Chapter 1: Concept of and need for assurance

1 Which three of the following are key elements of a general assurance engagement?
A A user
B A subject matter
C Suitable criteria
D An assurance file LO 1a

2 Which three of the following describe aspects of the expectations gap with respect to the
external audit?
A Users do not understand the meaning of the audit opinion
B Users are not aware of the limitations of the audit process
C Users do not appreciate that reasonable assurance is a low level of assurance
D Users do not understand what the audit process involves LO 1e

3 Which two of the following are limitations of the provision of assurance?

A Assurance work is carried out by people independent of the entity
B Sampling is used in assurance work
C Client systems have inherent limitations
D Unqualified staff may be used on assurance engagements LO 1e

4 In any assurance engagement there are three parties involved: the responsible party, the
practitioner and the user.
In respect of given subject matter state which party:
determines the suitable criteria?
A User
B Practitioner
C Responsible party
provides an opinion on whether the subject matter complies with the criteria?
D User
E Practitioner
F Responsible party LO 1c

ICAEW 2020 Chapter 1: Concept of and need for assurance 3

 5 Which one of the following statements best describes the evidence obtained and the
opinion given in a reasonable assurance engagement?
A Sufficient appropriate evidence and a negatively worded opinion
B Sufficient appropriate evidence and a positively worded opinion
C A lower level of evidence and a negatively worded opinion
D A lower level of evidence and a positively worded opinion LO 1h

6 For each of the following statements, select whether they are true or false.
A statutory audit gives reasonable assurance that the financial statements give a true and
fair view.
A True
B False
A negative assurance conclusion gives a limited level of assurance.
C True
D False
Reasonable assurance is absolute assurance of the correctness of the subject matter.
E True
F False LO 1d

7 Jones LLP is the external auditor of Blue plc, a listed company. The directors of Blue plc
have requested that Jones LLP carry out a review engagement assessing the effectiveness
of its corporate governance policies against the UK Corporate Governance Code.
For the above review engagement, select which part of the engagement description
constitutes the subject matter, which describes the suitable criteria and which party is the
responsible party.
The subject matter
A Blue plc's corporate governance policies
B The UK Corporate Governance Code
The suitable criteria
C Blue plc's corporate governance policies
D The UK Corporate Governance Code
The responsible party
E Jones LLP
F The directors of Blue plc LO 1a/c

4 Assurance: Question Bank ICAEW 2020

 8 For each of the following statements relating to the provisions of the Companies Act 2006,
select whether they are true or false.
An individual or firm is eligible for appointment as statutory auditor if the individual or firm
is a member of a recognised supervisory body and is eligible for appointment under the
rules of that body.
A True
B False
A person may not act as a statutory auditor of a company if that person is an officer or
employee of the company.
C True
D False LO 1f

9 Which one of the following best describes the concept of assurance?

Assurance refers to:
A an assurance firm's high level of satisfaction as to the reliability of an assertion being
made by one party for the use of another party
B an assurance firm's satisfaction as to the reliability of an assertion being made by one
party for the use of another party
C a user's satisfaction as to the reliability of an assertion being made by another party
D an assurance firm's limited level of satisfaction as to the reliability of an assertion being
made by one party for the use of another party LO 1a

10 Which three of the following are benefits of an assurance report on financial information?
An assurance report:
A enhances the credibility of the information being reported on
B reduces the risk of management bias in the information being reported on
C attests to the correctness of the information being reported on
D draws the attention of the user to deficiencies in the information being reported on
LO 1b

ICAEW 2020 Chapter 1: Concept of and need for assurance 5

 11 In any assurance engagement there are three parties involved: the responsible party, the
practitioner and the user.
For each of the following select which party:
prepares the subject matter?
A Responsible party
B Practitioner
C User
gathers evidence on the subject matter?
D Responsible party
E Practitioner
F User LO 1c

12 The following is an extract from an independent accountant's unmodified report on a profit

forecast:
'Based on our examination of the evidence supporting the assumptions, nothing has come
to our attention which causes us to believe that these assumptions do not provide a
reasonable basis for the forecast.'
Which one of the following best describes the type of assurance provided by this
statement?
A Positive assurance expressed negatively
B Negative assurance expressed positively
C High level of assurance expressed negatively
D Limited level of assurance expressed negatively LO 1d

13 In the context of a statutory audit which three of the following are commonly cited examples
of misunderstandings that contribute to the expectation gap?
The belief that:
A the auditor's report certifies the financial statements as correct
B the auditor's principal duty is to detect fraud
C the auditor is employed by the directors
D the auditor checks all transactions LO 1e

6 Assurance: Question Bank ICAEW 2020

 14 The level of assurance provided by an assurance engagement will depend on the type of
engagement.
For each of the following examples, select the level of assurance which would be given.
Statutory audit
A Absolute
B Reasonable
Review of financial information
C Reasonable
D Limited
Report on profit and cash flow forecasts
E Reasonable
F Limited LO 1d

15 The Companies Act 2006 requires all companies to be audited, but allows small companies
an exemption from this requirement where they meet certain criteria.
Small Ltd has an annual turnover of £10 million, total assets of £5.1 million, and
101 employees.
Assuming no special circumstances exist, is Small Ltd required to have an audit in the UK?
A Yes
B No
Tiny Ltd has an annual turnover of £15 million, total assets of £5.2 million, and
99 employees.
Assuming no special circumstances exist, is Tiny Ltd required to have an audit in the UK?
C Yes
D No
Little Ltd has an annual turnover of £5 million, total assets of £4.9 million, and
45 employees.
Assuming no special circumstances exist, is Little Ltd required to have an audit in the UK?
E Yes
F No LO 1f

ICAEW 2020 Chapter 1: Concept of and need for assurance 7