55 Who is primarily responsible for ensuring that a company complies with all relevant legal provisions? A The directors B The auditor C The regulatory authorities D All of the other options 56 Which of the following statements is true in respect of auditors' duties? A Auditors must prepare a report for the shareholders on whether the financial statements are presented fairly in accordance with the financial reporting framework B Auditors are responsible for the preparation of the financial statements C Auditors are responsible for the effective operation of the accounting systems and internal control D Auditors owe a statutory duty of care to creditors of a company 57 Which of the following statements is true in respect of audit committees? A Audit committees should be made of non-executive directors B Audit committees liaise between sharcholders and directors C There is a statutory requirement for all companies that are not small or medium-sized to establish an audit committee D Audit committees are responsible for recommending directors' remuncration 58 Good corporate governance covers a range of areas. Which of the following areas does not constitute a major element of corporate governance? A Accountability and audit B The board C Relations with shareholders D Relations with creditors and other stakeholders 59 Which of the following statements is true regarding International Standards on Auditing? A They only apply to audits which include international companies B They are issued by the IAASB C They are issued by the FRC D They only apply to audits of financial statements which have been prepared in accordance with IFRSs 60 Which of the following elements should not be included in the money laundering program of an assurance firm? A Engage a security expert in the firm B Train individuals in the relevant legislation and how to deal with suspicions of money laundering C Gather 'know your client' information D Report any suspicions of moncy laundering to the appropriate authority 61 Hugh has recently set up in business as a Chartered Accountant. He has a few clients already, and is looking to expand. Which of the following possibilities is it most likely that Hugh would be able to accept? A An offer to take over the audit of the company of which Hugh's father is managing director B An offer from a large private company to carry out the annual audit for a fee which represents 20% of Hugh's total fee income C An offer from a client interested in a tax avoidance scheme to pay Hugh on the basis of 10% of any tax saving D An offer from Hugh's only public company audit client to prepare the year end accounts for the company 62Mr Brown is a senior manager in a small firm of Chartered Accountants, ABC and Co, and has been asked by Mr Smith, the managing director of Ahafo Ltd, to become their financial director. Initially, it is not expected that this will take up much of Mr Brown's time and so he will remain an employee of ABC and Co for the foresecable future. Which of the following Chartered Accountants could then act as auditor of Ahafo Ltd without infringing the provisions of the IESBA Code of Ethics? A Mr Jones, who retired as managing director of Ahafo Ltd four years ago B A partner in ABC and Co C Mr Black, whose wife has a beneficial shareholding in Ahafo Ltd D Mr Brown's wife, who works part-time from home 63 Which of the following is most likely to be ethically unacceptable? A Sending a brochure to the MDs of the largest companies in your area advertising your services B Holding clients' monies in trust for a long period of time C Receiving a bonus for performing the audit of a client within a prescribed time frame D Performing internal and external audit services for the same client 64 The directors of SAR, a limited liability company, have failed to write off a bad debt in the financial statements relating to ABC Ltd, a company which went bankrupt on 14 July 2015 . SAR's year end is 30 June 2015 and included in receivables is an amount of GHS100,000 owed by ABC. This amount is material to the financial statements. If the directors do not amend the financial statements, which of the following auditor's opinions will be expressed? A Qualified due to inability to obtain sufficient appropriate audit evidence B Adverse opinion C Unmodified as bankruptcy occurred after year end D Qualified due to material misstatement 65 Which one of the following circumstances represents an unacceptable breach of professional guidelines on independence? A Arthur Old Co, the auditors of Busy Bank, a listed company, maintain the practice's current account and deposit account at a branch of the bank B Bill, Benn Co are the auditors of Weed, a listed company. Mr Benn is a partner in the firm but is not partner in charge of the Weed audit. He is the trustee of a trust holding 5% of the issued ordinary shares of Weed C Verdi Co. are the auditors of Aida, a listed company. Joe Verdi is a partner in the practice; his wife is the beneficial owner of 5,000 ordinary shares in Aida, acquired before the firm became auditors of the company some ten years ago D Puccini Co are the auditors of Manon, a listed company. A student who has recently joined the firm has a beneficial holding of 50 ordinary shares in the company; he is assigned to an audit group which is not responsible for the audit of Manon 66 Which of the following is not included in the fundamental principles of the IESBA's Code of Ethics? Members should: A Not allow bias, conflict of interest or undue influence of others to override professional or business judgments B Comply with relevant laws and regulations and avoid any action that discredits the profession C Charge fees that are reasonable for services provided and work performed D Be straightforward and honest in all professional and business relationships 67 Which of the following statements is not true in respect of the acceptance of an audit appointment? A Before accepting the appointment, auditors should send a letter to the outgoing auditors asking if there are any professional reasons why the appointment should not be accepted B Auditors should send an engagement letter to the audit client C Auditors should not accept an appointment if they have financial interest in the potential audit client. D Auditors should not commence audit work until the end of the financial year 68 Which of the following statements most fairly reflects the auditor's duty of confidentiality? A Auditors must never, under any circumstances disclose any matters of which they become aware during the course of the audit to third parties, without the permission of the client B Auditors may disclose matters to third parties without their client's consent if it is in the public interest, and they must do so if there is a statutory duty to do so C Auditors may disclose any matters in relation to criminal activities to the police or taxation authorities if requested to do so by the police or a tax inspector D Auditors may only disclose matters to third parties without their elient's consent if the public interest or national security is involved 69 Having discovered a fraud by an employee, the auditor has a primary duty to report to which of the following? A Directors of the company B Shareholders C Taxation authorities D Police 70. The auditor of Wisdom Agencies, a limited liability company, is facing a legal claim for negligence. It is alleged that a fraud was perpetrated at one of the company's 80 branches, and the auditor had failed to visit that branch during his audit, since he had adopted a rotational testing appreach. As a consequence the fraud had gone undetected for two years. The auditor's best defence is likely to be to produce: A Working papers showing the audit work performed supporting the view that internal control had been good and that all branches were visited over a relatively short period B An up-to-date letter of engagement which pointed out to the directors that the audit should not be relied on to detect all frauds which may exist C A written representation or other documentary evidence from the directors in which they acknowledge primary responsibility for the prevention and detection of fraud D Case law judgements such as that in the Kingston Cotton Mill ease which indicate that an auditor should not be held responsible for ingeniously laid frauds 71 An auditor signed an auditor's report of Victim, a limited liability company, without modification, but subsequently admitted that he had not carrict out tests on the substantial inventory balances, which had been included at selling price rather than cost. The group was subsequently acquired by Competitor Group who claimed to have relied upon the fraudulently prepared accounts presented to them in negotiations before agreeing to make a bid for the shares on the strength of the published net asset values. On the basis of the above, a legal action has been brought by Competitor Group against the auditor for negligence. A valid defence against such an action would be to show that: A There was no contractual or fiduciary relationship between the auditor and Competitor Group B Competitor Group would not have acted differently had the true facts been known C The auditor's report contained a disclaimer of liability to third parties. and this included Competitor Group D He was unaware of the existence of Competitor Group at the time the auditor's report was given 72 Which of the following terms correctly deseribes professional indemnity insurance? A Insurance against liability arising through any acts of fraud or dishonesty by any member of the firm in respect of money or goods held in trust by the firm B Insurance against criminal claims made by clients and third parties arising from work undertaken by the firm C Insurance against civil claims made by clients but not third parties arising from work undertaken by the firm D Insurance against civil claims made by clients and third parties arising from work undertaken by the firm 73 In which of the following cases is it least likely that the auditors would have been negligent in failing to detect a material misstatement of inventories? A They relied on a certificate provided by an independent auditor's expert B The auditor relied on the investigations of the internal auditors rather than increase costs on the audit C The senior partner called off further investigation of discrepancies after receiving personal assurance from the chairman of the board that inventory was correctly valued D The work was completed by a junior member of staff and signed off by a senior 74 What does a signed unmodified auditor's report mean with respect to the possibility of fraud within a company? A The auditor has obtained sufficient appropriate audit evidence giving reasonable assurance that the financial statements are free from material misstatement as a result of fratid B All fraud has been detected C There is no fraud occurring in the business D An audit is not designed to detect fraud therefore the auditor's report gives no assurance as to whether fraud occurred or did not occur during the year 75 According to 1 SA 315 ldentifying and assessing the risks of material misstatement through understanding the entity and its environment which of the following is not amongst the elements which make up internal control system? A The control environment B The information system C Business risk D Control activities 76 A material fraud was discovered at Conner, a limited liability company, shortly after the auditor had presented an unmodified audit opinion to the annual general meeting. His standard letter of engagement indicated that he would plan the audit so as to have reasonable expectation of detecting material misstatements in the financial statements resulting from irregularities or fraud, but also stated that the primary responsibility for the prevention and detection of fraud lay with management. Which of the following statements most accurately reflects the likelihood of the auditor being held liable for the failure to find the fraud? A He is highly likely to be found liable because his engagement letter accepted specific responsibility to find material misstatements B He is likely to be found liable if he found indications of a possible fraud but dismissed them as immaterial C He is likely to be found liable because he has a duty to detect material misstatements D He is unlikely to be held liable because the engagement letter specifically stated that management were responsible for the prevention and detection of fraud 76 A material fraud was discovered at Conner, a limited liability company, shortly after the auditor had presented an unmodified audit opinion to the annual general meeting. His standard letter of engagement indicated that he would plan the audit so as to have reasonable expectation of detecting material misstatements in the financial statements resulting from irregularities or fraud, but also stated that the primary responsibility for the prevention and detection of fraud lay with management. Which of the following statements most accurately reflects the likelihood of the auditor being held liable for the failure to find the fraud? A He is highly likely to be found liable because his engagement letter accepted specific responsibility to find material misstatements B He is likely to be found liable if he found indications of a possible fraud but dismissed them as immaterial CHe is likely to be found liable because he has a duty to detect material misstatements D He is unlikely to be held liable because the engagement letter specifically stated that management were responsible for the prevention and detection of fraud 77 If an auditor discovers fraud in the course of a statutory audit which of the following would be the least acceptable outcome? A The directors report the matter to the appropriate regulatory agency B The fraud is clearly disclosed in the financial statements C The auditor's report is modified on the grounds that the manipulation required to conceal the fraud undermines the truth and fairness of the financial statements D The auditor reports the fraud to the appropriate regulatory agency 78 For which of the following does ISA 220 Quality control for an audit of financial statements require the appointment of an engagement quality control reviewer? A All clients B All listed clients C All clients with a total revenue of over GHS4.8m D All clients not defined as small or medium sized companies 79 The professional staff for the audit of Middling Ltd comprises: - The reporting partner - A manager - An assistant manager - Two seniors (each with two years experience with the firm) - Three juniors (each with six months experience with the firm) The firm's review policy requires that the work of juniors is reviewed first by a senior and then by an assistant manager. A senior's work is reviewed by an assistant manager and an assistant manager's work by a manager. In the light of this policy, which of the following would represent an acceptable and practical review policy for application by the reporting partner? A The reporting partner must review all the working papers produced by the audit team B The reporting partner will review working papers produced by the manager and apply judgement to selectively review working papers generated by more junior members of the team if necessary C The reporting partner does not need to review any working papers: this is a responsibility properly delegated to the manager and the senior D The reporting partner will confine his review to the working papers generated by the assistant manager as he/she is the member of staff in day-to-day control of the audit fieldwork 80 What is the primary objective of ISQC 1 Quality control for firms that perform andits and reviews of financial statements, and other assurance and related services engagements on quality control? A Ensure that audits are conducted to a high standard B Ensure that atiditors are not sued for negligence C Ensure that audits are properly planned D Improve the reputation of the auditing profession ( 2 mark 81 Business risk is: A The risk that the systems will not detect or prevent a misstatement B The risk that the auditor will not deteet a material misstatement C The risk that a misstatement will oceur in the business environment D The risk that the company's objectives and strategies are not met 82 Which of the following correctly describes the ways in which an auditor may make use of analytical procedures? A Analytical procedures are confined in their application to the closing stages of the audit when the review of the financial statements is conducted B Analytical procedures can be applied to individual account areas as well as to the review of financial statements and can be used at all stages of the audit other than initial planning C. Analytical procedures can be applied at all stages of the audit but must be used as risk assessment procedures and in the overall review at the end of the audit D Analytical procedures are confined to the initial planning stage of the audit and to the overall review of financial statements 83 Which of the following audit techniques is not an analytical procedure? A Examining related accounts in conjunction with each other B Reasonableness testing C Directional testing D Trend analysis 84 Which of the following describes a company's control environment? A The system of internal controls put in place by directors to ensure the business is run efficiently, reliably and in compliance with law B The integrity and ethical values of management C The attitudes, awareness and actions of those charged with governance and management conceming internal control and its importance in the entity D The organisation's structure and delegation of authority 85 According to ISA 300 Planning an audit of financial statements one of the benefits of planning is that it: A Helps the auditor to assess the fee to be charged to the client B Helps the auditor properly organise and manage the audit so that it is performed in an effective and efficient manner C Helps the auditor to identify the principal features of the entity's system of internal controls in relation to financial reporting D Establishes the scope of the audit 86 Which of the following correctly describes the auditor's approach to internal control evaluation and testing where his client is a private manufacturing company whose accounting system is enhanced by internal control? A The auditor must evaluate and perform tests of controls on all the controls in operation B The auditor must seek to rely on those controls that provide assurance as to the truth and faimess of the financial statements C The auditor may seek to rely on internal controls and will use his judgement to determine which, if any, controls are significant in the context of the truth and faimess of the figancial statements and hence which should be confirmed by tests of controls D The auditor would not seek to rely on internal controls and will hence carry out a wholly substantive audit of transactions and balances 87 Delux Paints is principally a wholesaler of painting materials to the building trade but it also runs two cash and carry outlets open to the public. GHS125,000 of the company's recorded revenue ofGHS750,000 comprises cash sales. There is no system of control over such sales that the auditor could rely on and no satisfactory audit procedures that could be adoped to confirm independently that all cash sales were properly recorded. What form of audit opinion should the auditer give? A A report with an unmodified opinion with ne emphasis of matter paragraph. B A report with an unmodified opinion but with an emphasis of matter paragraph drawing the users' atteation to the fact that in common with many cash businesses it is difficult to confirm completeness of recording C A qualified opinion due to an inability to obtain sufficient appropriate audit evidence as the issue is material but not pervasive D 'Disclaimer' as the uncertainty is so pervasive that the financial statements as a whole could be misleading 88 Which of the following best describes the nature of an audit strategy? A It is a detailed specification of atditing procedures to be performed B It represents the auditor's plan for meeting quality control standards C It sets the scope, timing and direction of the audit, and guides the development of the more detailed audit plan D It is the auditor's plan for meeting the ISAs pertaining to study and evaluation of accoun 89 Which of the following could not be considered to be an inherent risk? A The client's product is diamonds, a precious mineral that can easily be stolen B The directors are trying to fight off a take-over bid C The company wants to publish its auditor's report two months after the year end D The auditor is unable to gather enough evidence 90 Juaben Ltd is a company operating a chain of retail outlet stores. Due to the large volume of cash sales and, therefore, the greater than normal risk of staff fraud, the auditor has assessed inherent risk as high. What effect is this likely to have on the auditor's assessment of control risk? A Control risk is likely to be low B Control risk is unlikely to be affected by the assessment of inherent risk C Control risk is likely to be high D There is little point in assessing control risk if inherent risk is high (2 marks) 91 The purpose of a written representation is to: A Enable the auditor to bring to the attention of management any significant deficiencies identified in the accounting records, systems and controls examined during the audit B Place on record management's response to points raised by the auditor and their intended actions to rectify deficiencies which the auditor has identified C Define clearly the extent of the auditor's responsibilities and provide written confirmation of the terms of the auditor's acceptance of appointment D Provide written confirmation of matters material to the accounts which are based on management's judgement or affected by management intent 92 ISA 500 Audir evidence states that the auditor should obtain sufficient, appropriate evidence. Which of the following is of least relevance to the auditor when testing for existence of non-current assets? A Reviewing the board minutes for details of any disposals during the year B Physically verifying a sample of non-current assets C Reviewing assets capitalised for possible repairs and renewals items D Reviewing title deeds to property 93 Which of the following material items should be disclosed in the financial statements of a company but not adjusted for? A A legal claim against the company which is likely to be successful which resulted from an event occurring before the period-end but which only came to light after the period end B A fire in a warehouse which occurred shortly after the period end C A valuation of a property shortly after the period end which shows an impairment in the value of the property D The decision by directors to take over another company shortly after the period end 94 The auditor is more likely to use analytical procedures as a substantive test when: A Detection risk is high B Inherent risk is assessed as being high C Control risk is assessed as being low D Audit risk is high 95 A sole practitioner, Mr Mensah gained the audit of a substantial private company. Because of time pressures and his limited experience of audits of this size, Mr Mensah subcontracted the audit to an independent expert, Mr Red, a recently retired audit partner from a large firm. It was agreed that Mr Red would carry out such audit work as he considered appropriate and Mr Red has produced a summary report setting out his audit approach, the principal tests carried out and the audit findings. There were no major problems and he recommends that Mr Mensah signs an unmodified auditor's report. What is the minimum additional work Mr Mensah must perform before he signs the auditor's report? A To review Mr Red's summary report and ensure that it is consistent with his recommendation B To review the financial statements and Mr Red's summary report C To review only the financial statements of the company D To review the financial statements, Mr Red's summary report and all the supporting work papers 96 Vero Domestics Ltd is a wholesale distributor of domestic appliances to retail outlets. All goods are obtained from national manufacturers or importers. There are no exports. The auditor is concluding his audit and is establishing the representations that he wishes to be included in the letter from the directors. In the light of the kinds of circumstance in which written representations are normally required, which of the following would it be unnecessary for the auditor to include in the representation letter? A Dens Domestics has at no time during the financial year entered into any arrangement, transaction or agreement to provide credit facilities for directors nor to guarantee or provide security for such matters, except as disclosed in a note to the financial statements B There have been no events since the year end which necessitate disclosure in or revision of the figures included in the financial statements C The directors consider that inventories are not materially misstated D No provision has been made in respect of a legal claim by the department store Harrolds for compensation in respect of goods that were damaged on delivery as our legal advisers are of the opinion that the possibility of loss is remote 97. The auditor of Classic Bank, a listed company, has completed his detailed field work and review of the statutory financial statements, including the directors' report, for the year ended 31 December 2018. Before signing his auditor's report he reviews the draft Chairman's Statement which the directors intend to include in the published financial statements. In the auditor's opinion, the Chairman's Statement contains a narrative review of the results for the year which is inconsistent with the audited financial statements and in other respects materially misleading. The directors have refused to amend the contents of the Chairman's Statement where the auditor considers necessary. What action should the auditor take in these circumstances? A The auditor should include an other matter paragraph in his report in respect of the inconsistency between the narrative review in the Chairman's statement and the financial statements B The auditor should modify his opinion on the financial statements on the grounds of the inconsistency between the Chairman's Statement and the audited financial statements and the misleading nature of the narrative review C The auditor should modify his opinion on the financial statements on the grounds of a material misstatement with the directors D None - no action is required 98 Adom Ltd has commissioned a report from an independent specialist which had indicated that mineral reserves at a quarry are 50% higher than was previously thought. The company proposes to adjust the amortisation rate to reflect the new estimate in its accounts and the effect will be material. What action should the auditor normally take? A Advise that, becatuse of the subjective nature of any estimate of this kind, the revised value can be disclosed in the notes but should not be incorporated in the accounts B Confirm that it is reasonable to aceept the estimate and ensure that it is appropriately disclosed in the accounts C Confirm that it is reasonable to accept the estimate, ensure it is appropriately disclosed in the accounts and indicate in the auditor's report that his opinion is subject to his reliance upon a management expert D Commission an auditor expert report to confirm the general findings before considering the matter further 99 The auditer's duties in respect of subsequent events are: A To actively search for any subsequent events up to the date he signs his auditor's report and thereafter only act if subsequent events are brought to his attention before the financial statements are laid before the members B To actively scarch for any subsequent events up to the date the financial statements are issued and thereafter do nothing C To actively search for any subsequent events up to the date the financial statements are laid before the members D The auditors do not have a duty to actively search for subsequent events 98 Adom Ltd has commissioned a report from an independent specialist which had indicated that mineral reserves at a quarry are 50% higher than was previously thought. The company proposes to adjust the amortisation rate to reflect the new estimate in its accounts and the effect will be material. What action should the auditor normally take? A Advise that, because of the subjective nature of any estimate of this kind, the revised value can be disclosed in the notes but should not be incorporated in the accounts B Confirm that it is reasonable to accept the estimate and ensure that it is appropriately disclosed in the accounts C Confirm that it is reasonable to accept the estimate, ensure it is appropriately disclosed in the accounts and indicate in the auditor's report that his opinion is subject to his reliance upon a management expert D Commission an auditor expert report to confirm the general findings before considering the matter further 99 The auditor's duties in respect of subsequent events are: A To actively search for any subsequent events up to the date he signs his auditor's report and thereafter only act if subsequent events are brought to his attention before the financial statements are laid before the members B To actively search for any subsequent events up to the date the financial statements are issued and thereafter do nothing C To actively search for any subsequent events up to the date the financial statements are laid before the members D The auditors do not have a duty to actively search for subsequent events 100 According to ISA 315 Identifying and assessing the risks of material misstatement through understanding the entity and its environment which of the following does the control environment encompass: A control of access to assets B Information system C Management's philosophy and operating style D Segregation- of duties 19