Chapter 5 acca f8 the auditors report mcqs

ACCA AA Chapter 5: The Auditors Report - Practice Exam

(50 Questions)

Part 1: Questions

1 Which of the following statements regarding the auditor’s report and audit opinion is true?

A The audit opinion is part of the auditor’s report

B The auditor’s report is the same as the audit opinion

C The auditor’s report is part of the audit opinion

D The auditor’s report is part of the financial statements

2 Which of the following is NOT part of the financial statements on which an auditor

reports?

A Notes to the financial statements

B Statement of financial position

C Cash flow statement

D Directors’ report

3 Which of the following statements regarding materiality is true, in accordance with ISA

320 "Materiality in Planning and Performing an Audit"?

A Materiality levels are the same for all amounts in the financial statements

B Performance materiality is set at a lower level than materiality for the financial statements

C The most appropriate measure of materiality is 1% to 2% of revenue

D Performance materiality is set at a higher level than materiality for the financial statements

4 Which of the following is NOT implied by an unmodified audit opinion in an auditor’s

report?

A No frauds occurred in the financial period

B All transactions have been recorded and are reflected in the financial statements

C Management provided the auditor with all relevant information

D The financial statements have been prepared in accordance with the applicable fi-nancial reporting framework

5 On which of the following does the determination of materiality primarily depend?

A The size of errors (quantitative factors) only

B The nature of errors (qualitative factors) only

C Both the size and nature of errors

D Management’s consideration of the financial information needs of users

6 Which of the following would NOT be found in an auditor’s report with an unmodified

audit opinion?

A Details about materiality levels

B An explanation of management’s responsibilities with respect to the financial state-ments

C A statement that the audit provides only reasonable assurance

D A statement that the audit has been conducted in accordance with International Standards on Auditing

7 A matter is material if it:

A Is more than 5% of profit

B A shareholder or provider of loan finance believes it to be material

C Would reasonably be expected to influence the economic decisions of users

D A member of the audit team believes it to be material

8 Which of the following statements about the presentation of sections in the auditor’s report is correct?

A An ’Emphasis of matter’ section is presented before the ’Basis of opinion’ section

B A section headed ’Qualified opinion’ is presented before a ’Basis for qualified opin-ion’ section

C A section headed ’Basis of opinion’ is presented after the ’Qualified opinion’ sec-tion

D A section headed ’Basis of opinion’ is presented before the ’Opinion’ section

9 The auditors report is addressed to:

A The board of directors

B The shareholders

C The audit committee

D The chief executive officer

10 An unmodified audit opinion indicates that the financial statements:

A Are completely free of errors

B Are free of material misstatement

C Guarantee future viability

D Are prepared by the auditor

11 According to ISA 700, the auditors report must include:

A A detailed list of audit procedures

B A statement on the auditors responsibilities

C Managements financial projections

D A guarantee of no fraud

12 A qualified opinion is issued when:

A The financial statements are free of material misstatement

B There is a material misstatement that is not pervasive

C The auditor provides non-audit services

D The financial statements are completely accurate

13 An emphasis of matter paragraph is used to:

A Modify the audit opinion

B Highlight a significant uncertainty without modifying the opinion

C Disclose audit procedures

D Indicate a material misstatement

14 Performance materiality is used to:

A Set the overall materiality level

B Reduce the risk of undetected misstatements

C Determine the audit opinion

D Assess managements responsibilities

15 Which of the following is included in the Basis for Opinion section?

A A statement on auditor independence

B Details of material misstatements

C Managements responsibilities

D Audit procedures performed

16 An adverse opinion is issued when:

A Misstatements are material but not pervasive

B Misstatements are material and pervasive

C The auditor lacks sufficient evidence

D The financial statements are free of errors

17 A disclaimer of opinion is issued when:

A The auditor finds a material misstatement

B The auditor cannot obtain sufficient audit evidence

C The financial statements are free of errors

D The auditor provides non-audit services

18 The auditors responsibilities include:

A Preparing the financial statements

B Obtaining reasonable assurance about the financial statements

C Guaranteeing no fraud

D Setting company strategy

19 Materiality is determined based on:

A The auditors personal judgment only

B Quantitative and qualitative factors

C Managements preferences

D Fixed percentages of profit

20 The Opinion section of the auditors report includes:

A The auditors conclusion on the financial statements

B A detailed list of audit procedures

C Managements responsibilities

D The materiality threshold

21 Which of the following is a key audit matter (KAM)?

A Routine audit procedures

B Significant risks identified during the audit

C Managements financial projections

D The auditors fee structure

22 The auditors report must be:

A Verbal

B Written

C Optional

D Confidential

23 An emphasis of matter paragraph is included:

A To modify the audit opinion

B To highlight a matter without modifying the opinion

C To disclose audit fees

D To list audit procedures

24 Which standard governs the format of the auditors report?

A ISA 320

B ISA 700

C ISA 701

D ISA 315

25 A material misstatement is one that:

A Is insignificant to users

B Could influence economic decisions of users

C Is less than 5% of profit

D Is identified by management

26 The Auditors Responsibilities section includes:

A A statement on obtaining reasonable assurance

B A list of all audit procedures

C Managements responsibilities

D Financial statement preparation

27 Which of the following requires a modified audit opinion?

A A significant uncertainty

B A material misstatement

C An emphasis of matter

D Key audit matters

28 The auditors report is prepared in accordance with:

A Managements policies

B International Standards on Auditing

C Company law only

D Shareholder directives

29 Performance materiality is set to:

A Ensure all errors are detected

B Reduce the risk of undetected misstatements

C Match overall materiality

D Guarantee no fraud

30 Which section of the auditors report describes the scope of the audit?

A Opinion

B Basis for Opinion

C Auditors Responsibilities

D Key Audit Matters

31 An unmodified opinion is also known as:

A A qualified opinion

B A clean opinion

C An adverse opinion

D A disclaimer of opinion

32 Key audit matters are included in the auditors report for:

A All companies

B Public interest entities

C Small private companies

D Non-profit organizations

33 The auditors report includes a statement that the audit is conducted to:

A Guarantee no errors

B Obtain reasonable assurance

C Prepare financial statements

D Assess company strategy

34 A qualified opinion indicates:

A No misstatements

B Material but not pervasive misstatements

C Pervasive misstatements

D Insufficient evidence

35 The Basis for Opinion section includes:

A A statement on auditor independence

B A list of audit procedures

C Managements responsibilities

D Material misstatements

36 An adverse opinion indicates:

A Material and pervasive misstatements

B Material but not pervasive misstatements

C Insufficient evidence

D No misstatements

37 A disclaimer of opinion indicates:

A Material misstatements

B Insufficient audit evidence

C No misstatements

D A significant uncertainty

38 Materiality levels are set based on:

A Fixed percentages only

B The auditors professional judgment

C Managements instructions

D Shareholder preferences

39 The auditors report must include:

A A statement on compliance with ISAs

B A detailed list of misstatements

C Managements financial projections

D The auditors fee structure

40 An emphasis of matter paragraph is used when:

A The audit opinion is modified

B A significant matter needs highlighting

C The auditor lacks evidence

D The financial statements are free of errors

41 Which standard governs key audit matters?

A ISA 320

B ISA 700

C ISA 701

D ISA 315

42 The auditors report is signed by:

A The audit committee

B The engagement partner

C The board of directors

D The chief executive officer

43 Materiality is influenced by:

A Only quantitative factors

B Only qualitative factors

C Both quantitative and qualitative factors

D Managements preferences only

44 The auditors report includes a section on:

A Managements Responsibilities

B Audit Procedures

C Financial Projections

D Company Strategy

45 A modified opinion is issued when:

A The financial statements are free of errors

B There are material misstatements or insufficient evidence

C The auditor provides non-audit services

D The financial statements are prepared by the auditor

46 The auditors report is intended to:

A Prepare financial statements

B Enhance user confidence in financial statements

C Guarantee no fraud

D Set company strategy

47 Performance materiality is:

A Higher than overall materiality

B Equal to overall materiality

C Lower than overall materiality

D Unrelated to overall materiality

48 The Key Audit Matters section is required for:

A All audits

B Public interest entities

C Small private companies

D Non-profit organizations

49 The auditors report must state that the audit provides:

A Absolute assurance

B Reasonable assurance

C Limited assurance

D No assurance

Part 2: Answers with Explanations

1 A

Explanation: The audit opinion is a key component of the auditors report, which includes

various sections such as the opinion, basis for opinion, and responsibilities The auditors report is not the same as the opinion (B), nor is it part of the opinion (C) or the financial statements (D)

2 D

Explanation: The financial statements include the statement of financial position (B),

cash flow statement (C), and notes (A) The directors report (D) is a separate document and not part of the financial statements audited

3 B

Explanation: Per ISA 320, performance materiality is set at a lower level than overall

materiality to reduce the risk of undetected misstatements Materiality levels vary (A), revenue percentages are not mandatory (C), and performance materiality is not higher (D)

4 A

Explanation: An unmodified audit opinion implies that the financial statements are

pre-pared in accordance with the applicable framework (D), management provided neces-sary information (C), and transactions are recorded (B) It does not guarantee no fraud occurred (A), as audits provide reasonable, not absolute, assurance

5 C

Explanation: Materiality depends on both the size (quantitative) and nature (qualitative)

of errors, as they influence users economic decisions Quantitative (A) or qualitative (B) factors alone are insufficient, and managements consideration (D) is not the primary factor

6 A

Explanation: An unmodified auditors report includes managements responsibilities (B),

a statement on reasonable assurance (C), and compliance with ISAs (D) Details about materiality levels (A) are not included, as they are part of planning, not reporting

7 C

Explanation: Per ISA 320, a matter is material if it could reasonably influence users

economic decisions based on the financial statements Fixed percentages (A), individual beliefs (B, D) are not the sole criteria for materiality

8 D

Explanation: Per ISA 700, the Basis for Opinion section is presented before the Opinion

section in an auditors report The Emphasis of Matter follows the opinion (A), and a Qualified Opinion follows the Basis for Qualified Opinion (B, C)

9 B

Explanation: The auditors report is addressed to the shareholders, as they are the primary

users of the financial statements The board (A), audit committee (C), or CEO (D) are not the intended recipients

10 B

Explanation: An unmodified opinion indicates the financial statements are free of

mate-rial misstatement, not completely error-free (A), guaranteeing viability (C), or prepared

by the auditor (D)

11 B

Explanation: ISA 700 requires the auditors report to include a statement on the auditors

responsibilities Audit procedures (A), projections (C), or fraud guarantees (D) are not included

12 B

Explanation: A qualified opinion is issued when there is a material but not pervasive

misstatement Free statements (A, D) result in an unmodified opinion, and non-audit services (C) are unrelated

13 B

Explanation: An emphasis of matter paragraph highlights a significant uncertainty

with-out modifying the opinion It does not modify the opinion (A), disclose procedures (C),

or indicate misstatements (D)

14 B

Explanation: Performance materiality reduces the risk of undetected misstatements by

setting a lower threshold than overall materiality It does not set materiality (A), deter-mine opinions (C), or assess responsibilities (D)

15 A

Explanation: The Basis for Opinion section includes a statement on auditor independence

and compliance with ethical requirements Misstatements (B), managements responsibil-ities (C), and procedures (D) are in other sections

16 B

Explanation: An adverse opinion is issued when misstatements are material and

perva-sive, affecting the overall reliability of the financial statements Non-pervasive misstate-ments (A) lead to a qualified opinion, insufficient evidence (C) leads to a disclaimer, and error-free statements (D) lead to an unmodified opinion

17 B

Explanation: A disclaimer of opinion is issued when the auditor cannot obtain sufficient

audit evidence, preventing an opinion Misstatements (A) lead to qualified or adverse opinions, error-free statements (C) lead to unmodified opinions, and non-audit services (D) are unrelated

18 B

Explanation: The auditors responsibilities include obtaining reasonable assurance about

the financial statements Preparing statements (A), guaranteeing no fraud (C), or setting strategy (D) are not auditor duties

19 B

Explanation: Materiality is determined using both quantitative (e.g., size) and qualitative

(e.g., nature) factors, based on professional judgment, not just auditor judgment (A), management (C), or fixed percentages (D)

20 A

Explanation: The Opinion section contains the auditors conclusion on the financial

state-ments Procedures (B), responsibilities (C), and materiality (D) are in other sections

21 B

Explanation: Key audit matters (KAMs) are significant risks or areas requiring

signifi-cant judgment, per ISA 701 Routine procedures (A), projections (C), or fees (D) are not KAMs

22 B

Explanation: The auditors report must be written, as per ISA 700, to communicate

find-ings formally It is not verbal (A), optional (C), or confidential (D)

23 B

Explanation: An emphasis of matter paragraph highlights a significant matter without

modifying the opinion It does not modify the opinion (A), disclose fees (C), or list procedures (D)

24 B

Explanation: ISA 700 governs the format and content of the auditors report ISA 320 (A)

covers materiality, ISA 701 (C) covers KAMs, and ISA 315 (D) covers risk assessment

25 B

Explanation: A material misstatement could influence users economic decisions, per ISA

320 It is not necessarily insignificant (A), tied to fixed percentages (C), or identified by management (D)

26 A

Explanation: The Auditors Responsibilities section includes a statement on obtaining

reasonable assurance Procedures (B), managements responsibilities (C), and preparation (D) are not included here

27 B

Explanation: A modified opinion is issued for material misstatements or insufficient

ev-idence Uncertainties (A) may lead to emphasis of matter, and KAMs (D) do not modify the opinion

28 B

Explanation: The auditors report is prepared in accordance with ISAs, ensuring

con-sistency and quality Management policies (A), company law alone (C), or shareholder directives (D) are not sufficient

29 B

Explanation: Performance materiality reduces the risk of undetected misstatements by

setting a lower threshold It does not detect all errors (A), match materiality (C), or guar-antee no fraud (D)

30 C

Explanation: The Auditors Responsibilities section describes the scope of the audit.

Opinion (A) states the conclusion, Basis for Opinion (B) addresses independence, and