26. The chief financial officer of Kushiyara Textiles Ltd, which has 3,000 minority shareholders and several bank loans, argues that an external audit is unnecessary because management knows the figures far better than any auditor. Which response best explains the need for the audit?

A) The auditor knows more about the business than management, so the audit corrects management's own understanding of the figures
B) Audit is needed only because the law requires it, so there is no economic reason for users to value the report
C) Audit exists to help management prepare more accurate statements, so its main users are the company's own directors
D) Outside users cannot see the records and managers may be biased, so independent assurance adds credibility

Correct: D difficult IAASB Framework for Assurance Engagements

The demand for assurance arises from information asymmetry and potential bias: shareholders and lenders cannot inspect the records, while managers may have incentives to present results favourably. An independent practitioner's conclusion increases the credibility of the information for those users, which also lowers the cost of capital. It does not depend on the auditor knowing more than management. The existence of a legal requirement does not remove the economic rationale, and the principal users are external, not the directors.

27. A client of Rajshahi & Co is told that a limited assurance review will involve 'half the testing of an audit'. The partner corrects this and explains the meaning of limited assurance under ISAE 3000 (Revised). Which explanation is correct?

A) Limited assurance means exactly half the evidence of reasonable assurance, so the work is simply an audit with half the sample sizes
B) Limited assurance is a meaningful level lower than reasonable assurance; procedures differ in nature, timing and extent
C) Limited assurance is below a meaningful level, so users should not rely on the conclusion in making any decisions
D) Limited assurance needs no evidence beyond management's representations, so the practitioner does not need to perform any other procedures

Correct: B difficult ISAE 3000 (Revised)

ISAE 3000 (Revised) describes limited assurance as a level where the engagement risk is reduced to a level acceptable in the circumstances, but greater than for reasonable assurance. The procedures are limited compared with those needed for reasonable assurance, yet must still be planned to obtain a meaningful level of assurance. It is not a fixed fraction of audit work, it is not below a meaningful level, and management representations alone can never support a conclusion.

28. Rajshahi Silk Mills Ltd states that its climate disclosures comply with ISSB standards, but it applies only IFRS S2 and treats IFRS S1 as optional guidance. Which statement is correct?

A) IFRS S2 sets climate-specific requirements and is applied together with IFRS S1, which gives the general requirements
B) IFRS S1 applies only to issues other than climate, so IFRS S2 can be applied alone for climate-related disclosures
C) IFRS S1 requires disclosure of every effect on society and the environment, even where enterprise value is not affected
D) IFRS S1 is optional guidance, so an entity may claim compliance with ISSB standards by applying IFRS S2 only

Correct: A difficult IFRS S1 and IFRS S2

IFRS S1 sets out the general requirements for disclosing material information about sustainability-related risks and opportunities, including governance, strategy, risk management and metrics and targets. IFRS S2 applies those requirements specifically to climate-related risks and opportunities and is to be applied with IFRS S1. Both focus on information that is useful to investors about enterprise value, not on every effect on society. IFRS S1 is a standard, not optional guidance, so claiming compliance with S2 alone is not appropriate.

29. Management of Sylhet Tea Estates Ltd has developed its own sustainability index and keeps the scoring rules confidential. The lenders, as intended users, want a practitioner to give assurance on the index under ISAE 3000 (Revised). What does the standard require about the criteria?

A) The criteria need only be known to the practitioner, because the lenders rely on the practitioner's conclusion and not on the rules
B) The criteria need only be made available to regulators, since they decide whether the published index is acceptable
C) The criteria may stay confidential if the practitioner has understood them, because users need only the final conclusion
D) The criteria must be available to the intended users, for example in the subject matter information or in the assurance report

Correct: D difficult ISAE 3000 (Revised)

One of the preconditions for accepting an assurance engagement under ISAE 3000 (Revised) is that the criteria are suitable and will be available to the intended users. Availability can be achieved by publishing them, describing them clearly in the subject matter information or including them in the assurance report. Users cannot understand the conclusion without knowing the basis on which the subject matter was measured. Confidential criteria known only to the practitioner or management fail this precondition.

30. At a meeting, Alam & Co tells the lenders of Bhairab Foods Ltd orally that its limited assurance work on the company's energy statement found nothing wrong, and proposes to issue no report. Which statement is correct under ISAE 3000 (Revised)?

A) An oral conclusion is acceptable if the lenders agree, because the level of assurance is limited and cost matters
B) A short email summarising the procedures performed, with no conclusion, satisfies the reporting requirement
C) The practitioner must give a written report containing the conclusion; an oral statement alone is not enough
D) A written report is required only for reasonable assurance engagements, so limited assurance may be reported orally

Correct: C complex ISAE 3000 (Revised)

ISAE 3000 (Revised) requires the practitioner to provide a written report containing a conclusion that addresses the subject matter information, for both reasonable and limited assurance engagements. The written report states the level of assurance, the criteria, the basis for the conclusion and the other required elements. An oral statement or a summary of procedures without a conclusion does not meet the requirement, and the lenders' agreement cannot waive it.

31. Al-Amin & Co is engaged to report whether the access controls over the customer database of Chattogram Cables Ltd operated effectively throughout the year. Into which category does the subject matter of this assurance engagement fall?

A) Data, because it consists of figures and information held in the company's records
B) Behaviour, because it concerns how the company's staff act and treat customers
C) Systems or processes, because it concerns how internal controls are designed and operate
D) Criteria, because the access controls are the standard the practitioner will judge against

Correct: C difficult IFAC International Framework for Assurance Engagements

The subject matter of an assurance engagement is normally data (such as financial statements), systems or processes (such as internal control or computer systems) or behaviour (such as governance or social performance). Access controls are part of a system or process. The criteria are the benchmark used to judge the subject matter, which is a separate element.

32. Padma Bank PLC asks a practitioner to report whether its board has behaved in line with good governance during the year. Which of the following would be suitable criteria for this engagement?

A) The corporate governance code, or the bank's own published code of practice if it has one
B) The practitioner's own view of how a well-run board ought to behave in the circumstances
C) The directors' opinion of how well they have performed as a board during the year
D) The board minutes for the year, which record the discussions that took place at meetings

Correct: A difficult IFAC International Framework for Assurance Engagements

Where the subject matter is behaviour, suitable criteria may be the corporate governance code or the company's published code of practice. Criteria must exist independently of the preparer and the practitioner so that the practitioner has something by which to judge whether the information can be trusted. Personal views and the directors' own opinions are not suitable benchmarks, and minutes are evidence, not criteria.

33. A practitioner is engaged to report on the inventory records of six tea gardens owned by Sylhet Estates Ltd, but management allows access to only two gardens. Which statement best explains why the practitioner can give only limited assurance?

A) The practitioner has chosen a negative form of words, which automatically reduces the evidence needed
B) The user of the report has asked for a lower level of confidence than the full engagement would give
C) Limited assurance is always given when the responsible party is a private company rather than a listed company
D) The level of assurance depends on the evidence that can be obtained, and partial access limits that evidence

Correct: D difficult IFAC International Framework for Assurance Engagements

The level of assurance that can be given depends on the evidence the practitioner is able to obtain, like a surveyor who can only inspect part of a building. The wording follows from the evidence, not the other way round, and the type of entity does not decide the level.

34. Which of the following conclusions on a statement by the Chair is consistent with a limited assurance engagement?

A) In my opinion, the statement by the Chair is reasonable in all material respects, based on the evidence obtained
B) Nothing has come to my attention to indicate that the statement by the Chair is unreasonable
C) In my opinion, the statement by the Chair is true and fair in all respects, having been fully verified
D) I guarantee that the statement by the Chair is free from any error or omission of any kind at all

Correct: B difficult IFAC International Framework for Assurance Engagements

Limited assurance is expressed negatively: after seeking evidence, nothing has come to the practitioner's attention indicating a problem. This implies that matters could exist which the practitioner has not found. Positive wording of the opinion is used for reasonable assurance, and no engagement gives an absolute guarantee.

35. Hoque & Co receives four requests from clients. Which one is an assurance engagement in which the firm will express a conclusion on the reliability of information?

A) Posting a client's monthly transactions into its accounting software and balancing the ledgers
B) A report on the security of a client's website, similar to a WebTrust report
C) Preparing a client's annual tax return from the records and information it supplies
D) Writing up the financial statements from the client's trial balance and supporting schedules

Correct: B difficult IFAC International Framework for Assurance Engagements

Reports on website security such as WebTrust are listed as assurance engagements, as are due diligence reports, value for money studies and reports on environmental metrics. Bookkeeping, tax return preparation and drafting accounts do not involve a conclusion that enhances the confidence of users in subject matter prepared by someone else.

36. The finance staff of Rupsha Agro Ltd become more careful with the sales records after the managing director announces that an independent practitioner will review them every quarter. Which benefit of assurance does this illustrate?

A) Additional confidence for related parties such as the bank who are not the addressee
B) An independent professional opinion that is available to the users of the information
C) A conclusive judgement on estimates, because the practitioner has reviewed them
D) A deterrent effect that reduces the chance of error, fraud and management bias

Correct: D difficult IFAC International Framework for Assurance Engagements

The existence of an independent check may make those preparing the subject matter more careful and so deter errors, fraud and bias. The other benefits are real but do not describe a change in the behaviour of the preparers. Judgements on estimates can never be conclusive.

37. A director of Karnaphuli Metals Ltd says that because the accounts are audited, every figure in them is proved to be correct. Which inherent limitation of assurance does this misunderstand?

A) Most audit evidence is persuasive rather than conclusive, so absolute assurance cannot be given
B) Auditors must test every transaction, which makes the audit too slow to be useful to users
C) Auditors are permitted to rely on the opinions of management without any corroboration at all
D) The auditor's report contains every judgement made, so users can reach their own conclusion

Correct: A difficult ISA 200

Assurance can never be absolute because testing and sampling are used, most evidence is persuasive rather than conclusive, estimates are uncertain, and judgements are subjective. Auditors do not test every item, and the report cannot include every judgement made, which is itself a limitation.

38. Which action is designed to narrow the expectations gap between what practitioners do and what users believe they do?

A) Testing every transaction so that the user can be sure that no error remains in the subject matter, whatever the cost
B) Removing the references to limitations from the report so that it reads more clearly and simply for the user
C) Issuing an engagement letter that explains the work and its limits, and reviewing report formats regularly
D) Giving directors a letter that guarantees the financial statements are free from fraud and any material error

Correct: C difficult ISA 200

The expectations gap arises when users do not understand the limitations of assurance. It is narrowed by explaining the work and its limits, for example in the engagement letter, and by reviewing the content and format of reports. Hiding limitations or promising guarantees would widen the gap.

39. On the audit of Barisal Rice Mills Ltd, which feature of the audit team would most hinder professional scepticism?

A) Following a checklist of procedures without a deeper interest in how the business works
B) Partners and managers who lead the team and are available to staff during the audit
C) Training in the rice milling industry before the team begins the assignment
D) A firm culture that values making difficult audit judgements and challenging management

Correct: A difficult ISA 200

Hindering factors include excessive trust in the client, timidity, lack of experience for the tasks allocated, and a checklist approach to procedures in place of a fundamental interest and understanding. The other three are listed as facilitating scepticism.

40. Under ISA 200, in which of the following does the auditor have to exercise professional judgement?

A) Deciding which relevant requirements of an ISA the audit team may leave out
B) Choosing which ethical requirements are convenient for the firm to follow
C) Evaluating whether sufficient appropriate audit evidence has been obtained
D) Deciding whether management should be responsible for preparing the statements

Correct: C difficult ISA 200

ISA 200 requires professional judgement on materiality and audit risk, the nature, timing and extent of procedures, whether sufficient appropriate evidence has been obtained, management's judgements in applying the framework, and the conclusions drawn from the evidence. Relevant requirements and ethical requirements are not optional.

41. The accounts of Gazipur Furniture Ltd agree to the books and comply with every accounting rule, but a sale and lease back is shown as a sale even though the company keeps using and controlling the asset. Which element of the audit opinion is most in doubt?

A) True, because the accounts were not correctly extracted from the books and records
B) Fair, because the accounts must reflect the commercial substance of the transactions
C) True, because information that conforms with standards and law can never be misleading
D) Fair, because the accounts must always agree to the supplier statements held

Correct: B difficult ISA 200

The accounts agree to the books and follow the rules, so the facts and extraction are in order. Fair means free from bias and reflecting the commercial substance of the transactions, which a sale that is in substance a financing may not do.

42. A junior auditor says the application material of an ISA can be ignored, because only the requirements matter. Which statement is correct?

A) Only the objectives of an ISA are mandatory, and the other sections are provided for general guidance only
B) Application material carries exactly the same weight as the requirements in every case, whatever the circumstances
C) Introductory material alone sets out what the auditor has to do in each audit, without the requirements
D) Requirements must be met to say the audit is in accordance with ISAs; application material explains how

Correct: D difficult ISA 200

ISAs contain introductory material, objectives, requirements, and application and other explanatory material. The requirements must be followed for an audit to be conducted in accordance with ISAs. The application material is an integral part of the ISA, more practical, and does not carry the same weight as the requirements because it may not be relevant in every case.

43. Under the Companies Act 1994 as described in the Workbook, who is ineligible to be auditor of Dhaka Retail Ltd?

A) A partner in a partnership in which an employee of Dhaka Retail Ltd is also a partner
B) An ICAB member with an appropriate qualification who has no link with Dhaka Retail Ltd
C) A firm controlled by qualified persons that has no link with the company or its directors
D) An individual registered with an Autonomous Regulatory Body under the rules of that body

Correct: A difficult Companies Act 1994

A person is ineligible if they are an officer or employee of the company, a partner or employee of such a person, or a partner in a partnership in which such a person is a partner. Qualified, registered persons and firms controlled by qualified persons are eligible if they have no such link.

44. A cement producer, Meghna Concrete Ltd, has a riverside plant flooded by an unusually severe monsoon, and also faces a new carbon levy on kiln emissions. How are these two climate risks classified?

A) The flood is a transition risk and the carbon levy is a physical risk
B) The flood is a physical risk and the carbon levy is a transition risk
C) Both are physical risks as both arise from the physical effects of climate change
D) Both are transition risks as both are linked to a move to a low carbon economy

Correct: B difficult IFRS S2

Physical risks arise from the physical effects of climate change such as storms, extreme temperatures and flooding. Transition risks arise from the shift to a low carbon economy, such as changes in policy, regulation, technology and markets. A carbon levy is a policy change.

45. Dhaka Power PLC discloses its greenhouse gas emissions and the targets it has set to reduce them. Under the TCFD methodology adopted by the ISSB standards, which element does this disclosure belong to?

A) Governance, which covers the oversight that the board and management have over climate-related matters
B) Strategy, which covers the actual and potential effects of climate risks on the entity's business and plans
C) Metrics and targets, which cover the measures used to assess and manage climate matters
D) Risk management, which covers how the entity identifies, assesses and manages its climate-related risks

Correct: C difficult IFRS S1 and IFRS S2

The TCFD methodology has four elements: governance, strategy, risk management, and metrics and targets. Reporting emissions and the targets for reducing them falls under metrics and targets.

46. Rahim is buying a flat in Dhaka from Karim and hires a surveyor to report on whether the building is structurally sound. Which party is the responsible party in this assurance engagement?

A) Karim, the seller of the flat
B) Rahim, who will rely on the report
C) The surveyor who inspects the building
D) The bank that may lend Rahim the money

Correct: A difficult IFAC International Framework for Assurance Engagements

The three parties are the intended user (the buyer), the responsible party (the owner or seller of the house) and the practitioner (the surveyor). The responsible party is the person responsible for the subject matter.

47. Jamal asks an accountant whether the latest financial statements of Company X are a reliable basis for his investment decision. Which are the subject matter and the criteria?

A) Subject matter: Jamal's investment; criteria: the accountant's own judgement
B) Subject matter: the financial statements; criteria: the law and standards
C) Subject matter: the directors; criteria: the opinion of Jamal and his advisers
D) Subject matter: the audit report; criteria: the engagement letter for the work

Correct: B difficult IFAC International Framework for Assurance Engagements

The financial statements are the subject matter, and the criteria are the framework against which they are judged, such as the law and accounting standards. Jamal is the intended user and the directors are the responsible party.

48. What is the objective of an audit of financial statements?

A) To guarantee that the financial statements are free from all fraud and error
B) To prepare financial statements which comply with the applicable framework
C) To express an opinion on their preparation in all material respects
D) To report to the directors on how the company could improve its operations

Correct: C difficult ISA 200

The objective of an audit of financial statements is to enable the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework.

49. What must the rules of an Autonomous Regulatory Body ensure about those eligible for appointment as company auditor under the Companies Act 1994?

A) That they are employees of the company which they are appointed to audit
B) That they are members of the board of the company for which they act
C) That they have been appointed by the Registrar of Joint Stock Companies
D) Qualified individuals, or firms controlled by qualified persons

Correct: D difficult Companies Act 1994

ARBs must have rules to ensure that those eligible for appointment are individuals holding an appropriate qualification or firms controlled by qualified persons. ARBs must also monitor their registered auditors regularly. ICAB is an ARB.

50. According to the workbook, what is the role of the Financial Reporting Council in Bangladesh in relation to audit?

A) It is the Competent Authority for audit and issues the auditing standards
B) It prepares the financial statements on behalf of companies that are audited
C) It appoints the auditor of every company registered under the Companies Act
D) It acts as the auditor of last resort for companies that cannot find one

Correct: A difficult Companies Act 1994

The FRC independently monitors the accountancy profession, sets standards for accounting and auditing, and has been designated as the Competent Authority for Audit, responsible for issuing auditing standards.