51. A bank is reviewing its policies. Consider the following. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. The Money Laundering Prevention Act 2012 is part of the framework.   Yes

2. Tipping off a suspect is a recommended practice.   No

3. The BFIU operates within Bangladesh Bank.   Yes

4. Suspicious transaction reporting is part of AML compliance.   Yes

5. Customer identification is unnecessary for low-value accounts.   No

Correct: Y, N, Y, Y, N difficult AML framework

(1) Yes. (2) No. (3) Yes. (4) Yes. (5) No.

52. A listed company changes auditors. Consider the following. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Any individual may sign statutory audit reports without authorisation.   No

2. Quality monitoring is a function of the FRC.   Yes

3. Discipline and enforcement are part of the FRC's role.   Yes

4. The FRC has a role regarding audits of public interest entities.   Yes

5. ICAB regulates the registration of all companies.   No

Correct: N, Y, Y, Y, N difficult Auditor regulation

(1) No. (2) Yes. (3) Yes. (4) Yes. (5) No: ICAB regulates its members; RJSC deals with registration.

53. Consider characteristics of a profession. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Examination and entry requirements.   Yes

2. Absence of any disciplinary procedure.   No

3. A duty to the public interest.   Yes

4. Specialised knowledge acquired through training.   Yes

5. Freedom from any binding code of ethics.   No

Correct: Y, N, Y, Y, N difficult Professional characteristics

(1) Yes. (2) No. (3) Yes. (4) Yes. (5) No: a code of ethics is a characteristic.

54. Consider self-regulation of professions. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Members' expertise can improve standards.   Yes

2. Independent oversight is incompatible with self-regulation in every form.   No

3. It may be criticised for conflicts of interest.   Yes

4. It can be less costly to the state than direct regulation.   Yes

5. It is the only possible form of regulation.   No

Correct: Y, N, Y, Y, N difficult Self-regulation

(1) Yes. (2) No: oversight can complement self-regulation. (3) Yes. (4) Yes. (5) No.

55. An accountant in business faces pressure. Consider the following. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Pressure from a superior to misstate results is an ethical threat.   Yes

2. He may need advice from the professional body.   Yes

3. Documenting concerns is unnecessary where the superior is senior.   No

4. He remains bound by fundamental principles.   Yes

5. He owes duties only to the employer and none to the public interest.   No

Correct: Y, Y, N, Y, N difficult Accountants in business

(1) Yes. (2) Yes. (3) No: documentation is good practice. (4) Yes. (5) No.

56. After a company collapses following the discovery of a long-running fraud by a senior manager, shareholders say the auditor 'should have found it and given a guarantee that the accounts were right'. Which response best describes the auditor's responsibility?

A) The auditor gives reasonable, not absolute, assurance that the financial statements are free from material misstatement
B) The auditor is responsible for preventing fraud in the company, so the board is not accountable for the design of the internal controls
C) The auditor gives reasonable assurance only about the accuracy of the company's forecasts, and has no duty to consider the risk of fraud
D) The auditor gives absolute assurance that the financial statements are free from all misstatement, so any undetected fraud shows that the audit was defective

Correct: A complex Expectation gap

An audit gives reasonable assurance on whether the financial statements are free from material misstatement, whether from fraud or error. Fraud prevention is primarily a management responsibility, and concealment through collusion can escape a properly planned audit. The belief that the auditor guarantees the accounts is the expectation gap.

57. An auditor finds that closing inventory of Tk 30m is overstated, with no adjustment by the directors. Total assets are Tk 500m and profit before tax is Tk 50m. All other balances are correct. Which opinion is most appropriate?

A) A qualified opinion (except for), because the misstatement is material to profit but not pervasive to the financial statements as a whole
B) A disclaimer of opinion, because the auditor cannot conclude whether the inventory is overstated without a full inventory count
C) An unmodified opinion with an emphasis of matter paragraph, because the overstatement is below total assets and so can be treated as immaterial
D) An adverse opinion, because any misstatement in inventory means that the financial statements do not give a true and fair view at all

Correct: A complex Modified audit opinion

An overstatement of Tk 30m is 60% of profit before tax, so it is material, but the other balances are right, so it is not pervasive. That calls for a qualified 'except for' opinion. An adverse opinion is for pervasive misstatement, and a disclaimer is for inability to obtain evidence.

58. A company asks its accountant to report on its half-year financial statements for a lender. The accountant is to make enquiries and carry out analytical procedures, with no detailed testing. What level of assurance and form of conclusion are suitable?

A) Limited assurance, expressed in the negative form such as 'nothing has come to our attention that causes us to believe the statements are materially misstated'
B) No assurance, expressed as a list of the procedures carried out, with no conclusion about whether the statements are misstated
C) Absolute assurance, expressed as a statement that no misstatement exists in the half-year financial statements of the company
D) Reasonable assurance, expressed in the positive form such as 'in our opinion the statements give a true and fair view'

Correct: A complex Review engagement

Enquiry and analytical procedures provide limited assurance, which is reported in negative form. An audit provides reasonable assurance in positive form. Absolute assurance is never given.

59. A student matches standard setters to outputs: (1) the International Code of Ethics for Professional Accountants, (2) International Standards on Auditing, (3) International Financial Reporting Standards. Which matching is correct?

A) (1) IAASB, (2) IESBA, (3) IASB
B) (1) IASB, (2) IAASB, (3) IESBA
C) (1) IESBA, (2) IAASB, (3) IASB
D) (1) IESBA, (2) IASB, (3) IAASB

Correct: C complex Standard setters

IESBA issues the Code of Ethics, the IAASB issues ISAs and other assurance standards, and the IASB issues IFRS Accounting Standards.

60. During the audit of a distributor, sales in the last week of the year rise by 35% compared with the weekly average. The finance manager explains that a customer ordered urgently. Which response shows appropriate professional scepticism?

A) Treat the explanation as a lead, not as evidence, and obtain corroboration such as the order, delivery documents
B) Assume that the sales are fictitious because of the sudden rise and ask the audit committee to dismiss the finance manager
C) Ignore the increase because year-end sales are always above the average and need no more work to be carried out on them
D) Accept the explanation because the finance manager knows the business

Correct: A complex Professional scepticism

Scepticism is a questioning mind and critical assessment of evidence. Management's explanation needs corroboration from independent documents. The auditor neither accepts it blindly nor assumes dishonesty without evidence.

61. A company's main loan falls due in three months. Management has an agreed plan to refinance, and the notes to the financial statements disclose clearly the uncertainty about the refinancing. The auditor judges the disclosure adequate. What is the appropriate report?

A) An unmodified opinion with a separate section on material uncertainty related to going concern, drawing attention to the note
B) A report with no mention of going concern, because adequate disclosure by management removes all need for any comment by the auditor
C) An adverse opinion, because the company may not be able to meet its debts and so the financial statements cannot be true and fair
D) A qualified opinion, because any uncertainty about going concern means that the financial statements are misstated in a material way

Correct: A complex Going concern reporting

Where a material uncertainty exists and is adequately disclosed, the opinion is unmodified, with a separate going concern section. If disclosure is inadequate the opinion would be qualified or adverse.

62. Which THREE are services typically provided by an accountancy firm in public practice? (Select THREE.)

Multiple response
A) Taxation compliance and advice
B) Preparing the management accounts for the firm's own employer
C) Designing the internal controls of the firm's own company only
D) Statutory audit
E) Business advisory and consulting

Correct: A, D, E difficult Services in practice

Audit, tax and advisory are typical of public practice. The other two describe work in business (employment).

63. Which THREE are typical functions of a professional accountancy body such as ICAB? (Select THREE.)

Multiple response
A) Determining the national budget
B) Providing continuing professional development
C) Setting the corporate tax rates for the country
D) Issuing ethical requirements and disciplining members
E) Setting entry requirements and examinations

Correct: B, D, E difficult Role of professional bodies

Professional bodies regulate entry, ethics, discipline and CPD. Tax rates and the budget are decided by the government.

64. Which THREE are generally accepted characteristics of a profession? (Select THREE.)

Multiple response
A) A code of ethics binding on members
B) A duty to act in the public interest
C) A specialised body of knowledge acquired through training
D) The aim of maximising profit above every other duty
E) Freedom from any accountability for work

Correct: A, B, C difficult Marks of a profession

A profession has expert knowledge, an ethical code and a public interest duty. Profit above all and absence of accountability are not marks of a profession.

65. Which TWO engagements are assurance engagements? (Select TWO.)

Multiple response
A) Compilation of financial statements from client data without assurance
B) Preparation of a tax return from the client's records
C) A statutory audit of financial statements
D) A review of interim financial information
E) Bookkeeping for a small business

Correct: C, D difficult Assurance engagements

Audits and reviews provide assurance. Tax return preparation, bookkeeping and compilations do not give assurance on information.

66. A student summarises assurance concepts. Consider the following statements. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. An audit is a form of assurance that increases the confidence of intended users in the financial statements.   Yes

2. The external auditor is responsible for preparing the financial statements.   No

3. An internal auditor is appointed by shareholders to report on the financial statements.   No

4. The directors are responsible for preparing the financial statements.   Yes

5. External auditors are independent of the company they audit.   Yes

Correct: Y, N, N, Y, Y difficult Audit and assurance

(1) Yes. (2) No: directors prepare them. (3) No: internal auditors serve management and the board. (4) Yes. (5) Yes.

67. An audit committee compares internal and external audit. Consider the following statements. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Internal audit evaluates the effectiveness of risk management and control.   Yes

2. External audit gives an opinion on the financial statements for the shareholders.   Yes

3. Internal auditors may report on matters beyond financial statements.   Yes

4. Internal audit is required by law for every company in all circumstances.   No

5. External auditors are employees of the company who report to the finance director.   No

Correct: Y, Y, Y, N, N difficult Internal and external audit

(1) Yes. (2) Yes. (3) Yes. (4) No: its scope is set by management and the board, not by a universal legal requirement. (5) No: they are independent of the company.

68. A technical manager reviews standard setting. Consider the following statements. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. The IAASB sets standards on ethics for professional accountants.   No

2. IFRS Accounting Standards apply to a company even if national law does not adopt them.   No

3. A principles-based standard needs judgement in its application.   Yes

4. The IASB develops IFRS Accounting Standards.   Yes

5. Standards are intended to improve comparability of financial statements.   Yes

Correct: N, N, Y, Y, Y difficult Setting standards

(1) No: IESBA sets ethics. (2) No: they apply through adoption by national law or regulators. (3) Yes. (4) Yes. (5) Yes.

69. A newly qualified accountant studies regulation in Bangladesh. Consider the following statements. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Regulation of the profession is solely a matter of self-regulation by ICAB.   No

2. The Financial Reporting Council operates under the Financial Reporting Act 2015.   Yes

3. The National Board of Revenue is the authority for company registration.   No

4. The Financial Reporting Council is concerned with audit quality and the oversight of financial reporting.   Yes

5. Bangladesh Financial Intelligence Unit functions within Bangladesh Bank.   Yes

Correct: N, Y, N, Y, Y difficult Regulation of the profession

(1) No: statutory regulators are also involved. (2) Yes. (3) No: company registration is handled by the RJSC; the NBR deals with tax. (4) Yes. (5) Yes.

70. A firm reviews its quality arrangements. Consider the following statements. For each statement, select Yes if it is correct and No if it is not.

Yes/No grid

1. Competence is achieved when qualification is obtained and requires no further updates.   No

2. Engagement quality review is a form of independent review of significant judgements.   Yes

3. A firm can show due care by not reviewing the work of junior staff.   No

4. Quality management in a firm covers governance, resources, engagement performance and monitoring.   Yes

5. Professional accountants must maintain their professional knowledge and skills through continuing professional development.   Yes

Correct: N, Y, N, Y, Y difficult Competence and quality

(1) No: ongoing development is required. (2) Yes. (3) No: review of staff work is part of due care. (4) Yes. (5) Yes.

71. An auditor wants audit risk of no more than 5%. She assesses inherent risk at 80% and control risk at 50% for a balance. What detection risk is acceptable, and what does it mean for substantive testing?

A) Detection risk of 12.5% (5% ÷ (0.8 × 0.5)), so a moderate level of substantive testing is needed
B) Detection risk of 12.5% (5% ÷ (0.8 × 0.5)), so no substantive testing is needed, and weaker controls would not change the detection risk
C) Detection risk of 40% (80% × 50%), so little substantive testing is needed, and weaker controls would allow detection risk to be set higher
D) Detection risk of 2.0% (5% × 0.8 × 0.5), so extensive substantive testing is needed

Correct: A complex Audit risk model

Audit risk = IR × CR × DR, so DR = 5%/(0.8 × 0.5) = 12.5%. If control risk rises (weaker controls), DR must fall, so more substantive work is required.

72. An auditor sets overall materiality at 5% of profit before tax of Tk 20m (Tk 1.0m) and performance materiality at 75% of that (Tk 0.75m). The auditor finds uncorrected misstatements of Tk 0.9m in one account and Tk 0.4m in another. Which statement is correct?

A) The auditor must modify the opinion because Tk 0.9m exceeds performance materiality of Tk 0.75m
B) Materiality is irrelevant for uncorrected misstatements because they are all errors and not fraud
C) The misstatements may be ignored because each is individually below overall materiality of Tk 1.0m
D) Each is below overall materiality, but the total of Tk 1.3m exceeds it

Correct: D complex Materiality

Misstatements are evaluated individually and in aggregate. The sum of 0.9 + 0.4 = 1.3 exceeds the overall materiality of 1.0, so the misstatements are material in total. Performance materiality guides the audit work and is not a threshold for the opinion.

73. An auditor selects items from the inventory listing and traces them to the physical inventory in the warehouse, then selects items from the warehouse floor and traces them to the listing. Which assertions do the two tests address?

A) Both tests address valuation, because inventory is valued at the lower of cost and net realisable value
B) Tracing from the listing to the warehouse tests completeness, and tracing from the floor to the listing tests existence
C) Tracing from the listing to the warehouse tests existence
D) Both tests address presentation, because the listing is a document used to produce the financial statements

Correct: C difficult Direction of testing

Starting from recorded items and checking they exist tests existence (overstatement). Starting from physical items and checking they are recorded tests completeness (understatement).

74. The auditor of a listed company decides that the valuation of a large loan portfolio was one of the most significant matters in the audit. The financial statements are correctly stated. How should it be reported?

A) As a qualification of the opinion, because any significant matter indicates that the financial statements are misstated
B) Not at all, because details of the audit work are confidential between the auditor and the audit committee
C) As a key audit matter in the auditor's report
D) As an emphasis of matter that replaces the opinion, because key audit matters are a substitute for the auditor's opinion

Correct: C difficult Key audit matters

Key audit matters describe the matters of most significance in the audit and are communicated in the report for listed entities. They do not modify the opinion or replace it.

75. During an audit, management orally assures the auditor that all related parties have been disclosed. The auditor obtains a written representation letter but finds no corroborating evidence. What should the auditor do?

A) Accept the representation as sufficient appropriate evidence on its own, because the letter is signed by management
B) Ignore the representation, since written representations from management are never used in an audit
C) Withdraw immediately, because management should not give representations about related parties in any circumstances
D) Treat the representation as supporting evidence only

Correct: D difficult Representation letter

Representations from management are not sufficient evidence on their own. The auditor must obtain corroboration and consider whether doubts about management's integrity affect the audit.