AUD: Auditing and Attestation

• Unit 01

  Unit 1: Ethics, Professional Responsibilities, and General Principles

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  290 questions · 7 topics
• Unit 02

  Unit 2: Assessing Risk and Developing a Planned Response

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  330 questions · 7 topics
• Unit 03

  Unit 3: Performing Further Procedures and Obtaining Evidence

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  251 questions · 9 topics
• Unit 04

  Unit 4: Forming Conclusions and Reporting

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  165 questions · 11 topics

A few questions from this module, with the answer and a full explanation. The complete bank is available when you start practising.

1. What types of procedures may the group engagement team perform on non-significant components in a group audit?

   • A
     A review engagement providing limited assurance, as an intermediate step between a full audit and no procedures
   • B
     A full audit, because all components must receive the same level of procedures regardless of significance
   • C
     Only confirmations and physical inspections, because substantive procedures are required for every component
   • D
     Analytical procedures, review procedures, or specified audit procedures — or no additional component-level procedures if the GET determines sufficient evidence exists from other sources
     Correct answer
   Explanation

   For non-significant components, AU-C 600 gives the GET flexibility to determine what procedures, if any, are performed at the component level. Appropriate procedures may include analytical procedures, review procedures, or specified audit procedures. The GET must assess whether the procedures performed on non-significant components, together with the work on significant components and consolidation procedures, provide sufficient appropriate audit evidence for the group audit opinion. In some cases, no component-level procedures may be needed.

2. Under AU-C 610 (AICPA), when is direct assistance from internal auditors permitted on non-issuer engagements?

   • A
     When the internal audit function is assessed as having adequate objectivity and competence, the work is properly supervised and reviewed by the external auditor, and the work is not in areas of significant risk
     Correct answer
   • B
     Only for administrative tasks such as document collection and logistics; direct assistance for substantive or control testing procedures is prohibited
   • C
     Only when the entity's audit committee has specifically authorized the use of internal auditors as direct assistants
   • D
     Whenever IA is qualified and available, without restriction on the risk level of areas where direct assistance is provided
   Explanation

   AU-C 610 permits direct assistance on non-issuer engagements subject to three conditions: (1) the auditor has assessed the internal audit function's objectivity and competence as adequate for the specific procedures to be performed, (2) the external auditor provides adequate supervision, direction, and review of the direct assistance work, and (3) the direct assistance is not used in areas of significant risk. Even with direct assistance, the external auditor retains full professional responsibility for the audit opinion and the quality of all procedures performed.

3. How does a 'significant deficiency' differ from a 'material weakness' in ICFR?

   • A
     A significant deficiency and material weakness trigger the same reporting consequences; both require an adverse ICFR opinion
   • B
     A significant deficiency does not need to be communicated to the audit committee if the auditor concludes it will be remediated
   • C
     A significant deficiency is more severe than a material weakness and requires the most detailed disclosure in the ICFR opinion
   • D
     A significant deficiency is less severe than a material weakness; it requires written communication to the audit committee but does not require an adverse ICFR opinion
     Correct answer
   Explanation

   Under PCAOB AS 2201, the three levels of ICFR deficiencies in ascending severity are: (1) control deficiency, (2) significant deficiency, and (3) material weakness. A significant deficiency is less severe than a material weakness — it is important enough to merit attention by those responsible for financial reporting oversight, but it does not rise to the level of creating a 'reasonable possibility' of a material misstatement. A significant deficiency requires written communication to the audit committee but does not require an adverse ICFR opinion. A material weakness requires an adverse ICFR opinion.