51. Which of the following lists the five principal stages of an audit in the correct order?

A) Planning, obtaining the engagement, review, procedures, reporting
B) Engagement, planning, procedures, review and reporting
C) Reporting, planning, engagement, procedures and review
D) Procedures, planning, engagement, reporting and review

Correct: B difficult ISA 200

The stages of an audit are obtaining the engagement, planning, performing the procedures to obtain evidence, review, and reporting.

52. What is the overall objective of the auditor under ISA 200 in relation to misstatement?

A) To find every fraud and every error in the financial statements
B) To confirm that the internal controls are designed without any weakness
C) To obtain reasonable assurance of no material misstatement
D) To make sure that the directors have complied with the corporate governance code

Correct: C difficult ISA 200

The auditor's first objective is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, so as to express an opinion. The second is to report in accordance with the findings.

53. Which of the following would help to promote professional scepticism in an audit team?

A) A checklist approach to the audit procedures, to make sure that none is missed
B) Excessive trust in the explanations of client staff who have been honest before
C) Allocation of tasks to staff who have little experience of the audit work
D) A firm culture that stresses scepticism and difficult audit judgements

Correct: D difficult ISA 200

Factors that facilitate scepticism include relevant skills, open-mindedness, independence, confidence to challenge management, knowledge of the client, training, review procedures and a firm culture emphasising scepticism. The other options hinder it.

54. The auditor of Gazipur Textiles Ltd finds that the aged receivables report was produced by new software. What should the auditor remember about automation bias?

A) Output from automated processes may be wrong and must not be assumed correct
B) Output from automated processes is more reliable than a report made by hand
C) Output from software can be accepted if the client IT staff have approved it
D) Output from automated systems needs no testing if the software is well known

Correct: A difficult ISA 200

Automation bias is the tendency to favour suggestions from automated systems and ignore contradictory information. Automated processes can be configured incorrectly, may not be tested sufficiently and can fail, so scepticism is needed.

55. A Gazipur garment factory discharges untreated waste into a river, and a water shortage threatens its production. How are these matters described in sustainability terms?

A) Both are sustainability impacts, as each one involves the environment
B) The discharge is an impact, and the water shortage is a dependency
C) The discharge is a dependency, and the water shortage is an impact
D) Both are dependencies, because each one relates to a natural resource

Correct: B difficult ISSB

Sustainability impacts are how the business affects environmental, societal and governance issues, such as emissions and waste. Dependencies are ESG issues that can affect the organisation's ability to create and maintain value, such as resource availability.

56. How does ESG differ from sustainability according to the workbook?

A) ESG covers the whole planet, while sustainability covers only the company
B) ESG covers only governance issues, while sustainability covers all other issues
C) ESG focuses on enterprise value; sustainability on planet and societies
D) ESG applies only to listed companies, while sustainability applies to all companies

Correct: C difficult ISSB

Sustainability focuses on the impact on the entire planet and all its societies, whereas ESG focuses only on enterprise value and the ESG-related impacts and dependencies relevant to an organisation.

57. IFRS S1 and IFRS S2 apply to annual reporting periods beginning on or after 1 January 2024. A company has a 1 July to 30 June year. For which year does it first have to apply them?

A) The year ended 30 June 2024
B) The year ended 31 December 2024
C) The year beginning 1 July 2023
D) The year ended 30 June 2025

Correct: D complex IFRS S1 and IFRS S2

The year beginning 1 July 2023 started before 1 January 2024, so it is outside the effective date. The first period beginning on or after that date is 1 July 2024 to 30 June 2025.

58. What is climate scenario analysis?

A) Considering plausible climate scenarios, with the risks and responses
B) Testing the statements of past years for the effect of weather on revenue
C) Estimating the carbon emissions of the company for the most recent year only
D) Reporting climate matters to the government in the form that the law requires

Correct: A difficult IFRS S2

Climate scenario analysis is where an organisation considers plausible future scenarios involving climate change. Risks and opportunities are identified for each scenario and potential responses are considered to mitigate the risks.

59. Which of the following is an opportunity that climate change may create for a business?

A) Damage to a warehouse caused by flooding of the area during the monsoon
B) A motor company's electric vehicles with a better range win market share
C) A rise in the price of energy which increases the cost of production
D) A new law that requires disclosure of the emissions of the company

Correct: B difficult IFRS S2

Physical and transition opportunities can arise from climate change as well as risks. An example is the move to electric vehicles, which creates the opportunity to gain market share if a company's technology is better than its competitors'.

60. Which of the following is an inherent limitation of assurance engagements?

A) The practitioner always chooses to examine only a few items out of many
B) The report must contain every judgement the practitioner reached in the work
C) Reliance on information from the responsible party that cannot be verified
D) The practitioner is never able to obtain evidence from third parties outside

Correct: C difficult IFAC International Framework for Assurance Engagements

Limitations of assurance include reliance on the responsible party and its staff for information that may be impossible to verify by other means, uncertainty in estimates, and the limits of the report itself, as not every judgement can be included.

61. A surveyor is allowed to inspect only part of a house sold to a buyer. What level of assurance can the surveyor give?

A) Limited assurance, as the evidence obtained is restricted
B) Reasonable assurance, as the surveyor is professionally qualified
C) Absolute assurance, as the owner has given a written statement
D) No assurance, since any restriction ends the engagement

Correct: A difficult ISAE 3000

The level of assurance depends on the evidence the practitioner can obtain. A surveyor given access to only part of the building can give only limited assurance, because sufficient evidence for a positive conclusion is not available.

62. What are the two key differences between reasonable and limited assurance engagements?

A) The fee charged and the number of staff on the team
B) The evidence obtained and the type of opinion given
C) The date of the report and the name of the practitioner
D) The subject matter and the identity of the responsible party

Correct: B difficult ISAE 3000

Reasonable assurance allows a positive conclusion, based on more evidence. Limited assurance involves a lower level of evidence and a conclusion expressed negatively.

63. Why can an assurance report not fully convey all the judgements the practitioner made?

A) The practitioner is not permitted to use judgement at all
B) The responsible party edits the report before it is sent out
C) Not every judgement made can be set out in it
D) The users have no interest in the practitioner's reasoning

Correct: C difficult ISAE 3000

One inherent limitation is that the nature of the assurance report itself is limiting, as every judgement and conclusion the practitioner has drawn cannot be included in it.

64. How does application and other explanatory material in an ISA compare with the requirements?

A) It is optional and may be ignored in every audit
B) It carries the same weight as the requirements in every case
C) It is relevant only to audits of listed companies
D) It is integral, but may not be relevant in every case

Correct: D difficult ISA 200

The application material is an integral part of an ISA, but does not carry the same weight as the requirements because it may not be relevant in every case. It is more concrete and practical.

65. In the generally accepted definitions, what does 'true' mean about financial statements?

A) They conform with reality and are correctly taken from the books
B) They reflect the commercial substance of the transactions and are free from bias
C) They show the highest profit that the law allows the company to report
D) They have been approved by the shareholders at the annual meeting

Correct: A difficult ISA 700

True means information is factual and conforms with reality and with required standards and law, and the accounts have been correctly extracted from the books and records. Fair concerns freedom from bias and reflecting commercial substance.

66. Under ISA 200, the auditor must be alert to which of the following?

A) Evidence that confirms the explanations given by management
B) Contradictory evidence, or doubts over document reliability
C) Only matters that the client has asked the auditor to examine
D) Only the matters that were found in the audit of the prior year

Correct: B difficult ISA 200

Scepticism requires alertness to audit evidence that contradicts other evidence, information that questions the reliability of documents and responses, conditions that may indicate fraud, and circumstances needing procedures beyond those required.

67. How is professional judgement defined?

A) An attitude that includes a questioning mind
B) A check that the client has applied the rules without exception
C) Applying training, knowledge and experience to make decisions
D) A view reached by the partner alone with no input from the team

Correct: C difficult ISA 200

Professional judgement is the application of relevant training, knowledge and experience in making informed decisions about the courses of action appropriate in the circumstances of the engagement. Scepticism is the questioning attitude.

68. What is the effect of integrated ledgers in a computerised accounting system?

A) The auditor can no longer test the postings to the ledgers
B) The nominal ledger needs to be updated by hand for credit notes
C) The trial balance cannot be prepared until the year end
D) Posting is automatic, so ledgers need no reconciliation

Correct: D difficult ISA 315

In an integrated system, an entry in the receivables or payables ledger updates the nominal ledger automatically, so the checks for discrepancies between ledgers that a manual system needs are not required.

69. How do computerised systems usually produce the primary statements from the trial balance?

A) By mapping each account to a statement heading
B) By asking the auditor to select the headings
C) By re-entering every transaction a second time in full
D) By printing the nominal ledger in full

Correct: A difficult ISA 315

Most computerised systems automate the process by mapping the trial balance accounts to an appropriate statement of profit or loss or financial position heading, then running a report with notes and analysis.

70. What is the Brundtland Commission definition of sustainability?

A) Maximising profits for shareholders in the long term
B) Meeting present needs without harming future generations
C) Cutting all emissions of a company to zero by a given year
D) Reporting social data to the public each year in a set format

Correct: B difficult IFRS S1

The 1987 UN Brundtland Commission defined sustainability as meeting the needs of the present without compromising the ability of future generations to meet their own needs.

71. Which stakeholder need for assured sustainability information is described in the workbook?

A) Competitors want to copy the company's internal data
B) Auditors want to replace the need for a management report
C) Employees want confidence in systems and target progress
D) Customers want the company to publish its full pricing policy

Correct: C difficult ISAE 3000

Stakeholders needing credible sustainability information include financial markets, government, employees (confidence in systems and progress against targets), specialists such as analysts and rating agencies, business partners and communities.

72. In the IFAC sustainability building blocks, which group is block one tailored to?

A) Investors
B) Employees only
C) Civil society only
D) Local communities only

Correct: A difficult IFAC

Block one is tailored towards the needs of investors, and block two towards broader stakeholders such as consumers, civil society and employees, because different groups view sustainability through different lenses.

73. What is an assurance professional expected to do about ESG performance data and targets?

A) Set the targets on behalf of the directors of the company
B) Interpret results against targets, noting the bases used
C) Publish the performance data on the company's behalf
D) Ignore results that are not in the same units

Correct: B difficult IFRS S1

Assurance experts may be asked to interpret ESG results against targets, which includes understanding the different bases used so the results can be compared and analysed, and to give relevant, reliable, comparable information.

74. Which four areas of Assurance does sustainability affect, according to the workbook?

A) Planning, procedures, review and reporting to the client
B) Income, expenses, assets and liabilities of the company
C) Risk management, assurance, governance, metrics, targets
D) Inherent risk, control risk, detection risk and audit risk

Correct: C difficult IFRS S1

Sustainability impacts the following four areas of Assurance: risk management, assurance, governance, and sustainability metrics and targets.

75. What was the intention in setting up the ISSB alongside the IASB?

A) To replace the IASB and issue all accounting standards
B) To audit the financial statements of listed companies
C) To regulate the conduct of professional accountants
D) To set a global baseline for sustainability disclosure

Correct: D difficult IFRS S1

The ISSB was established in 2020 to sit alongside the IASB and deliver a comprehensive global baseline of sustainability-related disclosure standards giving investors information on sustainability-related risks and opportunities.