ PART 2: ANSWERS & EXPLANATIONS

Question 1

✅ Correct Answer: D A three party relationship consisting of

a responsible party, users and subject matter

📚 Explanation:

The five elements of an assurance engagement are: (1) Three-partyrelationship, (2) Subject matter, (3) Suitable criteria, (4) Sufficientappropriate evidence, and (5) Written report Option D incorrectlydescribes the three-party relationship - it should consist of

practitioner, responsible party, and intended users

Question 2

✅ Correct Answer: B Absolute assurance

📚 Explanation:

Assurance engagements provide either reasonable assurance

(positive form) or limited assurance (negative form) Absolute

assurance is not possible as it would require examining all evidenceand controlling all risks, which is impractical and cost-prohibitive

Question 3

✅ Correct Answer: A Positive assurance

📚 Explanation:

This is positive assurance because it makes a direct, positive

statement about the subject matter Positive assurance is associatedwith reasonable assurance engagements where the practitioner

expresses a positive opinion

reports, compliance with regulations, and internal control

effectiveness

Question 6

✅ Correct Answer: A The independent examination of and

expression of opinion on the financial statements of an entity

by a duly appointed auditor

📚 Explanation:

An audit is defined as the independent examination of, and

expression of opinion on, the financial statements of an entity by aduly appointed auditor in pursuance of that appointment

Independence and proper appointment are key elements

Question 7

✅ Correct Answer: B To enhance the degree of confidence of

intended users in the subject matter

📚 Explanation:

The primary purpose of an assurance engagement is to enhance thedegree of confidence that intended users can have in the subjectmatter information It does not provide guarantees or absolute

certainty

Question 8

✅ Correct Answer: C The professional accountant performing

the assurance engagement

Reasonable assurance requires more extensive procedures and

evidence than limited assurance Reasonable assurance provides ahigh (but not absolute) level of assurance, while limited assuranceprovides a moderate level of assurance

Question 11

✅ Correct Answer: B The benchmarks used to evaluate or

measure the subject matter

📚 Explanation:

Suitable criteria are the benchmarks used to evaluate or measure thesubject matter They must be relevant, complete, reliable, neutral,and understandable Examples include accounting standards orregulatory requirements

Question 12

✅ Correct Answer: B The person or persons for whom the

practitioner prepares the assurance report

📚 Explanation:

Intended users are the person or persons for whom the practitionerprepares the assurance report They may include shareholders,lenders, regulators, or other stakeholders who rely on the subjectmatter information

Question 13

✅ Correct Answer: C It must be adequate in quantity

(sufficient) and relevant and reliable (appropriate)

📚 Explanation:

Evidence must be both sufficient (adequate in quantity) and

appropriate (relevant and reliable) The sufficiency and

appropriateness of evidence are interrelated and depend on the risk

of material misstatement and the quality of evidence

do not provide assurance

Question 15

✅ Correct Answer: B They must have no financial or other

interest that would compromise objectivity

📚 Explanation:

Independence requires that the practitioner has no financial or otherinterests that would compromise their objectivity and professionalskepticism This includes independence in mind and independence

in appearance

Question 16

✅ Correct Answer: B Written form only