76. The engagement letter of Tangail Mills Ltd tells the directors to prepare the financial statements on a particular basis unless it is inappropriate to presume the company will continue in business. Which basis?

A) The going concern basis
B) The break-up basis of valuation
C) The historical cost basis only
D) The liquidation value basis

Correct: A difficult ISA 210

The sample letter requires the directors to prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

77. What must the directors' accounting records show, according to the sample engagement letter?

A) Only the cash received and paid by the company in each month
B) Financial position with reasonable accuracy at any time
C) The names of all shareholders and their holdings in full
D) The audit fee agreed with the firm for the year

Correct: B difficult ISA 210

The directors are responsible for keeping adequate accounting records that set out with reasonable accuracy, at any time, the company's financial position.

78. Besides performing procedures to obtain evidence, what does the audit scope paragraph say an audit includes?

A) Preparing the financial statements for the directors
B) Guaranteeing that no misstatement remains undiscovered
C) Evaluating policies, estimates and presentation
D) Setting the accounting policies for the directors

Correct: C difficult ISA 210

An audit also includes evaluating the appropriateness of accounting policies, the reasonableness of accounting estimates made by management, and the overall presentation of the financial statements.

79. On what do the audit procedures selected depend, according to the engagement letter?

A) The wishes of the directors on the cost of the audit
B) The size of the audit fee agreed for the year
C) The audit procedures used in the prior year only
D) The auditor's judgement, including risk assessment

Correct: D difficult ISA 210

The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

80. Besides the financial statements, the auditor must report whether which information is consistent with them?

A) The directors' report
B) The press release issued to the media
C) The management accounts for the next period
D) The budget approved by the board for next year

Correct: A difficult ISA 720

The auditor is required to report whether the information given in the directors' report is consistent with the financial statements.

81. Which of the following is a matter on which the auditor must report if not satisfied?

A) Whether the directors' remuneration is reasonable
B) Whether the accounts agree with the records
C) Whether the company's products are of good quality
D) Whether the shareholders approved the dividend rate

Correct: B difficult ISA 210

The auditor considers, and reports on any matter not satisfied, whether adequate accounting records were kept, whether the individual accounts agree with the accounting records and returns, and whether all necessary information and explanations were obtained.

82. Misstatements that the auditor brings to management's attention are not adjusted. What does the letter say management must do?

A) Ask the auditor to correct them in the accounts
B) Pay the auditor an additional fee for the extra work
C) State their reasons for not adjusting
D) Report them to the Companies Registrar

Correct: C difficult ISA 580

Where misstatements brought to management's attention are not adjusted, the letter says management must state its reasons, in connection with the written representations it is asked to confirm.

83. Which other responsibility does the engagement letter give the auditor for documents containing audited financial statements?

A) To correct the other information before it is issued
B) To approve the wording of the chairman's statement
C) To report on the company's budget for next year
D) To consider whether other information is consistent

Correct: D difficult ISA 720

The auditor has a professional responsibility to consider whether other information in documents containing audited financial statements is consistent with those statements.

84. What may the auditor ask to see to help examine the financial statements?

A) All documents due to be issued with them
B) Only the documents the directors choose to show
C) Documents from other clients of the firm
D) Private papers of the shareholders

Correct: A difficult ISA 210

To help examine the financial statements, the auditor asks to see all documents or statements due to be issued with them, and is also entitled to details of written resolutions and to attend general meetings.

85. In what way does the letter say the form and content of the audit report may change?

A) It may change at the request of the directors
B) It may change in light of the findings
C) It may be changed after the report is signed
D) It may change if the audit fee is reduced

Correct: B difficult ISA 210

The letter refers to the ICAB bulletin on auditors' reports for the expected form and content, and adds that these may need to be amended in the light of the auditor's findings.

86. What does the engagement letter ask the client to do to confirm the terms?

A) Pay a deposit towards the audit fee
B) Return the letter with a list of staff
C) Acknowledge receipt of the letter
D) Have the letter approved by the Registrar

Correct: C difficult ISA 210

One of the items the letter includes is a request for the client to confirm the terms of the engagement by acknowledging receipt of the engagement letter.

87. Which item does the list of items for the engagement letter include?

A) The audit staff to be assigned, by name
B) The detailed audit programme for the year
C) The working paper file index
D) Arrangements for planning the audit

Correct: D difficult ISA 210

The items listed include arrangements regarding the planning of the audit, the expectation of written representations, timely provision of information, fee arrangements and the request to acknowledge receipt.

88. Who is responsible for ensuring the company complies with laws and regulations and for preventing non-compliance?

A) The directors
B) The auditors, who must detect every breach
C) The shareholders in a general meeting
D) The Companies Registrar at each year end

Correct: A difficult ISA 250

The sample letter states that the directors are responsible for ensuring the company complies with laws and regulations that apply to its activities, and for preventing non-compliance and detecting any that occurs.

89. What do the standards require the auditor to obtain, according to the scope section of the letter?

A) Absolute assurance that the statements are correct
B) Reasonable assurance on material misstatement
C) Limited assurance, based on analytical review alone
D) A guarantee that fraud has been detected

Correct: B difficult ISA 200

The standards require the auditor to comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

90. To whom is the sample audit engagement letter addressed?

A) The shareholders in general meeting
B) The Registrar of Companies
C) The board of directors
D) The audit committee and ICAB

Correct: C difficult ISA 210

The extract is addressed to the board of directors of the company, which is the responsible party for the financial statements, and is acknowledged and agreed on behalf of the company.

91. Rafi, a director of ABC Company, says the directors need not form their own view before approving the statements if the auditors later confirm them. What does the engagement letter say?

A) Directors must be satisfied first
B) The auditors approve the statements on behalf of the board
C) Approval waits until the auditors have signed their report
D) Only the chairman has to be satisfied before approval

Correct: A difficult ISA 210

As directors you must not approve the financial statements unless you are satisfied that they give a true and fair view of the assets, liabilities, financial position and profit or loss.

92. Tahmina asks whether the auditors of ABC Company report to each shareholder individually. To whom does the engagement letter say the auditors report?

A) To the board of directors alone
B) To the members as a body
C) To each shareholder who asks for it
D) To the Registrar of Companies

Correct: B difficult ISA 210

The letter states the auditors have a statutory responsibility to report to the members as a body on whether the statements have been properly prepared and give a true and fair view.

93. Which action by a director is an offence under sections 334 and 335 of the Companies Act 1994, as the engagement letter extract notes?

A) Asking the auditors to attend the general meeting
B) Approving the financial statements after careful review
C) Supplying false information recklessly
D) Giving the auditors the minutes of the board meetings

Correct: C difficult ISA 210

The extract draws attention to the offence of recklessly or knowingly supplying false or misleading information to the auditors, and of failing to provide information promptly when requested.

94. The auditors of a Khulna company have not visited a branch in Rangpur. Which matter must they consider under the engagement letter?

A) Whether the branch should be closed down this year
B) Whether the branch manager is paid a fair salary
C) Whether branch staff took their leave in the year
D) Whether branch returns are adequate

Correct: D difficult ISA 210

The auditors consider whether adequate accounting records have been kept and whether branches they have not visited have sent in returns adequate for their audit.

95. A client's statements do not comply with an accounting standard. Which two points does the letter say the auditors consider before deciding whether there is a good reason?

A) Whether it is needed for true and fair and disclosed
B) Whether the fee has been paid and the directors agree
C) Whether the noncompliance is small and the auditors approve
D) Whether other firms use the same treatment and policy

Correct: A difficult ISA 210

The auditors consider whether the non-compliance is necessary for the financial statements to give a true and fair view and whether it has been clearly disclosed.

96. An engagement letter says the audit is not designed to identify all significant deficiencies in internal control. What happens if the auditors do detect some?

A) They fix the controls themselves
B) They report them in writing
C) They withdraw from the engagement
D) They disclose them in the public register

Correct: B difficult ISA 210

The audit is not designed to identify all significant deficiencies, but if the auditors detect significant deficiencies they will report them to the client in writing.

97. The auditors ask to see all documents due to be issued with the financial statements. What is the purpose of this request?

A) To approve the content of all the documents
B) To set the audit fee for the following year
C) To check other information is consistent
D) To sell more non-audit services to the client

Correct: C difficult ISA 210

The auditors have a professional responsibility to consider whether other information in documents containing audited financial statements is consistent with those statements.

98. Which of these is part of an audit according to the scope paragraph of the engagement letter?

A) Preparing the financial statements for the client
B) Designing the client's internal control system
C) Setting accounting policies for management
D) Evaluating overall presentation

Correct: D difficult ISA 210

An audit includes evaluating the appropriateness of accounting policies, the reasonableness of management's estimates, and the overall presentation of the financial statements.

99. What does the engagement letter say determines which audit procedures are selected?

A) Judgement and risk assessment
B) The fee level agreed with the client
C) The personal wishes of the directors
D) The number of staff in the audit team

Correct: A difficult ISA 210

The procedures selected depend on the auditors' judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

100. Kamal, a finance director, thinks his undertaking covers only management meeting minutes. Which minutes does the letter say must be made available?

A) Only minutes of the board's sub-committees held
B) Management and shareholder minutes
C) Only the minutes of shareholders' general meetings
D) No minutes unless the auditors insist on them

Correct: B difficult ISA 210

The directors undertake to make available all accounting records and related financial information, including minutes of management and shareholders' meetings, that the auditors need.