Series: NOV 2012

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AAA – Nov 2013 – L3 – A – Q20 – Audit of Specialized Industries

This question tests knowledge of reserves that may or may not be reviewed during the audit of a non-life insurance company.

Question

Regarding the audit of a non-life insurance company, which of the following reserves may NOT be reviewed?
A. Reserve for unexpired risks
B. Reserve for outstanding claims
C. Contingent reserve
D. External reserve
E. Statutory reserve

Answer

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Tags: Audit, Non-Life Insurance, Reserves, Specialized Industries
Level: Level 3

Topic: Audit of Specialized Industries
Series: NOV 2012

AAA – Nov 2013 – L3 – A – Q19 – Internal Audit and Corporate Governance

This question identifies assignments that qualify as continuous audit functions.

Question

Which of the following assignments can be regarded as a continuous audit function?
A. Examining the effectiveness, efficiency, and economy of a cement project
B. Evaluating the adequacy of the security and control measures of the information technology
C. Ascertaining the fairness of the annual financial statements and notes to the accounts
D. Reviewing the internal control procedures before commencing the audit
E. Reviewing the company’s compliance with relevant guidance and release of financial information periodically

Answer

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Tags: Compliance, Continuous Audit, Financial Reporting, Internal Control
Level: Level 3

Topic: Internal Audit and Corporate Governance
Series: NOV 2012

AAA – Nov 2013 – L3 – A – Q18 – Audit Reporting

This question assesses knowledge of the main users of financial reports that auditors focus on.

Question

The main users of financial reports that auditors need to be primarily concerned about are:
A. Management and directors of the company
B. The general public
C. Banks and other financial institutions that provide working capital
D. Suppliers
E. Shareholders of the company

Answer

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Level: Level 3

Topic: Audit Reporting
Series: NOV 2012

AAA – Nov 2013 – L3 – A – Q17 – Auditor’s Legal Liability

This question examines the best defence an audit firm can present when accused of failing to identify substandard and obsolete inventory.

Question

Yakubu Chukwu & Co was sued by one of its clients who alleged that the firm failed to satisfy the auditing standards in identifying substandard and obsolete inventory while attending end-of-year stock take. Which of the following is the firm’s best defence?
A. It is quite impossible to expect the firm to identify substandard and obsolete inventory due to the special nature of the inventory
B. Yakubu Chukwu & Co has to prove that its audit has been carried out with reasonable skill, care, and diligence
C. Auditing standards are not legislated, therefore, the client has no right to sue the firm
D. The contributory negligence of the client
E. Identification of substandard and obsolete stock requires an expert opinion

Answer

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Tags: Audit Standards, Auditor Liability, Defence, Obsolete Inventory
Level: Level 3

Topic: Auditor’s Legal Liability
Series: NOV 2012

AAA – Nov 2013 – L3 – A – Q16 – Group Audits

This question assesses the appropriate audit procedure for verifying a subsidiary’s accounts before consolidation.

Question

When a client has control over a subsidiary, what is the most appropriate audit procedure to obtain evidence to verify subsidiary accounts before consolidation?
A. Arrange for independent valuation of the assets and liabilities of the subsidiary
B. Be involved in the appointment of the subsidiary auditors
C. Rely on additional work carried out by the internal auditors
D. Send a template of your expectation to subsidiary auditors
E. Provide audit program for the subsidiary auditors

Answer

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Tags: Audit Procedure, Consolidation, Group Audits, Subsidiary Accounts
Level: Level 3

Topic: Group audit
Series: NOV 2012

AAA – Nov 2013 – L3 – A – Q15 – Audit Reporting

This question assesses the primary purpose of sending a letter of enquiry to a legal firm regarding client litigation.

Question

The main reasons why auditors send a letter of enquiry to the legal firm handling litigation or claims on behalf of their client is to provide:
A. Auditors with weak position in client litigation and claims
B. Auditors with written submission and statement of claims to the court
C. Information concerning the progress of outstanding cases to date
D. Auditors with corroborative audit evidence
E. Auditors with impact of legal opinion on financial statements

Answer

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Tags: Audit evidence, Legal claims, Letter of Enquiry, Litigation
Level: Level 3

Topic: Audit Reporting
Series: NOV 2012

AAA – Nov 2013 – L3 – A – Q14 – Regulatory Framework and Professional Standards

This question assesses knowledge of factors that weaken local auditing standards and identifies an unrelated factor.

Question

Factors that contribute to the weaknesses of local auditing standards include the following EXCEPT:
A. Standard setters being subject to political pressures
B. Having inadequate resources
C. Being insufficiently timed in response to market needs
D. Loss of investment by stakeholders
E. Having sources of fund which raise questions about their independence

Answer

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Tags: Audit Standards, Independence, Local Auditing Standards, Regulatory Framework
Level: Level 3

Topic: Regulatory Framework and Professional Standards
Series: NOV 2012

AAA – Nov 2013 – L3 – A – Q13 – Environmental and Sustainability Audits

This question assesses the scope of social audit and identifies an area it does not cover.

Question

Social audit has to do with the extent to which a company gets involved and interacts with the society in which it operates. This means that social audit does not extend to ONE of the following:
A. Corporate code of conduct and business ethics
B. Pricing policy, product safety, and quality control
C. Transaction audit
D. Employee health and safety
E. Environmental pollution

Answer

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Tags: Business Ethics, Corporate Responsibility, Environmental audit, Social Audit
Level: Level 3

Topic: Environmental and Sustainability Audits
Series: NOV 2012

AAA – Nov 2013 – L3 – A – Q12 – Advanced Audit Planning and Strategy

This question assesses the primary purpose of understanding a client’s internal control system.

Question

Which of the following is the primary purpose for obtaining an understanding of client’s internal control?
A. Provide a basis for making constructive suggestions in a management letter
B. Determine the nature, timing and extent of tests to be performed in the audit
C. Obtain sufficient and competent evidential matter to afford a reasonable basis for an opinion on the financial statements under examination
D. Provide information for communication of internal control related matters to management
E. Obtain sufficient evidence to afford a basis for an opinion on the financial statements

Answer

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Tags: Audit Planning, Audit strategy, Internal Control
Level: Level 3

Topic: Advanced Audit Planning and Strategy
Series: NOV 2012

AAA – Nov 2013 – L3 – A – Q11 – Advanced Audit Planning and Strategy

This question tests knowledge of analytical procedures used to produce audit evidence.

Question

Which of the following is an analytical procedure generally used to produce audit evidence?
A. Confirmations mailed directly to the auditor by the client’s customers
B. Physical observation of inventories
C. Relationship among current financial balances and prior balances, forecasts, and non-financial data
D. Detailed examination of external and internal documents
E. Circularisation letters to debtors and creditors of the company

Answer

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Tags: Analytical procedures, Audit evidence, Audit Techniques
Level: Level 3

Topic: Advanced Audit Planning and Strategy
Series: NOV 2012

AAA – Nov 2012 – L3 – SA – Q11 – Regulatory Framework and Professional Standards

Identifying impacts not associated with the Due Process Review in contract awarding.

Question

The impact of Due Process Review EXCLUDES:

A. Recognition of competent contractors
B. Recognition and reinstatement of rightful contract winners
C. Elimination of middlemen in contract awards
D. Elimination of doubt in the ability of the contractor
E. Elimination of businessmen in contract awards

Answer

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Tags: Contract Awards, Contractor Evaluation, Due Process, Regulatory Compliance
Level: Level 3

Topic: Regulatory Framework and Professional Standards
Series: NOV 2012

AAA – Nov 2012 – L3 – SA – Q10 – Audit of Complex Transactions

Identifying irrelevant ledger accounts in a payroll journal review.

Question

In order to review a payroll journal, the auditor is NOT likely to interface with which of the following ledger accounts?

A. Pay As You Earn
B. Pension
C. Staff loans
D. Current Assets
E. National Health Insurance

Answer

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Tags: Audit Procedures, Ledger Accounts, Payroll Audit, Payroll Journal
Level: Level 3

Topic: Audit of Complex Entities
Series: NOV 2012

AAA – Nov 2012 – L3 – SA – Q8 – Ethical Issues in Auditing

Identifying behaviors not generally applicable as unethical in financial services.

Question

In a recent study involving different users of financial services in Nigeria, various types of unethical behaviour have been identified. Which of the following does NOT have general application in the industry?

A. Any act that does not follow the norms of a profession
B. Any act not in consonance with professional code of conduct
C. A conduct that is morally adjudged wrong, unbecoming, and below expectation
D. Behaviour that is based on moral or pre-modial principles
E. Deviations from standard and known code of conduct guiding an operation

Answer

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Tags: Ethics, Financial Services, Professional Conduct, Unethical Behavior
Level: Level 3

Topic: Ethical Issues in Auditing
Series: NOV 2012

AAA – Nov 2012 – L3 – SA – Q7 – Audit of Specialized Industries

Identifying non-relevant procedures in the audit of a life insurance company.

Question

In the audit of an insurance company carrying out life business, which of the following is NOT relevant?

A. Providing a general reserve which shall be equal to net liabilities on policies in force at the time of actuarial valuation and an additional amount equal to 25% of net premium for every year between actuarial valuation dates.
B. Providing a contingency reserve equal to 1% of gross premium or 10% of profit whichever is greater and which is accumulated until it attains the amount of minimum paid up capital.
C. Providing a margin of solvency which shall not be less than 15% of the gross premium received, less re-insurance premium paid or 15% of the paid-up capital whichever is higher.
D. Separation of funds into Individual Life, Group Life, Health Insurance etc., showing each class.
E. Profit determination only by actuarial valuation of the liabilities and comparing this with available assets.

Answer

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Tags: Actuarial Valuation, Insurance Reserves, Life Insurance Audit, Solvency
Level: Level 3

Topic: Audit of Specialized Industries
Series: NOV 2012

AAA – Nov 2012 – L3 – SA – Q6 – Regulatory Framework and Professional Standards

Responsibilities and regulatory compliance of auditors conducting transnational audits.

Question

Auditors that carry out transnational audit usually belong to multinational firms and as such are:

A. Independent of the local laws and regulations
B. Not expected to operate under the professional rules of any particular country
C. Not accountable to any supervisory body
D. Expected to buy the shares of the multinational corporations to gain entry into the country
E. Operating subject to national laws and professional values in more than one country

Answer

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Tags: Multinational Firms, Professional Standards, Regulatory Framework, Transnational Audit
Level: Level 3

Topic: Regulatory Framework and Professional Standards
Series: NOV 2012

AAA – Nov 2012 – L3 – SA – Q5 – Public Sector Audits

Key inclusions in the final report of a Board of Inquiry for public sector investigations.

Question

Regarding investigation in the public sector, the final report of the Board of Inquiry shall include:

A. The number of memoranda received from the public
B. A statement of the exact amount of loss that has been incurred
C. Certification from the Due Process office
D. Report of the Auditor-General for the Federation
E. External Auditors’ opinion statement on the loss that occurred

Answer

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Tags: Auditor General, Board of Inquiry, Loss Reporting, Public Sector
Level: Level 3

Topic: Public sector audit
Series: NOV 2012

AAA – Nov 2012 – L3 – SA – Q4 – Regulatory Framework and Professional Standards

Identifying non-deficiencies of historical cost accounting in inflation periods.

Question

The deficiencies of historical cost accounting during inflation EXCLUDE which of the following?
A. The Net Book Value of Fixed Assets is often substantially below their current value
B. The statement of financial position figure of stock reflects prices ruling at the date of purchase or manufacture rather than those current at the year end
C. Charges made in arriving at the profit do not reflect the current value of assets, which result in overstated profit in real terms
D. If the historical cost accounting profit were distributed in full, the level of operations would have to be curtailed
E. The understatement of profit and the overstatement of assets prevent meaningful calculations of profitability

Answer

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Tags: Financial Statements, Historical Cost, Inflation Accounting, Profit Overstatement
Level: Level 3

Topic: Regulatory Framework and Professional Standards
Series: NOV 2012

AAA – Nov 2012 – L3 – SA – Q3 – Regulatory Framework and Professional Standards

Identifying non-responsibilities of directors related to accounting functions in a company.

Question

The responsibilities of the directors in relation to the accounting functions of the company fall under the following EXCEPT:
A. Safeguarding the company’s assets and preventing errors and fraud in the company
B. Defining the concept of materiality and tolerable error as a guide to the auditor
C. Ensuring that the company keeps proper accounting records as defined in the legislations
D. Setting up internal control system in the company as a standard practice
E. Preparing the financial statements to show the results of the company for the year and financial position as at year-end

Answer

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Tags: Accounting Functions, Directors' Responsibilities, Financial Statements, Internal Control
Level: Level 3

Topic: Regulatory Framework and Professional Standards
Series: NOV 2012

AAA – Nov 2012 – L3 – SA – Q2 – Assurance Engagements

Identifying non-objectives in profit forecast investigations by auditors.

Question

Which of the following is NOT an objective of profit forecast investigation on which an opinion can be given?
A. Whether or not the profit forecast complies with the Generally Accepted Accounting Principles
B. As to whether the profit forecast has been prepared on the basis of the existing organization’s accounting policies
C. Whether or not the profit forecast has been prepared on the basis of management assumptions and judgment
D. On the reasonableness of the management assumptions and judgment of the profit forecast
E. As to whether the profit forecast agrees with the underlying records

Answer

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Tags: Assurance, Compliance, GAAP, Profit Forecast, Regulatory Standards
Level: Level 3

Topic: Assurance Engagements
Series: NOV 2012

AAA – Nov 2012 – L3 – SA – Q1 – Regulatory Framework and Professional Standards

Understanding conditions under which an auditor may disclose client’s confidential information.

Question

An auditor can disclose the client’s confidential information for the following reasons EXCEPT:
A. Auditor suspects that the client has committed treason
B. When there is a public duty to disclose
C. Disclosure is needed to protect the auditor’s interest
D. When the client has committed an act of felony
E. When information is formally requested by another client

Answer

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Tags: Auditor’s Disclosure, Confidentiality, Ethics, Regulatory Framework
Level: Level 3

Topic: Regulatory Framework and Professional Standards
Series: NOV 2012

Series: NOV 2012

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AAA – Nov 2013 – L3 – A – Q20 – Audit of Specialized Industries

This question tests knowledge of reserves that may or may not be reviewed during the audit of a non-life insurance company.

You're reporting an error for "AAA – Nov 2013 – L3 – A – Q20 – Audit of Specialized Industries"

AAA – Nov 2013 – L3 – A – Q19 – Internal Audit and Corporate Governance

This question identifies assignments that qualify as continuous audit functions.

You're reporting an error for "AAA – Nov 2013 – L3 – A – Q19 – Internal Audit and Corporate Governance"

AAA – Nov 2013 – L3 – A – Q18 – Audit Reporting

This question assesses knowledge of the main users of financial reports that auditors focus on.

You're reporting an error for "AAA – Nov 2013 – L3 – A – Q18 – Audit Reporting"

AAA – Nov 2013 – L3 – A – Q17 – Auditor’s Legal Liability

This question examines the best defence an audit firm can present when accused of failing to identify substandard and obsolete inventory.

You're reporting an error for "AAA – Nov 2013 – L3 – A – Q17 – Auditor’s Legal Liability"

AAA – Nov 2013 – L3 – A – Q16 – Group Audits

This question assesses the appropriate audit procedure for verifying a subsidiary’s accounts before consolidation.

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AAA – Nov 2013 – L3 – A – Q15 – Audit Reporting

This question assesses the primary purpose of sending a letter of enquiry to a legal firm regarding client litigation.

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AAA – Nov 2013 – L3 – A – Q14 – Regulatory Framework and Professional Standards

This question assesses knowledge of factors that weaken local auditing standards and identifies an unrelated factor.

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AAA – Nov 2013 – L3 – A – Q13 – Environmental and Sustainability Audits

This question assesses the scope of social audit and identifies an area it does not cover.

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AAA – Nov 2013 – L3 – A – Q12 – Advanced Audit Planning and Strategy

This question assesses the primary purpose of understanding a client’s internal control system.

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AAA – Nov 2013 – L3 – A – Q11 – Advanced Audit Planning and Strategy

This question tests knowledge of analytical procedures used to produce audit evidence.

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AAA – Nov 2012 – L3 – SA – Q11 – Regulatory Framework and Professional Standards

Identifying impacts not associated with the Due Process Review in contract awarding.

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AAA – Nov 2012 – L3 – SA – Q10 – Audit of Complex Transactions

Identifying irrelevant ledger accounts in a payroll journal review.

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AAA – Nov 2012 – L3 – SA – Q8 – Ethical Issues in Auditing

Identifying behaviors not generally applicable as unethical in financial services.

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AAA – Nov 2012 – L3 – SA – Q7 – Audit of Specialized Industries

Identifying non-relevant procedures in the audit of a life insurance company.

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AAA – Nov 2012 – L3 – SA – Q6 – Regulatory Framework and Professional Standards

Responsibilities and regulatory compliance of auditors conducting transnational audits.

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AAA – Nov 2012 – L3 – SA – Q5 – Public Sector Audits

Key inclusions in the final report of a Board of Inquiry for public sector investigations.

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AAA – Nov 2012 – L3 – SA – Q4 – Regulatory Framework and Professional Standards

Identifying non-deficiencies of historical cost accounting in inflation periods.

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AAA – Nov 2012 – L3 – SA – Q3 – Regulatory Framework and Professional Standards

Identifying non-responsibilities of directors related to accounting functions in a company.

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AAA – Nov 2012 – L3 – SA – Q2 – Assurance Engagements

Identifying non-objectives in profit forecast investigations by auditors.

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AAA – Nov 2012 – L3 – SA – Q1 – Regulatory Framework and Professional Standards

Understanding conditions under which an auditor may disclose client’s confidential information.

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