Chartered Accountancy, Institute of Chartered Accountants of Pakistan (Scheme 2025) · Audit and Assurance Essentials
ICAP CAF-8 Audit framework, regulations and ethics: practice questions with answers
3 free exam-style questions on Audit framework, regulations and ethics for ICAP CAF-8 Audit and Assurance Essentials. Try each one, then open the answer to read the explanation. Fincora has 12 original questions on this syllabus area.
Question 1
ISA 200 explains that an auditor obtains reasonable, not absolute, assurance because of the inherent limitations of an audit. Which of the following is one of those inherent limitations?
- A The auditor may omit a procedure that has no alternative whenever the time or cost of performing it is high.
- B Written representations from management are accepted in place of other evidence for accounting estimates.
- C Management may not provide all relevant information, and the auditor has no legal power to compel disclosure or to investigate.
- D The auditor is responsible only for detecting fraud that management chooses to report to those charged with governance.
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Answer: C. ISA 200 requires the auditor to obtain reasonable assurance, a high but not absolute level, because of the inherent limitations of an audit (application material A47-A53):
- Nature of financial reporting: judgements and estimates involve subjective decisions and uncertainty.
- Nature of audit procedures: management or others may not provide complete information, whether intentionally or not; fraud may involve collusion or forgery; and an audit is not an official investigation, so the auditor has no legal powers such as search.
- Timeliness and the balance between benefit and cost: the audit is done within a reasonable time and at a reasonable cost, but this does not permit the omission of a procedure for which there is no alternative.
The correct option is a limitation arising from the nature of audit procedures.
Question 2
A firm of chartered accountants is offered the four engagements below. Which one is a non-assurance engagement?
- A Reviewing a private company's annual financial statements under ISRE 2400 (Revised) and issuing a negative-form conclusion.
- B Performing procedures agreed with a lender on a client's receivables ageing and reporting factual findings, with no conclusion expressed.
- C Giving limited assurance on the greenhouse gas emissions disclosed in a listed company's sustainability report.
- D Auditing a listed company's annual financial statements and expressing an opinion on whether they give a true and fair view.
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Answer: B. An assurance engagement has five elements (International Framework for Assurance Engagements): a three-party relationship, an appropriate underlying subject matter, suitable criteria, sufficient appropriate evidence and a written assurance report containing a conclusion. Assurance may be reasonable (audit: positive-form opinion) or limited (review of financial statements under ISRE 2400 (Revised), limited assurance on sustainability information: negative-form conclusion).
An agreed-upon procedures engagement lacks the conclusion: the practitioner performs the procedures agreed with the engaging party and reports factual findings, leaving users to draw their own conclusions. Like compilation, valuation, tax and recruitment services, it is a non-assurance engagement.
Question 3
Under ISA 220 (Revised), which of the following must the engagement partner do on or before the date of the auditor's report?
- A Be satisfied, by reviewing documentation and discussing with the team, that sufficient appropriate evidence supports the report.
- B Personally perform the audit procedures on every significant risk rather than assign them to members of the team.
- C Complete the assembly of the final audit file so that no working paper can be added after the report is dated.
- D Obtain written confirmation from those charged with governance that the engagement team was properly supervised.
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Answer: A. ISA 220 (Revised) makes the engagement partner responsible for managing and achieving quality on the audit and requires sufficient and appropriate involvement throughout. On engagement performance the partner must:
- take responsibility for the direction, supervision and review of the team's work;
- review audit documentation at appropriate points, including on significant matters and significant judgements;
- on or before the date of the auditor's report, be satisfied, through review of documentation and discussion with the team, that sufficient appropriate audit evidence has been obtained to support the conclusions and the report;
- review the financial statements and the auditor's report before dating it; and
- where an engagement quality review is required, not date the report until that review is complete.
File assembly happens after the report date (ISA 230 A21).
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