101. The engagement letter refers to the ICAB bulletin on auditors' reports. What does it say about the form and content of the report?

A) They are fixed and can never change
B) They are chosen by the client's directors
C) They may change with the findings
D) They are set by the client's lending bank

Correct: C difficult ISA 210

The letter refers the client to the ICAB bulletin and says that the form and content of the report may need to be amended in the light of the auditors' findings.

102. The scope paragraph of an engagement letter says the audit follows which standards and who issued them?

A) Local standards set by each client
B) ICAB's own internal manual
C) IFRS standards issued by the ISSB
D) ISAs issued by the FRC

Correct: D difficult ISA 210

The audit is carried out in accordance with the International Standards on Auditing issued by the Financial Reporting Council, which require ethical compliance and reasonable assurance planning.

103. Padma Textile Ltd is a new audit client and fieldwork starts on Monday, but no engagement letter has been sent. What should the firm do?

A) Send it before the first audit
B) Send it once the audit report is ready
C) Send it only if the client requests it
D) Send it after the first fee is paid

Correct: A difficult ISA 210

The engagement letter must be sent prior to the first audit to clarify the terms of the engagement, in line with ISA 210.

104. Having accepted a new engagement, which action does the workbook list for the audit firm?

A) Ask the client to choose the audit partner
B) Carry out customer due diligence
C) Advertise the new client to other firms
D) Report the appointment to the old auditor's bank

Correct: B difficult ISA 210

When a firm accepts an engagement it must check the outgoing auditors' removal, ensure its appointment is valid, and carry out customer due diligence under the money laundering rules.

105. A two-partner firm in Barishal is invited to tender for 20 listed company audits at once. Which acceptance consideration is the most pressing?

A) Whether the firm has the advertising budget
B) Whether competing firms will also tender
C) Whether it has resources for the engagement
D) Whether the clients use the same bank

Correct: C difficult ISA 210

Before accepting an engagement, the firm considers whether it is ethically barred and whether it has the resources available to undertake the engagement.

106. Which of these items would the auditors not normally put into an engagement letter for Jamuna Traders Ltd?

A) The names of the staff on the team
B) The responsibilities of the directors
C) The scope of the audit work
D) The responsibilities of the auditors

Correct: A difficult ISA 210

An engagement letter sets out the responsibilities of the directors and the auditors and the scope of the audit. It does not need to name the staff assigned.

107. The engagement letter extract says the directors must prepare the financial statements on which basis, unless it is inappropriate?

A) A break-up basis of value
B) The going concern basis
C) A cash receipts basis only
D) A tax basis for the year

Correct: B difficult ISA 210

The directors are required to prepare the financial statements on the going concern basis unless it is inappropriate to presume the company will continue in business.

108. The auditors find misstatements that the directors will not adjust. What does the engagement letter extract say the directors must do?

A) Pay the auditors an extra fee
B) Replace the auditors
C) State their reasons
D) Ignore the matter

Correct: C difficult ISA 210

The letter says that where misstatements brought to the directors' attention are not adjusted, the directors must state their reasons.

109. Which engagement letter matter is included only when relevant, such as on an initial audit?

A) Directors' responsibility for internal control
B) Auditor's statutory duty to report to members
C) Scope of the audit under ISAs
D) Arrangements with the predecessor auditor

Correct: D difficult ISA 210

Arrangements to be made with the predecessor auditor in the case of an initial audit are an optional, when-relevant point. The responsibilities and scope are standard content.

110. Jahan & Co is invited to be the first auditor of Bhai Bhai Ltd, but the client refuses to let it contact the old auditor. What should the firm normally do?

A) Decline the appointment
B) Accept and report the matter to ICAB
C) Write to the Registrar
D) Accept and ignore the point

Correct: A difficult ICAB Code of Ethics

If the client refuses permission to contact the old auditor, the prospective auditor should normally decline, since contacting the old auditor without permission would breach confidentiality.

111. In the appointment decision chart, what question follows the client giving permission to contact the old auditor?

A) Is this the second audit of three?
B) Allow the old auditor to reply?
C) Is the fee already agreed in writing?
D) Has the old auditor been fully paid?

Correct: B difficult ICAB Code of Ethics

After permission to contact, the chart asks whether the client gives the old auditor permission to reply, and then whether the old auditor replies with relevant information.

112. Which step must an audit firm take when it accepts a new audit, according to the workbook?

A) Sign the client's tax return
B) Appoint the client's directors
C) Do customer due diligence
D) Pay the outgoing auditor

Correct: C difficult ICAB Code of Ethics

On acceptance the firm must check the outgoing auditors' removal, ensure its appointment is valid and carry out customer due diligence under the Money Laundering Regulations.

113. On accepting an appointment, what must the new auditor check about the outgoing auditors?

A) That they have been paid in full
B) That they have kept the old files
C) That they will not reply to anyone
D) That their removal was proper

Correct: D difficult ICAB Code of Ethics

The new firm must check that the outgoing auditors' removal was carried out properly and that its own appointment is valid.

114. When should the engagement letter be sent out again to the same client?

A) When circumstances change
B) Every month
C) Never after the first audit
D) Only if the fee falls

Correct: A difficult ISA 210

The workbook says the letter is sent before the first audit and should be reissued if there is a change in circumstances.

115. What does the engagement letter say about the directors' reliance on the auditors to find errors?

A) The auditors will find every error
B) The directors cannot rely on that
C) The directors may rely on that fully
D) The auditors guarantee the figures

Correct: B difficult ISA 210

The auditors plan to reasonably expect to detect significant misstatements, but the directors cannot rely on them finding all such errors.

116. Which right does the engagement letter extract give the auditors in relation to company meetings?

A) To chair the annual meetings
B) To vote on every resolution
C) To attend general meetings
D) To appoint the new directors

Correct: C difficult ISA 210

The auditors are entitled to receive written resolutions circulated to members, to attend all the company's general meetings and to receive notice of them.

117. How does the client confirm the terms of the engagement in the letter?

A) By telephone call only to a partner
B) By sending a fee cheque in advance
C) By email copy to the Registrar
D) By a signed acknowledgement

Correct: D difficult ISA 210

The client is asked to confirm the terms by acknowledging receipt of the engagement letter, with a signed name and title on behalf of the company.

118. Which of these is a statutory responsibility of the auditor, as stated in the engagement letter extract?

A) Report on true and fair view
B) Prepare the financial statements
C) Design the internal controls
D) Safeguard the company's assets

Correct: A difficult ISA 210

The auditors have a statutory responsibility to report to the members as a body whether the financial statements give a true and fair view. The other tasks are the directors'.

119. The auditors must report if the company's individual accounts disagree with which records?

A) The directors' private diaries
B) Records and returns
C) The bank's internal files
D) The Registrar's notes

Correct: B difficult ISA 210

The auditors consider whether the company's individual accounts are in agreement with the accounting records and returns, and report any matter they are not satisfied with.

120. What must the directors keep to set out the company's financial position with reasonable accuracy at any time?

A) A set of daily newspapers
B) A list of customers' complaints
C) Adequate accounting records
D) A register of staff birthdays

Correct: C 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.

121. Which of these would NOT normally be contained within an audit engagement letter?

A) The names of staff assigned
B) The responsibilities of the directors
C) The responsibilities of the auditors
D) The scope of the audit

Correct: A difficult ISA 210

An engagement letter sets out the directors' and auditors' responsibilities and the scope of the audit. The names of the staff assigned are not part of its standard content.

122. Which statement about advertising by audit firms is correct?

A) Firms may never advertise their services to anyone
B) Firms may advertise within certain boundaries
C) Firms may advertise any claim they wish to make
D) Firms may advertise only to their current clients

Correct: B difficult IESBA Code 115

Auditors may advertise their services within certain boundaries, and are often invited to tender for audits.

123. A firm accepts a new audit appointment. Which check under the Money Laundering Regulations must it carry out?

A) A credit rating of the board
B) A tax investigation
C) Customer due diligence
D) A valuation of the premises

Correct: C difficult ISA 210

On accepting an engagement the firm must carry out customer due diligence in accordance with the Money Laundering Regulations.

124. The client is unknown to the audit firm. What should the firm do before accepting?

A) Wait for a regulator to clear the client first
B) Accept at once without making any checks
C) Ask the client to agree the fee level first
D) Seek references and do due diligence

Correct: D difficult ISA 210

If the client is unknown, the firm should seek references in respect of key personnel and must carry out customer due diligence, as with all clients.

125. The new auditor has permission to contact the old auditor and the old auditor may reply, but no reply arrives. What does the chart say?

A) Give notice, then decide on other knowledge
B) Accept the appointment at once without a decision
C) Report the old auditor to the Registrar of Companies
D) Decline the appointment without taking any decision

Correct: A difficult ISA 210

In the decision chart, where there is no relevant reply, the prospective auditor gives the old auditor due notice and then decides on the basis of knowledge obtained otherwise.