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Armenia Auditor Qualification Exam study materials
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Armenia Auditor Qualification Exam practice questions

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Question 1Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IFRS, which of the following items is recognized as an intangible asset?

  1. A purchased patent with a useful life of ten years Correct answer.
  2. A customer list developed by the entity's own marketing team
  3. The skills of a specially trained workforce
  4. Goodwill generated internally over several years

Explanation

An intangible asset must be identifiable, controlled, and expected to generate future economic benefits. A purchased patent meets all these criteria and is recognized at cost. Internally generated goodwill, internally developed customer lists, and staff skills fail the identifiability or control tests.

Question 2Financial Accounting and Reporting (IFRS / Armenian accounting standards)

An entity sells goods with a right of return allowing customers to return items within 30 days. Under IFRS 15, how should revenue be recognized at the point of sale?

  1. Revenue is deferred entirely until the customer confirms acceptance
  2. Revenue is recognized for the amount to which the entity expects to be entitled, with a refund liability Correct answer.
  3. Revenue is recognized for the full amount and a refund liability is not recorded
  4. Revenue is recognized only when the return period expires

Explanation

IFRS 15 requires revenue to be recognized for the consideration the entity expects to be entitled to, net of expected returns. A refund liability is recognized for the amount expected to be refunded. The full amount is not recognized, and revenue is not deferred entirely.

Question 3Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Which measurement basis does IAS 16 permit for property, plant and equipment after initial recognition?

  1. Lower of cost and net realizable value
  2. Fair value model through profit or loss
  3. Cost model or revaluation model Correct answer.
  4. Cost model only

Explanation

IAS 16 allows an entity to choose either the cost model or the revaluation model for each class of property, plant and equipment. The fair value model is used for investment property under IAS 40, and the lower of cost and net realizable value applies to inventory under IAS 2.

Question 4Financial Accounting and Reporting (IFRS / Armenian accounting standards)

An entity issues a bond at a discount. Under the effective interest method, how does the carrying amount of the bond change over its life?

  1. It is remeasured to fair value each reporting date
  2. It remains constant at the issue proceeds
  3. It decreases each period toward face value
  4. It increases each period toward face value Correct answer.

Explanation

When a bond is issued at a discount, the effective interest rate exceeds the coupon rate, so interest expense exceeds the cash coupon and the carrying amount accretes upward toward face value. The carrying amount does not stay constant or decline.

Question 5Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IAS 36, when should an impairment loss on a cash-generating unit be allocated to goodwill?

  1. Only after all other assets in the unit have been written down to zero
  2. Before any other assets of the unit are reduced Correct answer.
  3. Proportionally with all other assets of the unit
  4. Never, because goodwill is not subject to impairment testing

Explanation

IAS 36 requires an impairment loss for a cash-generating unit to be allocated first to reduce the carrying amount of goodwill, then to the other assets pro rata. Goodwill is tested for impairment at least annually.

Question 6Financial Accounting and Reporting (IFRS / Armenian accounting standards)

An entity receives a government grant related to assets. Under IAS 20, which presentation approach is permitted?

  1. Recognize the grant as revenue immediately in full
  2. Recognize the grant as a liability until the asset is sold
  3. Recognize the grant as a reduction of retained earnings
  4. Deduct the grant from the carrying amount of the asset Correct answer.

Explanation

IAS 20 permits a government grant related to assets to be presented either as deferred income or by deducting it from the carrying amount of the asset. Immediate recognition in full or as a reduction of retained earnings is not permitted.

Question 7Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IAS 37, how should a provision be measured?

  1. At the best estimate of the expenditure required to settle the obligation Correct answer.
  2. At fair value of the related asset
  3. At the maximum amount the entity could be required to pay
  4. At the amount already paid to settle similar obligations

Explanation

IAS 37 requires a provision to be measured at the best estimate of the expenditure required to settle the present obligation at the reporting date. Where the effect is material, the estimate is discounted. It is not measured at a maximum amount or at fair value of an asset.

Question 8Financial Accounting and Reporting (IFRS / Armenian accounting standards)

An entity's inventory cost is 100 and its net realizable value at year-end is 85. Under IAS 2, at what amount should the inventory be carried?

  1. 100
  2. 85 Correct answer.
  3. 15
  4. 92.5

Explanation

IAS 2 requires inventory to be measured at the lower of cost and net realizable value. Since net realizable value of 85 is below cost of 100, the inventory is written down to 85.

Question 9Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IFRS 16, how does a lessee initially measure a right-of-use asset?

  1. At the total undiscounted lease payments over the lease term
  2. At the amount of the lease liability plus initial direct costs and prepayments Correct answer.
  3. At the fair value of the underlying asset on the commencement date
  4. At the present value of future variable lease payments only

Explanation

The right-of-use asset is initially measured at the amount of the lease liability, adjusted for initial direct costs, lease payments made at or before commencement, and estimated restoration costs. It is not measured at the asset's fair value or at undiscounted payments.

Question 10Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IAS 12, a deductible temporary difference gives rise to which of the following?

  1. A current tax payable
  2. A deferred tax asset Correct answer.
  3. A permanent difference
  4. A deferred tax liability

Explanation

A deductible temporary difference means the carrying amount of an asset or liability is less than its tax base, which will reduce future taxable amounts and therefore creates a deferred tax asset. A taxable temporary difference creates a deferred tax liability.

Question 11Financial Accounting and Reporting (IFRS / Armenian accounting standards)

An entity changes an accounting estimate. Under IAS 8, how is the change accounted for?

  1. By adjusting opening retained earnings directly
  2. Retrospectively, by restating prior periods
  3. Prospectively, from the date of change Correct answer.
  4. By disclosing it as a prior period error

Explanation

IAS 8 requires changes in accounting estimates to be applied prospectively by recognizing the effect in the current and future periods. Retrospective restatement applies to changes in accounting policy and corrections of errors.

Question 12Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IAS 21, an entity's functional currency is defined as which of the following?

  1. The currency of the primary economic environment in which the entity operates Correct answer.
  2. The currency of the country where the entity is incorporated
  3. The currency in which the entity presents its financial statements
  4. The currency in which the majority of its shares are denominated

Explanation

The functional currency is the currency of the primary economic environment in which the entity operates. The presentation currency is the currency in which the financial statements are presented and may differ from the functional currency.

Question 13Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IFRS 15, a contract with a customer is accounted for when specified criteria are met. Which of the following is one of those criteria?

  1. The contract has a duration of more than one year
  2. The contract has been approved and the parties are committed to perform Correct answer.
  3. The entity has already delivered all goods
  4. The customer has paid a non-refundable deposit

Explanation

IFRS 15 requires, among other criteria, that the contract be approved and the parties committed to perform, that rights and payment terms be identifiable, that it have commercial substance, and that collection be probable. Contract duration, deposit payment, and full delivery are not criteria.

Question 14Financial Accounting and Reporting (IFRS / Armenian accounting standards)

An entity has a defined benefit obligation with a present value of 500 and plan assets with a fair value of 450. What is the net defined benefit liability recognized?

  1. 950
  2. 500
  3. 50 Correct answer.
  4. 450

Explanation

The net defined benefit liability is the present value of the defined benefit obligation less the fair value of plan assets, which is 500 minus 450, or 50. The separate gross amounts are not presented as the net position.

Question 15Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IFRS 9, how are equity investments that are not held for trading generally measured?

  1. At fair value through profit or loss, unless the irrevocable OCI election is made Correct answer.
  2. At amortized cost
  3. At fair value through OCI, with recycling of gains on disposal
  4. At cost less impairment

Explanation

Under IFRS 9, equity investments are generally measured at fair value through profit or loss. On initial recognition an entity may irrevocably elect to present changes in fair value in OCI for equity instruments not held for trading, with no recycling.

Question 16Financial Accounting and Reporting (IFRS / Armenian accounting standards)

An entity acquires a building for 1,000,000 with a useful life of 20 years and no residual value, using straight-line depreciation. After 5 years, the building is revalued to 900,000. What is the revaluation surplus?

  1. 100,000
  2. 150,000 Correct answer.
  3. 50,000
  4. 250,000

Explanation

After 5 years, the carrying amount is 1,000,000 minus accumulated depreciation of 250,000, which equals 750,000. The revaluation surplus is the excess of the revalued amount over the carrying amount, 900,000 minus 750,000, or 150,000.

Question 17Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IAS 7, which of the following is classified as a cash flow from investing activities?

  1. Cash received from customers
  2. Cash paid to suppliers
  3. Proceeds from issuing shares
  4. Purchase of property, plant and equipment Correct answer.

Explanation

Investing activities include the acquisition and disposal of long-term assets, such as the purchase of property, plant and equipment. Cash from customers and payments to suppliers are operating activities, and issuing shares is a financing activity.

Question 18Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IAS 10, a fire that destroys a major production facility after the reporting date but before the financial statements are authorized for issue is treated as which of the following?

  1. An event that does not require any action
  2. An adjusting event requiring restatement of the financial statements
  3. A non-adjusting event requiring disclosure if material Correct answer.
  4. An error requiring retrospective restatement

Explanation

The fire provides evidence of conditions that arose after the reporting date, so it is a non-adjusting event. It does not change amounts recognized at year-end but must be disclosed if material because of its significance.

Question 19Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IFRS 3, how is goodwill acquired in a business combination measured?

  1. As the sum of all intangible assets acquired
  2. As the excess of consideration transferred over the book value of net assets
  3. As the excess of consideration transferred over the fair value of net identifiable assets Correct answer.
  4. As the fair value of consideration transferred plus liabilities assumed

Explanation

Goodwill is measured as the excess of the consideration transferred (plus any non-controlling interest and previously held interest) over the fair value of the identifiable net assets acquired. Book values are not used, and goodwill is not a summation of intangibles.

Question 20Financial Accounting and Reporting (IFRS / Armenian accounting standards)

An entity has 1,000 ordinary shares outstanding and earns profit of 10,000. It also has 200 convertible preference shares that would add 1,000 to profit if converted and would convert into 200 ordinary shares. What is the diluted earnings per share?

  1. 8.00
  2. 10.00
  3. 8.33 Correct answer.
  4. 9.17

Explanation

Diluted EPS adds the incremental profit of 1,000 and the incremental shares of 200 to the basic figures. Adjusted profit is 11,000 and adjusted shares are 1,200, giving diluted EPS of 9.17.

Question 21Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IAS 1, which of the following is a required component of a complete set of financial statements?

  1. A directors' remuneration report
  2. A five-year summary of share prices
  3. A budget forecast for the next year
  4. A statement of changes in equity Correct answer.

Explanation

IAS 1 requires a statement of financial position, statement of profit or loss and OCI, statement of changes in equity, statement of cash flows, and notes. Directors' remuneration reports, budgets, and share price summaries are not required components.

Question 22Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IAS 40, an investment property measured under the fair value model should be measured at fair value with changes recognized where?

  1. As a deferred gain until disposal
  2. In other comprehensive income
  3. In profit or loss Correct answer.
  4. Directly in retained earnings

Explanation

Under the fair value model in IAS 40, gains or losses arising from changes in fair value are recognized in profit or loss in the period in which they arise. They are not deferred or recognized in OCI.

Question 23Financial Accounting and Reporting (IFRS / Armenian accounting standards)

An entity has a receivable of 1,000 from a customer. Under IFRS 9's expected credit loss model, the entity estimates a 3% loss allowance. What is the carrying amount of the receivable after the allowance?

  1. 1,030
  2. 1,000
  3. 30
  4. 970 Correct answer.

Explanation

The loss allowance is 3% of 1,000, or 30, which is deducted from the gross receivable to give a carrying amount of 970. The allowance is not added to the receivable.

Question 24Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IAS 2, which cost formula is permitted for inventory of items that are not ordinarily interchangeable?

  1. Weighted average cost
  2. Specific identification of individual costs Correct answer.
  3. First-in, first-out
  4. Last-in, first-out

Explanation

IAS 2 requires specific identification for inventory items that are not ordinarily interchangeable and for goods produced for specific projects. FIFO and weighted average are used for interchangeable items, and LIFO is prohibited.

Question 25Financial Accounting and Reporting (IFRS / Armenian accounting standards)

An entity provides a warranty on products sold. It estimates that 2% of sales will require warranty repairs. Sales for the period are 500,000, and actual warranty costs incurred are 4,000. Under IAS 37, what warranty provision should be recognized at year-end?

  1. 0
  2. 10,000
  3. 6,000 Correct answer.
  4. 4,000

Explanation

The warranty provision is the best estimate of the obligation, 2% of 500,000, or 10,000, less actual costs already incurred of 4,000, giving 6,000. The provision is not the gross estimate nor the actual costs alone.

Question 26Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IAS 16, at what amount is an item of property, plant and equipment initially measured?

  1. At its cost Correct answer.
  2. At its net present value of future benefits
  3. At its fair value at the date of acquisition
  4. At its recoverable amount

Explanation

IAS 16 requires an item of property, plant and equipment that qualifies for recognition to be measured initially at its cost. Cost includes the purchase price plus directly attributable costs of bringing the asset to the location and condition for its intended use. Fair value is only relevant under the revaluation model applied subsequently.

Question 27Financial Accounting and Reporting (IFRS / Armenian accounting standards)

An entity purchases equipment for 50,000. Directly attributable costs are 3,000, and a trade discount of 2,000 is deducted by the supplier. What amount should be recognised as the cost of the equipment under IAS 16?

  1. 53,000
  2. 50,000
  3. 48,000
  4. 51,000 Correct answer.

Explanation

Cost comprises the purchase price after deducting trade discounts and rebates, plus directly attributable costs. Here 50,000 minus 2,000 equals 48,000, plus 3,000 of directly attributable costs gives 51,000.

Question 28Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IAS 38, how should an entity recognise expenditure on research and development?

  1. Expense all research expenditure as incurred and capitalise development expenditure when specified criteria are met Correct answer.
  2. Expense all expenditure on both research and development
  3. Capitalise all expenditure on both research and development
  4. Capitalise research expenditure and expense development expenditure as incurred

Explanation

IAS 38 prohibits recognising research expenditure as an intangible asset and requires it to be expensed when incurred. Development expenditure is capitalised only if the entity can demonstrate all of the specified criteria, such as technical feasibility and intention to complete.

Question 29Financial Accounting and Reporting (IFRS / Armenian accounting standards)

An entity has a machine with a carrying amount of 80,000. Its fair value less costs of disposal is 65,000 and its value in use is 70,000. What is the impairment loss under IAS 36?

  1. 0
  2. 5,000
  3. 15,000
  4. 10,000 Correct answer.

Explanation

Recoverable amount is the higher of fair value less costs of disposal and value in use, which is 70,000. The impairment loss is the carrying amount of 80,000 less the recoverable amount of 70,000, equal to 10,000.

Question 30Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IAS 23, how should borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset be treated?

  1. Recognised as an expense in the period incurred
  2. Capitalised as part of the cost of that asset Correct answer.
  3. Deducted from retained earnings
  4. Recognised in other comprehensive income

Explanation

IAS 23 requires borrowing costs directly attributable to a qualifying asset to be capitalised as part of the cost of that asset. Other borrowing costs are expensed. Capitalisation begins when expenditure and borrowing costs are incurred and activities to prepare the asset are underway.

Question 31Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IFRS 13, what is the definition of fair value?

  1. The amount expected to be recovered from an asset through its continued use
  2. The present value of the future cash flows expected from an asset
  3. The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date Correct answer.
  4. The historical cost of an asset adjusted for accumulated depreciation

Explanation

IFRS 13 defines fair value as the price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is a market-based exit price, not an entity-specific value.

Question 32Financial Accounting and Reporting (IFRS / Armenian accounting standards)

An entity sells goods on credit for 100,000 with a 2/10, net 30 discount. The customer is expected to take the discount. Under IFRS 15, what amount of revenue should the entity recognise?

  1. 99,000
  2. 102,000
  3. 100,000
  4. 98,000 Correct answer.

Explanation

Under IFRS 15, revenue is measured at the transaction price, which reflects the amount of consideration the entity expects to be entitled to. Because the customer is expected to take the 2% discount, the expected consideration is 98,000.

Question 33Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IFRS 15, how should an entity allocate the transaction price when a contract contains multiple performance obligations?

  1. Based on the relative stand-alone selling prices of each distinct good or service Correct answer.
  2. Entirely to the first performance obligation satisfied
  3. Equally among all performance obligations
  4. Based on the cost incurred on each performance obligation

Explanation

IFRS 15 requires the transaction price to be allocated to each performance obligation in proportion to its stand-alone selling price. This reflects the amount the entity expects to be entitled to for transferring each promised good or service.

Question 34Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IFRS 15, when does an entity recognise revenue from a performance obligation satisfied over time?

  1. Over time, by measuring progress toward complete satisfaction of the performance obligation Correct answer.
  2. At the end of the reporting period regardless of progress
  3. Only when the contract is completed in full
  4. When cash is received from the customer

Explanation

For a performance obligation satisfied over time, IFRS 15 requires revenue to be recognised over time by measuring progress toward complete satisfaction. Appropriate methods include output or input methods that depict the transfer of control.

Question 35Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IAS 19, how are actuarial gains and losses on a defined benefit plan recognised when the entity applies the option permitted by the standard?

  1. Deferred and amortised over the average remaining service life of employees
  2. Immediately in profit or loss
  3. Immediately in other comprehensive income with no subsequent recycling to profit or loss Correct answer.
  4. Recognised directly in retained earnings

Explanation

IAS 19 permits recognition of actuarial gains and losses in other comprehensive income as they arise, with no subsequent recycling to profit or loss. Remeasurements recognised in OCI are never reclassified to profit or loss.

Question 36Financial Accounting and Reporting (IFRS / Armenian accounting standards)

An entity has a defined benefit obligation of 600 and plan assets with a fair value of 500 at year-end. What amount is presented as the net defined benefit liability?

  1. 500
  2. 600
  3. 1,100
  4. 100 Correct answer.

Explanation

The net defined benefit liability is the present value of the defined benefit obligation less the fair value of plan assets. Here 600 minus 500 equals 100.

Question 37Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IFRS 16, how is a lease classified from the perspective of a lessor?

  1. Always as an operating lease
  2. As a right-of-use asset
  3. Always as a finance lease
  4. As either a finance lease or an operating lease, based on whether substantially all risks and rewards incidental to ownership are transferred Correct answer.

Explanation

IFRS 16 requires a lessor to classify each lease as either a finance lease or an operating lease. Classification depends on whether substantially all the risks and rewards incidental to ownership of the underlying asset are transferred.

Question 38Financial Accounting and Reporting (IFRS / Armenian accounting standards)

An entity issues 1,000 convertible bonds with a face value of 100 each. The liability component is measured at 90,000 and the equity component at 10,000. Under IAS 32, how is the equity component determined?

  1. As the fair value of the conversion option determined independently
  2. As the present value of future interest payments
  3. As the full face value of the bonds
  4. As the residual amount after deducting the fair value of the liability component from the proceeds Correct answer.

Explanation

Under IAS 32, a compound financial instrument is split by first measuring the liability component at the fair value of a similar liability without the equity feature. The equity component is the residual amount of the proceeds after deducting the liability component.

Question 39Financial Accounting and Reporting (IFRS / Armenian accounting standards)

Under IFRS 8, on what basis should an entity disclose information about its operating segments?

  1. On the basis of the internal reports regularly reviewed by the chief operating decision maker Correct answer.
  2. On the basis of legal entity structure
  3. On the basis of geographic regions only
  4. On the basis of the entity's chart of accounts

Explanation

IFRS 8 adopts a management approach, requiring disclosure based on the internal reports regularly reviewed by the chief operating decision maker to allocate resources and assess performance. Segments are therefore identified on the same basis used internally.

Question 40Financial Accounting and Reporting (IFRS / Armenian accounting standards)

An entity has a foreign operation whose functional currency differs from the parent's presentation currency. Under IAS 21, how are exchange differences on translation of the foreign operation's financial statements recognised?

  1. Directly against the carrying amount of the investment
  2. As an adjustment to the cost of the foreign operation
  3. In profit or loss as they arise
  4. In other comprehensive income and reclassified to profit or loss on disposal of the foreign operation Correct answer.

Explanation

IAS 21 requires translation differences arising from translating a foreign operation into a different presentation currency to be recognised in other comprehensive income. These cumulative differences are reclassified to profit or loss on disposal of the foreign operation.

Question 41Auditing Standards and Audit Methodology (ISA / Armenian auditing standards)

Under ISA 200, what is the primary purpose of an audit of financial statements?

  1. To prepare the financial statements on behalf of management
  2. To guarantee that the financial statements are free from all errors and fraud
  3. To provide absolute assurance that the entity will continue as a going concern
  4. To enable the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework Correct answer.

Explanation

ISA 200 states that the purpose of an audit is to enhance the degree of confidence of intended users by expressing an opinion on whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework. The auditor obtains reasonable, not absolute, assurance.

Question 42Auditing Standards and Audit Methodology (ISA / Armenian auditing standards)

According to ISA 200, who is responsible for the preparation of the financial statements and for the design of internal control?

  1. The engagement quality control reviewer
  2. The external auditor
  3. The internal audit function
  4. Management, with oversight from those charged with governance Correct answer.

Explanation

ISA 200 establishes that management, with oversight by those charged with governance, is responsible for preparing the financial statements and for the internal control necessary for their fair presentation. The auditor's responsibility is to express an opinion, not to prepare statements or design controls.

Question 43Auditing Standards and Audit Methodology (ISA / Armenian auditing standards)

Under ISA 315, the auditor is required to obtain an understanding of the entity's system of internal control. Which component includes the process of identifying and responding to business risks?

  1. The control environment
  2. Control activities
  3. The entity's risk assessment process Correct answer.
  4. The information system and communication

Explanation

ISA 315 identifies the entity's risk assessment process as the component concerned with how management identifies, assesses and responds to business risks relevant to financial reporting. Control activities are the policies and procedures that help ensure management directives are carried out.

Question 44Auditing Standards and Audit Methodology (ISA / Armenian auditing standards)

An auditor sets performance materiality below overall materiality. What is the main reason for doing so?

  1. To ensure that every individual misstatement is detected
  2. To satisfy the requirements of the entity's tax authority
  3. To reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole Correct answer.
  4. To increase the amount of substantive testing required

Explanation

ISA 320 requires performance materiality to be set to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. It accounts for the risk that individually immaterial misstatements may accumulate.

Question 45Auditing Standards and Audit Methodology (ISA / Armenian auditing standards)

Under ISA 500, which of the following is the most reliable form of audit evidence?

  1. An internally generated sales invoice
  2. A bank confirmation obtained directly by the auditor from the bank Correct answer.
  3. A photocopy of a supplier invoice provided by the client
  4. A verbal representation from the financial controller

Explanation

ISA 500 indicates that evidence obtained directly by the auditor from an independent external source is more reliable than evidence generated internally or provided indirectly. External confirmations therefore rank highly in the reliability hierarchy.

Question 46Auditing Standards and Audit Methodology (ISA / Armenian auditing standards)

ISA 230 requires the auditor to assemble the final audit file on a timely basis. What is the maximum period after the date of the auditor's report for completing this assembly?

  1. 30 days
  2. 90 days
  3. 120 days
  4. 60 days Correct answer.

Explanation

ISA 230 sets a period of no more than 60 days after the date of the auditor's report for assembling the final audit file. After the assembly period ends, the auditor must not delete or discard documentation before the end of its retention period.

Question 47Auditing Standards and Audit Methodology (ISA / Armenian auditing standards)

The auditor identifies a risk of material misstatement due to fraud related to management override of controls. Which response does ISA 240 require in every audit?

  1. Relying solely on management representations
  2. Resigning from the engagement
  3. Reporting the matter directly to the police
  4. Testing journal entries and other adjustments made in the preparation of the financial statements Correct answer.

Explanation

ISA 240 requires the auditor to design and perform procedures to address the risk of management override of controls in every audit, including testing journal entries and other adjustments. Other required responses include reviewing accounting estimates for bias and evaluating business rationale for significant unusual transactions.

Question 48Auditing Standards and Audit Methodology (ISA / Armenian auditing standards)

Under ISA 550, when an entity has related party transactions, what is the auditor's responsibility regarding their identification?

  1. To ignore related parties if management states there are none
  2. To rely entirely on the entity's legal counsel
  3. To audit only transactions exceeding materiality
  4. To obtain an understanding of the entity's related party relationships and transactions sufficient to identify fraud risk factors and assess completeness Correct answer.

Explanation

ISA 550 requires the auditor to obtain an understanding of related party relationships and transactions to identify and assess risks of material misstatement, including fraud risks, and to evaluate the completeness of identified related parties. Management representations alone do not discharge this responsibility.

Question 49Auditing Standards and Audit Methodology (ISA / Armenian auditing standards)

Which of the following best describes the purpose of the engagement letter required by ISA 210?

  1. To serve as a substitute for written representations
  2. To confirm the auditor's acceptance and the terms of the audit engagement, reducing the risk of misunderstanding Correct answer.
  3. To document the fee arrangement only
  4. To replace the need for an audit plan

Explanation

ISA 210 requires the agreed terms of the audit engagement to be recorded in an engagement letter to confirm the auditor's acceptance and to reduce the risk that either party misunderstands the terms. It covers matters such as responsibilities, scope and reporting.

Question 50Auditing Standards and Audit Methodology (ISA / Armenian auditing standards)

The auditor's assessment of the risk of material misstatement is set at the assertion level. Which assertion is most directly addressed by confirming accounts receivable balances with customers?

  1. Classification
  2. Presentation
  3. Completeness
  4. Existence Correct answer.

Explanation

External confirmation of receivable balances provides evidence that the recorded receivables actually exist at the reporting date, addressing the existence assertion. Completeness concerns whether all transactions or balances that should be recorded have been recorded.