126. In the appointment chart, what follows when this is NOT the first audit for the client?

A) The firm must decline the appointment outright
B) The prospective auditor makes its own decision
C) The firm must report the matter to the Registrar
D) The client chooses the fee and the scope

Correct: B difficult ISA 210

If this is not the first audit for the client, there is no need to follow the professional contact rules and the prospective auditor can make its own decision.

127. The engagement letter says the auditor will send a separate letter on significant deficiencies. When is that letter sent?

A) Never when the audit report is unmodified
B) Only if the client specifically asks for it
C) When deficiencies come to its notice
D) Before the audit starts, in the planning stage

Correct: C difficult ISA 265

The auditor provides a separate letter concerning any significant deficiencies in accounting and internal control systems that come to its notice, in addition to the report.

128. What does the engagement letter say about the audit and the identification of control deficiencies?

A) The audit tests every control in the system
B) The audit will identify every single deficiency
C) The audit ignores internal controls altogether
D) It is not designed to find all of them

Correct: D difficult ISA 210

The letter says the audit is not designed to identify all significant deficiencies, but any detected will be reported in writing.

129. What does the engagement letter say about the auditor's entitlement relating to general meetings?

A) Attend and receive notice of all
B) The auditor may vote at them as a member
C) The auditor chairs them as a matter of right
D) The auditor may not attend any of them

Correct: A difficult ISA 210

The auditor is entitled to receive notice of, and attend, all the company's general meetings and to receive details of written resolutions circulated to members.

130. Where do fee arrangements and billings appear in the sample engagement letter?

A) In the opinion section of the report
B) Under other relevant information
C) In the directors' statement of responsibilities
D) In the going concern note to the accounts

Correct: B difficult ISA 210

The sample letter ends with a placeholder for other relevant information, such as fee arrangements, billings and other specific terms, as appropriate.

131. Each director must take steps to be aware of relevant audit information. What else must the director establish?

A) That the auditors are independent of the board
B) That the auditors have been paid in full
C) That the auditors know of it
D) That the auditors will attend the next AGM

Correct: C difficult ISA 210

Each director must take all steps they ought to take to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

132. An auditor believes a company has used the small companies regime when not entitled. What must the report do?

A) Ask the company to reapply
B) Say nothing
C) Resign at once
D) State that fact

Correct: D difficult ISA 210

If the company prepares accounts under the small companies regime when in the auditor's opinion it is not entitled, the auditor is required to state that fact in the report.

133. Which of these does the audit in the sample letter evaluate, besides accounting policies?

A) Estimates and overall presentation
B) Staff morale in the finance department
C) The client's marketing plan for next year
D) The audit fee policy of the firm

Correct: A 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.

134. Why does the letter say some material misstatements may remain undiscovered even in a properly performed audit?

A) The auditor ignored part of the planned work
B) Inherent limits make it unavoidable
C) Directors never hide anything from the auditor
D) The law requires some errors to remain

Correct: B difficult ISA 200

Because of the test nature and other inherent limitations of an audit and of accounting and control systems, there is an unavoidable risk that some material misstatements remain undiscovered.

135. What does the engagement letter ask of the client's management and staff during the audit?

A) Payment of fees in advance of the work
B) Silence on difficult matters at all times
C) Full cooperation and full access
D) Presence at every audit meeting held

Correct: C difficult ISA 210

The engagement letter says the auditor expects full cooperation from the client's staff during the audit and access to all records, documents and information needed.

136. A trainee says the letter should name the audit senior. Which items does the standard instead say MUST be in the letter?

A) Objective and scope of audit
B) The audit staff's salary scale levels
C) The tea arrangements for staff on site
D) The names of all of the audit seniors

Correct: A difficult ISA 210

The mandatory items include the objective and scope of the audit, the responsibilities of the auditor and management, and the applicable framework. Staff names are not required.

137. Which of these points is made in the engagement letter only 'when relevant'?

A) The directors' statement duties in full
B) Working papers given to others
C) The scope of the audit under the ISAs
D) The auditor's statutory report duty

Correct: B difficult ISA 210

Any obligations to provide audit working papers to other parties is an optional, when-relevant point, along with other auditors, experts, internal auditors and predecessor arrangements.

138. Which of these is also an optional, when-relevant point in the letter?

A) The ISA scope paragraph of the letter
B) Basis on which fees are computed
C) Other auditors and experts
D) Written confirmation of representations

Correct: C difficult ISA 210

Arrangements for the involvement of other auditors and experts apply only when relevant. Fees, scope and the expectation of representations are standard content.

139. The letter asks the client to supply information in time for the auditor to meet the timetable. Which category is this?

A) An opinion modification in the report
B) A criminal offence of the directors
C) A fee clause for the audit work
D) A standard term

Correct: D difficult ISA 210

The agreement of the client to provide information in time to allow completion in line with the proposed timetable is one of the standard terms of the letter.

140. Under the letter, who is responsible for safeguarding the company's assets and preventing fraud?

A) The directors
B) The auditors
C) The Registrar
D) The tax authority

Correct: A difficult ISA 210

The directors are responsible for safeguarding assets, taking reasonable steps to prevent and detect fraud and irregularities, and for internal control, while the auditor plans to detect significant misstatements.

141. The letter says the client cannot rely on the auditors finding every error. What is the auditor's planning aim?

A) To detect every single misstatement
B) To expect to find significant errors
C) To prevent all fraud in the company
D) To guarantee that no errors remain at all

Correct: B difficult ISA 200

The auditor plans so that it can reasonably expect to detect significant misstatements, including those from fraud, error or non-compliance, but the client cannot rely on finding them all.

142. Which Act sections does the letter cite on supplying false information to the auditors?

A) Section 500 of the Act as amended
B) Sections 1 and 2 of the Act
C) Sections 334 and 335
D) Section 10 of the tax code

Correct: C difficult Companies Act 1994

The letter draws attention to sections 334 and 335 of the Companies Act 1994, under which it is an offence to knowingly or recklessly supply false or misleading information to the auditors.

143. What form does the letter say the auditor's report will take?

A) An oral report only, given at a meeting
B) Whatever form the client prefers
C) A letter from the finance director
D) ICAB bulletin form, amendable

Correct: D difficult ISA 210

The letter refers to the most recent ICAB bulletin on auditors' reports for the expected form and content, and says it may be amended in the light of findings.

144. Once the report is issued, what responsibility does the letter say remains?

A) None, but tell us of material events
B) Full responsibility for next year as well
C) Responsibility to rewrite the accounts
D) Responsibility to sign the accounts for them

Correct: A difficult IAS 10

After the report is issued the auditors have no further responsibility for that year's statements, but expect to be told of material events before the statements are sent out under IAS 10.

145. An auditor is asked to tender for a new audit. What is a tender?

A) A court order against the client
B) A formal offer to carry out the work
C) A refund of the fee to the client
D) An opinion on the going concern basis

Correct: B difficult IESBA Code 115

Auditors are often invited to tender, which is a formal proposal to perform the engagement, usually in competition with other firms.

146. In the chart, the client refuses permission to contact the old auditor. What should the prospective auditor normally do?

A) Contact the old auditor anyway
B) Accept at once
C) Decline the appointment
D) Ask a regulator to decide

Correct: C difficult ISA 210

If the client refuses permission to contact the old auditor, the prospective auditor should normally decline the appointment.

147. The old auditor replies with information relevant to the new appointment. What follows in the chart?

A) Ask the Registrar to decide the matter
B) Ignore the reply and carry on
C) Appoint without making any checks
D) Accept or reject on that reply

Correct: D difficult ISA 210

Where the old auditor replies with relevant information, the prospective auditor decides whether to accept or reject the appointment on that basis.

148. Which check does an audit firm make about its own capacity before accepting a client?

A) Whether it has skills and resources
B) Whether the client will pay early
C) Whether the client has a large office
D) Whether the client advertises widely

Correct: A difficult ISA 210

The firm considers whether it has the competence, time and resources to perform the engagement, along with ethics and client integrity.

149. A new client's directors say the auditors need not attend general meetings. How does the letter treat this?

A) The directors can bar the auditors from them
B) The auditors may attend and get notice
C) Attendance is voluntary for the auditors
D) Attendance needs a vote of the members

Correct: B difficult Companies Act 1994

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

150. How does the letter ask the client to confirm the terms of engagement?

A) By attending a meeting at the office
B) By paying the audit fee in advance
C) By acknowledging receipt
D) By filing a return with the Registrar

Correct: C difficult ISA 210

The letter includes a request for the client to confirm the terms by acknowledging receipt, with an acknowledged and agreed signature block.