Section 3 + 4 F8

When gaining an understanding of the specific business operations of an audit client which of the following matters would an auditor need to consider?

• A Accounting principles and industry specific practices relevant to the client's business
• B Acquisitions or disposals of the client's business activities
• C Leasing of property, plant or equipment for use in the client's business
• D Products or services and markets of the client's business

Which of the following procedures must the auditor use to obtain an understanding of the entity and its environment in accordance with ISA 315 Identifying and assessing the risks of material misstatement through understanding the entity and its environment? (1) Analytical procedures (2) Inquiry (3) Confirmation (4) Reperformance

• A (1), (2) and (3)
• B (1) and (2)
• C (2), (3) and (4)

What are the two elements of the risk of material misstatement at the assertion level?

• A Inherent risk and detection risk
• B Audit risk and detection risk
• C Inherent risk and control risk
• D Detection risk and control risk

Audit risk' represents the risk that the auditor will give an inappropriate opinion on the financial statements when the financial statements are materially misstated. Which of the following categories of risk can be controlled by the auditor? Category of risk: (1) Control risk (2) Detection risk (3) Sampling risk

• A (1) and (2)
• B (2) only
• C (1) and (3)
• D (2) and (3)

The definition of the risk of material misstatement is 'Inherent Risk × Control Risk × Detection Risk'. Is this statement true or false?

• true
• false

Which of the following statements about materiality are correct? (1) Information is material if its omission or misstatement could influence the economic decisions of users of the financial statements. (2) Materiality is based on the auditor's experience and judgement. (3) Materiality is always based on revenue. (4) Materiality should only be calculated at the planning stage of the audit

• A (1), (2) and (3)
• B (1), (3) and (4)
• C (1) and (2)
• D (2) and (4)

Performance materiality levels are higher than the materiality for the financial statements as a whole. Is this statement true or false?

• true
• false

Is the following statement regarding the interim audit true or false? The higher the risk of material misstatement the more likely it is that the auditor will decide to perform substantive procedures during the interim audit rather than at the period end.

• true
• false

Who is responsible for the prevention and detection of fraud?

• A Internal auditors
• B External auditors
• C Those charged with governance and management
• D The audit committee

The auditor of A Co wishes to reduce audit risk. Which of the following actions could the auditor take to achieve this? (1) Increase sample sizes (2) Reduce control risk (3) Assign more experienced staff to the engagement team

• A (1) only
• B (2) only
• C (1) and (3)
• D (2) and (3)