51. Which sources could a prospective auditor use to make independent enquiries about a client whose directors are not personally known?

A) The employees and the customers of the client
B) The bankers and the solicitors of the client
C) The shareholders who are also directors of the client
D) The competitors and the suppliers of the client

Correct: B difficult ISA 210

Independent enquiries can be made of other sources such as bankers and solicitors, and by reviewing the most recent accounts, listing particulars and credit rating, as well as inviting the previous auditors to disclose all relevant information.

52. How do the acceptance considerations for other assurance engagements compare with those for an audit?

A) They are identical, including the legal rules on eligibility for appointment
B) None of them applies, because only auditors have to consider acceptance
C) Legal audit rules do not apply but ethical, risk and practical ones do
D) Only the commercial questions apply, such as fees and the profit made

Correct: C difficult ISA 210

Similar considerations are required for any assurance engagement. The legal considerations that relate to audit are not relevant to other engagements, but the ethical, risk and practical considerations are just as valid.

53. Which information should an audit firm obtain to identify a company client for money laundering purposes?

A) The passport of the managing director of the company named
B) The latest audited financial statements and the tax return filed
C) The bank statements of the company and its list of main customers
D) Certificate of incorporation, address, shareholders and directors

Correct: D difficult Money Laundering Prevention Act 2012

For companies, the firm obtains legal information from the Registrar of Companies such as the certificate of incorporation, the registered address and a list of shareholders and directors. Passports are used for individuals.

54. Why does a first audit engagement letter normally not mention a specific fee, while one for a review of forecast information is likely to?

A) An audit recurs, so specific fees are not initially mentioned
B) Fees for an audit are fixed by the Companies Act 1994 for each size of company
C) Audit fees are settled by the shareholders at the annual general meeting alone
D) Fees for a review of forecasts are set by ICAB for every member firm

Correct: A difficult ISA 210

As an audit engagement is often recurring, specific fees are initially not mentioned, while an engagement letter for another assurance engagement is likely to refer to specific fees for the engagement.

55. Which of the following is NOT among the items that an audit engagement letter shall include?

A) The objective of the audit of financial statements
B) The basis on which fees are computed and billed
C) The reporting framework that applies to the statements
D) Management's duty to give the auditor unrestricted access to records

Correct: B difficult ISA 210

The items that shall be included are the objective and scope of the audit, the auditor's responsibility, the reporting framework, management's responsibilities including access, and the form of reports. Fees and billing arrangements are optional.

56. Which inherent limitation is normally drawn to the attention of the directors in the engagement letter?

A) The auditor is certain to find every error because every transaction is tested
B) The auditor is not allowed to use sampling for any part of the audit
C) Some material misstatements may remain undiscovered because of test nature
D) The auditor has no duty to report on matters the directors have disclosed

Correct: C difficult ISA 210

Because of the test nature of an audit and the inherent limitations of any accounting and internal control system, there is an unavoidable risk that some material misstatements may remain undiscovered. The directors cannot rely on the auditor finding all errors.

57. The engagement letter reminds the directors of sections 334 and 335 of the Companies Act 1994. What do these sections make an offence?

A) Failing to hold the annual general meeting within six months of the year end
B) Appointing an auditor who is also an officer or employee of the company
C) Paying the audit fee after the financial statements have been approved
D) Giving auditors false information, or failing to give it on request

Correct: D difficult Companies Act 1994

In connection with representations and information, the letter draws attention to the offence of recklessly or knowingly supplying false or misleading information to the auditors, and of failing promptly to provide information requested.

58. Which matter must the auditor consider and report on under the statutory responsibilities in the engagement letter?

A) Whether the company has kept adequate accounting records
B) Whether the directors have chosen the best accounting policies available
C) Whether the company has made the maximum profit possible for the year
D) Whether the directors have fulfilled their duty to the community

Correct: A difficult ISA 210

In arriving at the opinion the auditor considers whether adequate accounting records have been kept, whether the accounts agree with the records and returns, and whether all information and explanations needed have been obtained, and reports on any that are not satisfactory.

59. Which responsibility does the engagement letter place on the directors, not on the auditor?

A) Reporting on whether the financial statements give a true and fair view
B) Keeping adequate accounting records and safeguarding the assets
C) Considering whether other information is consistent with the statements
D) Sending a separate letter about significant deficiencies in controls

Correct: B difficult ISA 210

Directors are responsible for preparing financial statements, selecting suitable policies, keeping adequate accounting records, internal control, safeguarding assets and preventing and detecting fraud. The auditor reports on the statements and on deficiencies noticed.

60. After the auditors have issued their report, what does the engagement letter say about their responsibility?

A) They remain responsible for the statements until the next audit starts
B) They must check each month that the statements remain correct and fair
C) No further responsibility, but they expect to hear of material events
D) They must report to the shareholders on every event after the year end

Correct: C difficult ISA 210

Once the report is issued, the auditors have no further responsibility in relation to the financial statements for that year. They expect the directors to inform them of any material event between the report date and the date the statements are sent out.

61. Padma Tiles Ltd asks why its engagement letter states that the auditor expects written confirmation of management representations. What is the best answer?

A) To record management's representations in writing as audit evidence
B) To pass responsibility for the audit opinion to the directors of the company
C) To remove the need for the auditor to gather any other evidence on the matter
D) To let the directors change the opinion after the report has been signed

Correct: A difficult ISA 210

The letter records that the auditor will ask management to confirm representations in writing. That gives documentary support for what was said, but it never replaces other evidence and never moves responsibility for the opinion from the auditor.

62. Meghna Packaging Ltd's engagement letter includes the client's agreement to supply information in time for the audit to be completed to the proposed timetable. What is the main purpose of this term?

A) To fix the audit fee regardless of the hours that the auditor actually works
B) To allow the audit to finish by the agreed date
C) To let the auditor skip procedures if information is provided late by management
D) To make the directors liable for the opinion expressed in the audit report

Correct: B difficult ISA 210

The term secures the client's commitment to provide information on time, so that the audit can be completed in line with the proposed timetable. It does not alter the fee, reduce the procedures or move responsibility for the opinion.

63. Under the sample engagement letter, which right does the auditor have in relation to the general meetings of the company?

A) To vote on the resolutions put to the shareholders at each meeting
B) To chair the annual general meeting if the chairman is absent
C) To attend all general meetings and receive notice of them
D) To approve the agenda of each board meeting before it is held

Correct: C difficult Companies Act 1994

The letter states that the auditor is entitled to receive details of written resolutions to be circulated to members, to attend all the company's general meetings and to receive notice of them all. The auditor has no vote and no control of the agenda.

64. The audit of Dhaka Group Ltd will use a component auditor in Chattogram and an expert valuer. Which 'where relevant' point should the engagement letter cover?

A) The basis on which fees are computed and billed
B) The expectation of written representations from management
C) The request to acknowledge receipt of the letter
D) Involvement of other auditors and experts

Correct: D difficult ISA 210

Where relevant, the letter can set out arrangements for the involvement of other auditors and experts in some aspects of the audit. Fees, representations and acknowledgement are matters the letter covers in every case.

65. Karnaphuli Steel Ltd has an internal audit department whose staff the auditor may be able to use. Which 'where relevant' point should be agreed?

A) Involvement of internal auditors and other client staff
B) Any restriction of the auditor's liability under the contract
C) Arrangements with the predecessor auditor for the previous year
D) Obligations to provide the audit working papers to other parties

Correct: A difficult ISA 210

The list of points to include where relevant has a separate item for arrangements concerning the involvement of internal auditors and other client staff. The other items deal with different matters.

66. Which 'where relevant' point in an engagement letter applies only to an initial audit?

A) Involvement of experts in some aspects of the audit
B) Arrangements with the predecessor auditor
C) Any restriction of the auditor's liability under the contract
D) Any obligation to provide working papers to other parties

Correct: B difficult ISA 210

Arrangements to be made with the predecessor auditor arise only in the case of an initial audit. The other items may be relevant to a continuing client too.

67. The directors of Sundarban Foods Ltd want the auditor's liability to be limited. Where can this be recorded, when such a restriction is possible?

A) In the auditor's report addressed to the members
B) In the notes to the financial statements of the company
C) In the engagement letter
D) In the directors' report presented with the statements

Correct: C difficult ISA 210

A restriction of the auditor's liability, where this is possible, is one of the points that can be included in the engagement letter. It is a matter for the contract between the auditor and the client, not for the report or the financial statements.

68. A bank lending to Rupsha Ceramics Ltd requires access to the auditor's working papers. How should the auditor deal with this?

A) Hand over the papers on request without informing the client
B) Refuse in all cases, since working papers are always confidential
C) Wait until the bank asks and decide at that time what to do
D) Agree in the letter to provide the papers to others

Correct: D difficult ISA 210

Any obligation to provide audit working papers to other parties is a point that can be agreed in the engagement letter. This avoids breach of confidentiality, because the client has agreed to it in advance.

69. According to the sample engagement letter, when must the directors not approve the financial statements?

A) Unless they are satisfied that the statements give a true and fair view
B) Unless the auditor has already signed the audit report on the statements
C) Unless the shareholders have approved the accounting policies in advance
D) Unless the going concern assumption has first been rejected by the board

Correct: A difficult Companies Act 1994

The letter reminds the directors that they must not approve the financial statements unless satisfied that they give a true and fair view of the assets, liabilities, financial position and profit or loss. Approval comes before the auditor's report, not after.

70. Under the matters set out in the sample letter, what must the auditor consider about branches that have not been visited?

A) Whether the branch managers have signed the financial statements
B) Whether they have sent returns adequate for the audit
C) Whether the branch profit is higher than that of the head office
D) Whether the branch staff have been trained in IFRS Accounting Standards

Correct: B difficult Companies Act 1994

The auditor considers whether the company has kept adequate accounting records and whether branches that have not been visited have sent in returns adequate for the audit. If not satisfied, the auditor reports on it.

71. A company prepares its accounts under the small companies regime although, in the auditor's opinion, it is not entitled to do so. What does the sample letter say the auditor must do?

A) Give the company an exemption from audit for that year
B) Report the directors to the Registrar for disqualification
C) State in the report that it is not entitled to do so
D) Reduce the audit fee and the scope of the work for the year

Correct: C difficult Companies Act 1994

The letter says that if the company prepares accounts under the small companies regime when, in the auditor's opinion, it is not entitled to do so, the auditor is required to state that fact in the report.

72. When financial statements do not comply with applicable standards, which two matters does the auditor consider in deciding whether to report it, according to the sample letter?

A) The size of the company and the number of its shareholders
B) The cost of putting the error right and the date of the next meeting
C) The views of the directors and the opinion of the audit committee
D) Whether it is needed for a true and fair view and clearly disclosed

Correct: D difficult ISA 210

The auditor considers whether the non-compliance is necessary for the statements to give a true and fair view, and whether the non-compliance has been clearly disclosed. Size and cost are irrelevant to the decision.

73. A client has given Bay Chemicals Ltd permission to contact the outgoing auditor and has also allowed that auditor to reply. What is the prospective auditor's next step?

A) Write for all pertinent information
B) Decline the appointment at once as a precaution
C) Report the old auditor to the Registrar of companies
D) Accept the appointment on the word of the client alone

Correct: A difficult ICAB Code of Ethics

Once the client has permitted both the contact and the reply, the prospective auditor writes to the old auditor for all information pertinent to the appointment. The reply then decides whether to accept or reject.

74. A newly incorporated company in Gazipur asks a firm to carry out its very first audit. How should the firm proceed under the appointment decision chart?

A) Decline, since no permission to contact anyone can be given
B) Decide for itself, as there is no old auditor to contact
C) Ask the Registrar to approve the appointment before it starts
D) Wait for one year to look at the first set of accounts

Correct: B difficult ICAB Code of Ethics

If it is the first audit, there is no outgoing auditor, so the prospective auditor can make its own decision. Customer due diligence is still required, as for every client.

75. Which undertaking by the directors in the sample engagement letter supports the gathering of audit evidence from people?

A) Access to staff chosen by the finance director only
B) Access to records only after the audit has been started
C) Unrestricted access to persons the auditor needs to see
D) Access to the minutes of board meetings, but not of the shareholders

Correct: C difficult ISA 210

The directors undertake to give unrestricted access to any persons from whom the auditor deems it necessary to obtain audit evidence. They also undertake to provide records, including minutes of management and shareholders' meetings.