Try the questions in the test above first, then open each one here to see the correct answer and why every other option is wrong.
01Al-Rowad accepted a reasonable assurance engagement on the effectiveness of internal control at Al-Sahl Company. During the work it became clear that records for several controls are unavailable because of weak information systems, and the firm will not be able to obtain sufficient evidence for a reasonable assurance conclusion. Management asked to convert the engagement to limited assurance. What is the correct course?
Practice question Unit: International framework for assurance engagements
AAgree to the change, since being unable to gather reasonable assurance evidence is an acceptable reason
Incorrect. An inability to obtain sufficient evidence for a reasonable assurance conclusion is not an acceptable reason to change to limited assurance.
BDecline the change, as inability to obtain the evidence is not an acceptable reason ✓ Correct answer
Correct. A reasonable assurance engagement may not be changed to limited assurance without reasonable justification, and inability to obtain sufficient appropriate evidence is not an acceptable one.
CAgree to the change and disregard the evidence obtained before the change
Evidence obtained before a change is not disregarded, even when a change is made for reasonable justification.
DConvert it to an agreed-upon procedures engagement because it does not require sufficient evidence
Changing an assurance engagement to a non-assurance engagement without reasonable justification is inappropriate, and inability to obtain evidence is not such a justification.
Reference: International Framework for Assurance Engagements, paragraph 25; ISAE 3000 (Revised), paragraph 29
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02In the audit of Al-Joud Company, the auditor estimates a provision for a lawsuit using the facts known to him up to the date of his report, after consulting colleagues and the entity's legal adviser. Two months after the report a judgment is issued above the provision. How is his professional judgment evaluated?
Practice question Unit: Overall objectives, principles and general responsibilities in an audit
ABy the later court outcome, since a result that differs from the estimate makes the judgment defective
The evaluation does not rest on the later outcome but on what the auditor knew up to the date of his report.
BBy management's agreement with the estimate, since it knows the case better than the auditor
Management's agreement does not evaluate professional judgment; the auditor exercises it independently on the facts and the standards.
CBy the auditor's experience alone, so no documentation is needed as long as he is seasoned
The standard requires significant judgments to be documented so an experienced auditor can understand them, and experience does not replace that.
DBy whether it reflects competent application of auditing and accounting principles and is consistent with the facts known to him up to the report date ✓ Correct answer
This is the test for evaluating professional judgment, so it is not judged by what emerged after the report date.
Reference: ISA 200, paragraphs A28 and A29
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03At planning, materiality for the financial statements as a whole for Al-Safa Company was set at 5% of expected profit before tax of SAR 5,000,000, i.e. SAR 250,000. During the audit it becomes clear that actual profit before tax will be about SAR 3,200,000 because of an unexpected fall in sales. What is the correct action?
Practice question Unit: Planning an audit of financial statements
ARevise to about SAR 160,000, then consider whether performance materiality and further procedures need revising ✓ Correct answer
Correct: 5% × 3,200,000 = SAR 160,000; when materiality is lowered the auditor determines whether performance materiality must be revised and whether further procedures remain appropriate.
BKeep SAR 250,000 because materiality is determined once, when the overall strategy is established, and is not revisited
Incorrect: materiality must be revised if the auditor becomes aware during the audit of information that would have led to a different amount initially, including actual results differing substantially from those anticipated.
CRevise materiality to about SAR 160,000 with no need to consider performance materiality or procedures, since they follow automatically
Incorrect: after lowering materiality the standard requires assessing performance materiality and the appropriateness of further procedures; they do not follow automatically.
DAdopt the average of the two amounts, about SAR 205,000, because the new information does not cancel the original expectation
Incorrect: the standard has no averaging; the amount is re-determined on the new information that would have produced a different amount.
Reference: ISA 320, paragraphs 12 and 13, and paragraph A14
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04In estimating its pension obligation, Al Wafa Company used general mortality tables that an actuarial organization publishes and sells to a broad range of users, and it also commissioned the same organization to prepare a calculation tailored to the company's plans. How is each of the two items classified in relation to the entity?
Practice question Unit: Obtaining audit evidence
ABoth are the work of a management's expert because the organization specializes in this field
Specialization does not make everything the organization produces the work of an expert; information intended for a broad range of users is an external information source.
BGeneral tables: management's expert; calculation tailored to the entity: external information source
The classification is reversed: information available to a broad range of users is not the work of a management's expert, and a calculation tailored to the entity is not an external information source.
CBoth are external information sources because the actuarial organization is fully independent of the entity and its management
Independence alone does not settle the classification; a calculation prepared specifically for the entity makes the organization a management's expert for that information.
DGeneral tables: external information source; tailored calculation: management's expert ✓ Correct answer
General tables suitable for a broad range of users are an external source, while a calculation commissioned for the entity specifically is the work of a management's expert, and the same organization can act in both roles for different information.
Reference: ISA 500, paragraphs 5(d)–(e) and A3–A4
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05The auditor expressed an adverse opinion on Al-Nakheel's complete financial statements as a whole. The company asks for a separate report on the statement of financial position alone, which will not be published with the adverse report. May an unmodified opinion be expressed on it?
Practice question Unit: Forming an opinion and the independent auditor's report
ANo, a single statement is deemed a major portion of the complete statements ✓ Correct answer
Correct: an unmodified opinion on a single statement is not allowed after an adverse opinion or disclaimer on the complete statements.
BYes, as long as the two reports are not published together or sent to the same users
Not publishing together is a condition for individual elements; a single statement is deemed a major portion, so it is not allowed even then.
CYes, if law does not prohibit it and the report is issued separately from the adverse report
Law not prohibiting is one condition for single elements only, and does not allow an unmodified opinion on a single statement.
DYes, if the statement does not exceed half of the entity's total assets or total revenue
There is no such quantitative test; a single statement is always deemed a major portion.
Reference: ISA 805 (Revised), paragraph 17
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06While reviewing Al-Nada Company, analysis shows 40% of receivables are over a year past due with no allowance for doubtful debts, and management says all amounts are collectible. What should the practitioner do?
Practice question Unit: Review engagements
ADesign and perform additional procedures, such as examining subsequent collections or sending confirmations, to conclude that material misstatement is unlikely or to determine that it exists. ✓ Correct answer
Paragraph 57 requires sufficient additional procedures, and paragraph A102 lists confirmations and tests of details among them.
BRely on management's answer because a review rests mainly on inquiry and analytical procedures, and issue an unmodified conclusion on schedule without further work.
Accepting management's answer alone is insufficient once there is cause to believe a material misstatement may exist.
CImmediately express a qualified conclusion without further work because no allowance is recorded.
A qualification is expressed once a material misstatement is determined, not on mere suspicion.
DWithdraw from the engagement immediately because the matter shows limited assurance cannot be obtained.
The standard does not require withdrawal here; additional procedures come first and may resolve the matter.
Reference: ISRE 2400 (Revised), paragraph 57 and paragraphs A102–A103
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07During an assurance engagement on Al-Waha Company's customer-retention report, the practitioner discovers that the criteria management chose exclude cancelled contracts, so the information misleads the intended users. Management refuses to change the criteria, and the practitioner decides to continue. What type of conclusion does the practitioner express?
Practice question Unit: Other assurance engagements
AA qualified or adverse conclusion, or a disclaimer of conclusion, as appropriate ✓ Correct answer
Correct: if the practitioner continues after discovering unsuitable criteria, the practitioner must express a qualified or adverse conclusion or disclaim a conclusion, as appropriate.
BAn unmodified conclusion with an Emphasis of Matter paragraph referring to the criteria management chose
An Emphasis of Matter paragraph neither cures unsuitable criteria nor replaces a modified conclusion.
CAn unmodified conclusion after describing in full the criteria management chose in the report
Disclosing the criteria does not make them suitable; criteria that produce misleading information call for a modified conclusion.
DAn unmodified conclusion with distribution of the report restricted to management alone
Restricting distribution does not fix unsuitable criteria, and the standard does not allow an unmodified conclusion here.
Reference: ISAE 3000 (Revised), paragraphs 42 and 43
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08Al-Sharq Audit Office audits the financial statements of Al-Madar Company, and the company's bank asks for agreed-upon procedures on its compliance with loan covenants. Users of the report are likely to assume the firm is independent. What is the most appropriate course?
Practice question Unit: Related services engagements
ANo need to discuss independence with the bank, since the Code has no independence requirements for this engagement
Incorrect: the Code does not impose independence here, but users may assume it when the practitioner also audits the client, so the point is settled with the engaging party and stated in the terms.
BAgreeing with the engaging party to comply with the independence requirements applicable to audits and stating this in the terms of engagement ✓ Correct answer
Correct: the parties may agree on audit independence requirements, which are then stated in the terms of engagement and in the report's independence statement.
CDeclining the engagement, because the auditor of the financial statements may not perform agreed-upon procedures for the same client
Incorrect: nothing in the standard prevents the auditor from accepting; the appropriate independence treatment is considered instead.
DMentioning compliance with independence in the audit report only, and not in the agreed-upon procedures report
Incorrect: the independence statement is part of the agreed-upon procedures report itself, not of another engagement's report.
Reference: ISRS 4400 (Revised), paragraph 24(e) and paragraphs A37–A38
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09Al-Nakheel Office audited only unlisted entities. In November it was appointed to audit a listed company for the first time. Its quality risk assessment, done in January, did not cover listed-entity engagements, and the annual evaluation of the system is due in December. What does ISQM 1 require of the firm?
Practice question Unit: Quality management for firms
AWait for the December annual evaluation before changing the system, since that evaluation is the only scheduled review point
Incorrect; changes in the firm's engagements call for consideration when they arise, not waiting for the annual evaluation.
BDiscard the current system and rebuild it entirely from scratch with an external adviser before accepting the engagement
Incorrect; the standard asks for the necessary additions or modifications, not a complete rebuild.
CHave policies to identify change information, consider it, and where appropriate modify objectives, risks and responses ✓ Correct answer
Correct; this is paragraph 27: identify information about changes, then add or modify objectives, assess or modify risks, and add or modify responses.
DKeep the system as it is, because the risk assessment done in January remains valid unless a deficiency is found
Incorrect; a listed-entity audit is a significant change in the firm's engagements and calls for additional objectives, risks and responses, such as an engagement quality review.
Reference: ISQM 1, paragraph 27 and paragraph 34(f)
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10A professional accountant evaluates a threat to his objectivity arising from a financial relationship with a client and concludes it is not at an acceptable level. The relationship cannot be ended, and after consulting a professional body he finds that no safeguards can be applied to reduce the threat to an acceptable level. What does the Code require?
Practice question Unit: International Code of Ethics for Professional Accountants
AContinuing the activity after disclosing the relationship to the client in writing
Disclosure to the client does not reduce this threat to an acceptable level on these facts, so it does not replace declining the activity.
BContinuing the activity and re-evaluating the threat at the end of the engagement
Waiting until the end of the engagement ignores the duty to address an unacceptable threat, which exists throughout performance.
CDeclining or ending the specific professional activity ✓ Correct answer
Correct: when the circumstances creating the threat cannot be eliminated and no safeguards can be applied, the threats can only be addressed by declining or ending the specific professional activity.
DReducing the scope of work while keeping full responsibility for the result
Reducing the scope is not one of the three ways of addressing threats in the Code and does not remove the threat.
Reference: IESBA Code (2024), paragraphs R120.10 and 120.10 A1
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