Chapter 1 f8 acca what is assurance

ACCA AA Chapter 1: What is Assurance? - Practice Exam

(50 Questions)

Part 1: Questions

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

C Suitable criteria

D A three party relationship consisting of a responsible party, users and subject matter

2 Which of the following is NOT a level of assurance provided by an assurance

engage-ment?

A Negative assurance

B Absolute assurance

C Reasonable assurance

D Limited assurance

3 The following conclusions have been reported on two engagements:

(1) “The insurance claim presents a true and fair estimate of the amount of inventory lost

in the warehouse fire”

(2) “The cash flow forecast contains no assumptions that appear unreasonable”

Which of the following options describes the level of assurance expressed in these con-clusions?

A (1) Positive assurance; (2) Negative assurance

B (1) Negative assurance; (2) Negative assurance

C (1) Positive assurance; (2) No assurance

4 Is the following statement true or false?

“Assurance engagements can relate only to financial measures and results”

A True

B False

5 Which of the following is the correct definition of an audit?

A The independent examination of and expression of opinion on the financial state-ments of an entity by a duly appointed auditor in pursuit of that appointment

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 financial statements of an entity

by a duly appointed auditor in pursuit of that appointment

D A process that produces a report stating that nothing has been found wrong in the financial statements

6 Which of the following would be considered an assurance engagement?

A Giving an opinion on a prize promoter’s claims about the amount of sweepstakes prizes awarded in the past

B Giving an opinion on the conformity of the financial statements of a university with generally accepted accounting principles

C Giving an opinion on the fair presentation of a newspaper’s circulation data

D Giving assurance about the average drive length achieved by golfers with a client’s golf balls

E All of the above

7 In an attestation engagement, a CPA practitioner is engaged to

A Compile a company’s financial forecast based on management’s assumptions with-out expressing any form of assurance

B Prepare a written report containing a conclusion about the reliability of a manage-ment assertion

C Prepare a tax return using information the CPA has not audited or reviewed

D Give expert testimony in court on particular facts in a corporate income tax contro-versy

8 According to the AICPA, the purpose of an audit of financial statements is to

A Enhance the degree of confidence that intended users can place in the financial statements

B Express an opinion on the fairness with which they present financial position, re-sults of operations, and cash flows in conformity with accounting standards pro-mulgated by the Financial Accounting Standards Board

C Express an opinion on the fairness with which they present financial position, re-sults of operations, and cash flows in conformity with accounting standards pro-mulgated by the U.S Securities and Exchange Commission

D Obtain systematic and objective evidence about financial assertions and report the results to interested users

9 Independent auditors of financial statements perform audits that reduce

A Business risks faced by investors

B Information risk faced by investors

C Complexity of financial statements

D Timeliness of financial statements

10 The partner responsible for the review engagement has asked you to tell him what level

of assurance you believe YHT & Co should provide, and also what type of opinion the

firm should give What is the level of assurance and type of opinion that can be provided

on this review engagement?

A High level of assurance, positive opinion

B Moderate level of assurance, negative opinion

C High level of assurance, negative opinion

D Moderate level of assurance, positive opinion

11 The partner responsible for the review of hygiene compliance has informed you that the

engagement is an assurance engagement Which of the following would NOT have been

relevant to the partner in forming this opinion?

A There is a three-party relationship involving the practitioner, responsible party, and intended users

B The subject matter is the company’s compliance with hygiene regulations

C The engagement involves the evaluation or measurement of the subject matter against criteria

D The engagement includes the preparation of financial statements

12 Despite running a successful company, BJM’s board has often needed to be reminded of some fundamental principles and you often have to explain key concepts Which of the following statements best defines the external audit?

A An independent examination of financial statements to provide reasonable assur-ance that they are free from material misstatement

B A review of internal controls to ensure compliance with hygiene regulations

C A consultancy service to prepare financial statements and provide accounting ad-vice

D An assessment of operational efficiency and effectiveness of the company’s pro-cesses

13 Which of the following is one of the five elements of an assurance engagement?

A A two-party relationship

B Unsuitable criteria

C Insufficient evidence

D Suitable criteria

14 Absolute assurance is generally not provided in assurance engagements because:

A It is impossible due to the inherent limitations of audits

B It is too expensive

C Users do not require it

D It is only for financial audits

15 In a reasonable assurance engagement, the practitioner expresses the conclusion in:

A A negative form

B A positive form

C No form

D A limited form

16 Limited assurance is typically provided in:

A Statutory audits

B Review engagements

C Compilation engagements

D Tax preparation

17 The three-party relationship in an assurance engagement includes:

A Practitioner, responsible party, and users

B Only practitioner and users

C Only responsible party and users

D Practitioner and responsible party only

18 Suitable criteria in an assurance engagement must be:

A Relevant, complete, reliable, neutral, and understandable

B Only relevant and reliable

C Financial only

D Set by the practitioner

19 Assurance engagements can cover:

A Only historical financial information

B Future-oriented information like forecasts

C Only non-financial information

D None of the above

20 The report in an assurance engagement is:

A Verbal

B Written in an appropriate form

C Optional

D Always positive

21 Negative assurance is expressed as:

A “In our opinion, the statements are true and fair.”

B “Nothing has come to our attention that causes us to believe the statements are not true and fair.”

C “The statements are not true and fair.”

D No opinion

22 Positive assurance is typically given in:

A Review engagements

B Agreed-upon procedures

C Audits

D Compilations

23 The demand for assurance arises due to:

A Remoteness between users and accountable party

B Complexity of information

C Potential bias

D All of the above

24 An audit is a type of:

A Reasonable assurance engagement

B Limited assurance engagement

C Non-assurance engagement

D Compilation

25 Which is NOT a benefit of assurance?

A Increases credibility

B Reduces risk

C Provides absolute guarantee

D Assists decision-making

26 In which engagement is no assurance provided?

A Audit

B Review

C Compilation

D Attestation

27 The subject matter of an assurance engagement can be:

A Financial performance

B Non-financial performance

C Systems and processes.

D All of the above

28 Evidence in assurance engagements must be:

A Sufficient and appropriate

B Only sufficient

C Only appropriate

D None

29 Is the following statement true or false? “Audits provide absolute assurance.”

A True

B False

30 Which level of assurance is higher: reasonable or limited?

A Reasonable

B Limited

C Both same

D Neither

31 An example of negative assurance is:

A “The forecast is properly prepared.”

B “No unreasonable assumptions noted.”

C “True and fair view.”

D “Material misstatement free.”

32 The responsible party is:

A The one who prepares the subject matter information

B The practitioner

C The user

D The regulator

33 Users of assurance reports include:

A Shareholders

B Lenders

C Regulators

D All of the above

34 Criteria for financial statements assurance are typically:

A IFRS or local GAAP

B Management’s choice.

C Practitioner’s standards

D None

35 Assurance can be provided on:

A Greenhouse gas emissions

B Only profits

C Only assets

D None

36 The practitioner’s role is to:

A Prepare the information

B Provide assurance on the information

C Use the information

D Regulate the information

37 Limitations of assurance include:

A Use of testing

B Inherent limitations of internal controls

C Judgment in gathering evidence

D All of the above

38 Is the following an assurance engagement? “Preparing financial statements without opin-ion.”

A Yes

B No

39 The audit opinion is expressed on:

A Whether financial statements are prepared in accordance with framework

B Future viability

C Efficiency

D None

40 Reasonable assurance means:

A High but not absolute level

B Moderate level

C Low level

D Zero level

41 Limited assurance means:

A Moderate level

B High level

C Absolute

D None

42 In a review, the conclusion is usually:

A Negative assurance

B Positive assurance

C No assurance

D Absolute

43 Which is NOT an element?

A Four-party relationship

B Subject matter

C Criteria

D Evidence

44 Assurance enhances:

A Confidence in the information

B Profits

C Sales

D None

45 The definition of assurance engagement per IFAC is:

A An engagement where practitioner aims to obtain evidence to express conclusion to enhance confidence

B Preparation of accounts

C Tax advice

D Consulting

46 Direct reporting engagements involve:

A Practitioner measuring the subject matter

B Responsible party measuring

C Users measuring

D None

47 Attestation engagements involve:

A Responsible party making assertion.

B Practitioner making assertion

C No assertion

D None

48 Is assurance only for external users?

A No, can be internal

B Yes

49 An example of non-financial assurance is:

A Sustainability report review

B Only financial audit

C Tax return

D None

50 The primary purpose of an audit is to provide:

A Reasonable assurance on financial statements

B Advice on improvements

C Detect all fraud

D Prepare statements

Part 2: Answers with Explanations

1 D

Explanation: The five elements of an assurance engagement, as defined by the

Interna-tional Framework for Assurance Engagements, are: (1) a three-party relationship (prac-titioner, responsible party, and intended users), (2) subject matter, (3) suitable criteria, (4) sufficient and appropriate evidence, and (5) a written report Option D incorrectly describes the three-party relationship by listing only the responsible party, users, and subject matter, omitting the practitioner, which is a critical component This makes it an invalid element

2 B

Explanation: Assurance engagements provide either reasonable assurance (high level)

or limited assurance (moderate level), which can be expressed in positive or negative forms Absolute assurance is not possible due to inherent limitations such as sampling, judgment, and the possibility of fraud or error These limitations mean auditors cannot guarantee 100% accuracy, making absolute assurance an invalid level

3 A

Explanation: For (1), the statement “true and fair estimate” is a positive assurance, as

it directly affirms the reliability of the insurance claim, typical in audits or attestation engagements For (2), “no assumptions that appear unreasonable” is negative assurance,

indicating that the practitioner found no evidence to contradict the forecasts reasonable-ness, typical in review engagements where less extensive procedures are performed

4 B

Explanation: Assurance engagements are not limited to financial measures They can

cover non-financial subject matters like sustainability reports, compliance with regula-tions, or operational performance For example, assurance can be provided on greenhouse gas emissions or internal control systems, demonstrating the broad scope of assurance engagements

5 A

Explanation: An audit is defined as an independent examination of financial statements

by an appointed auditor to express an opinion on whether they are free from material misstatement and comply with the applicable financial reporting framework (e.g., IFRS) Option A captures this precisely Other options either oversimplify or misstate the audits purpose, such as implying a guarantee of truth or focusing only on negative findings

6 E

Explanation: All listed activities involve providing assurance on specific subject matters,

whether financial (e.g., university financial statements) or non-financial (e.g., sweep-stakes prizes, circulation data, golf ball performance) Each requires evaluating evidence against criteria to enhance user confidence, fitting the definition of an assurance engage-ment

7 B

Explanation: In an attestation engagement, the practitioner evaluates a

management-prepared assertion (e.g., financial statements or claims) and provides a conclusion on its reliability Compilation, tax preparation, and expert testimony do not involve provid-ing assurance, as they focus on preparation or factual reportprovid-ing without an assurance opinion

8 A

Explanation: The AICPA defines the purpose of a financial statement audit as enhancing

the confidence of intended users by providing an independent opinion on the reliability

of the financial statements While expressing an opinion on fairness (B) is part of the process, A is broader and captures the ultimate goal Options C and D are incorrect as they misstate the standards or scope

9 B

Explanation: Audits reduce information risk, which is the risk that financial statements

are misleading or incorrect This enhances investor confidence Business risk (A) relates

to operational or market risks, not the audits focus Audits do not directly address com-plexity (C) or timeliness (D)

10 B

Explanation: Review engagements provide limited assurance (moderate level) through

less extensive procedures than an audit The conclusion is expressed negatively, e.g.,

“nothing has come to our attention,” indicating no evidence of material issues was found, unlike the positive assurance of an audit

11 D

Explanation: Preparation of financial statements is a non-assurance service, as it involves