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Azerbaijan Auditor Certification study materials
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Azerbaijan Auditor Certification practice questions

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Question 1Legal and Regulatory Framework of Auditing

Which body is responsible for state regulation of auditing activity in the Republic of Azerbaijan?

  1. The Cabinet of Ministers
  2. The Chamber of Auditors
  3. The Ministry of Finance Correct answer.
  4. The Central Bank

Explanation

Under the Law on Auditing Activity, state regulation of auditing is exercised by the authorized state body, which in practice is the Ministry of Finance. The Chamber of Auditors is a professional self-governing organization, not the state regulator.

Question 2Legal and Regulatory Framework of Auditing

What is the standard organizational-legal form of an audit organization in Azerbaijan?

  1. A state-owned enterprise
  2. A limited liability company Correct answer.
  3. A general partnership
  4. A sole proprietorship

Explanation

Audit organizations in Azerbaijan are established as commercial legal entities, typically in the form of a limited liability company. Sole proprietorships and general partnerships are not accepted organizational forms for audit firms.

Question 3Legal and Regulatory Framework of Auditing

Which requirement must an individual satisfy before being admitted to the auditor qualification examination?

  1. Holding a university degree Correct answer.
  2. Ownership of an audit firm
  3. Membership in a foreign audit body
  4. At least ten years of accounting experience

Explanation

Candidates for auditor certification must hold higher education, typically in accounting, economics, or law, in addition to other requirements. Foreign membership, firm ownership, and a fixed ten-year experience period are not prerequisites.

Question 4Legal and Regulatory Framework of Auditing

What document confirms that an auditor has passed the qualification examination and may practice?

  1. A state license
  2. An employment contract
  3. A qualification certificate Correct answer.
  4. A tax registration certificate

Explanation

A qualification certificate issued following successful examination confirms an auditor's right to practice. Licensing of audit organizations is a separate matter, and employment or tax documents do not confer auditor status.

Question 5Legal and Regulatory Framework of Auditing

What is the primary professional self-governing body of auditors in Azerbaijan?

  1. The Financial Monitoring Service
  2. The Accounting Standards Board
  3. The Ministry of Justice
  4. The Chamber of Auditors Correct answer.

Explanation

The Chamber of Auditors is the professional self-governing organization that unites certified auditors and oversees professional ethics and discipline. The other listed bodies have different governmental functions.

Question 6Legal and Regulatory Framework of Auditing

Which of the following engagements is an audit organization entitled to perform under the Law on Auditing Activity?

  1. Setting tax rates for clients
  2. Issuing licenses to other audit firms
  3. Representing a client in court as counsel
  4. Issuing a statutory audit opinion on financial statements Correct answer.

Explanation

Audit organizations may perform statutory and voluntary audits and related assurance services, including issuing audit opinions on financial statements. They cannot act as legal counsel, license other firms, or set tax rates.

Question 7Legal and Regulatory Framework of Auditing

Which of the following is a fundamental ethical principle that an auditor must observe?

  1. Marketing of audit services
  2. Confidentiality Correct answer.
  3. Client advocacy
  4. Profit maximization

Explanation

Confidentiality is a core ethical principle requiring auditors to protect client information. Profit maximization, client advocacy, and marketing are not ethical principles under the professional code.

Question 8Legal and Regulatory Framework of Auditing

What does the independence requirement primarily protect in an audit engagement?

  1. The speed of the audit
  2. The client's trade secrets
  3. The objectivity of the audit opinion Correct answer.
  4. The auditor's fee level

Explanation

Independence safeguards the auditor's objectivity so that the opinion is free from bias or conflict of interest. Fee level, confidentiality of secrets, and audit speed are governed by other rules.

Question 9Legal and Regulatory Framework of Auditing

An audit organization is engaged to audit a company in which its partner holds a controlling ownership interest. What is the correct regulatory response?

  1. Decline the engagement due to a conflict of interest Correct answer.
  2. Proceed if the partner does not sign the opinion
  3. Proceed if the fee is disclosed
  4. Proceed after notifying the tax authority

Explanation

A direct financial interest by an audit firm partner in the client creates a self-interest threat that cannot be reduced to an acceptable level, so the engagement must be declined. Fee disclosure or having another partner sign does not eliminate the conflict.

Question 10Legal and Regulatory Framework of Auditing

Which document establishes the legal basis for auditing activity in Azerbaijan?

  1. The Law on Auditing Activity Correct answer.
  2. The Tax Code
  3. The Civil Code
  4. The Law on Banks

Explanation

The Law on Auditing Activity is the principal statute governing auditors, audit organizations, and audit engagements. The Civil Code, Tax Code, and banking law regulate other areas.

Question 11Legal and Regulatory Framework of Auditing

Which entity is required by law to undergo a mandatory annual audit?

  1. A non-profit hobby club
  2. An individual entrepreneur
  3. A small retail shop with one employee
  4. A joint-stock company Correct answer.

Explanation

Joint-stock companies are among the entities subject to mandatory annual audit because of their public accountability to shareholders. Small retail businesses, individual entrepreneurs, and small non-profits are generally exempt.

Question 12Legal and Regulatory Framework of Auditing

A bank is preparing its annual financial statements. Which audit arrangement does the regulatory framework require?

  1. No audit if the bank is profitable
  2. A mandatory audit by an independent audit organization Correct answer.
  3. An audit performed by the bank's own staff
  4. An internal review only

Explanation

Banks and other credit institutions are subject to mandatory audit by an independent audit organization. Internal review or self-audit does not satisfy the statutory requirement.

Question 13Legal and Regulatory Framework of Auditing

What is the maximum period for which an audit organization may continuously provide statutory audit services to the same public-interest client before rotation is required?

  1. Seven consecutive years Correct answer.
  2. Five consecutive years
  3. Ten consecutive years
  4. Three consecutive years

Explanation

The regulatory framework sets a limit of seven consecutive years for the same audit organization auditing a public-interest entity, after which rotation applies. Shorter and longer figures do not match the statutory rotation period.

Question 14Legal and Regulatory Framework of Auditing

An auditor discovers that a client has committed a material fraud. What is the auditor's primary obligation?

  1. Resign without any communication
  2. Report the matter in accordance with the law and professional standards Correct answer.
  3. Negotiate a settlement with the client
  4. Conceal the matter to protect confidentiality

Explanation

Material fraud must be communicated in accordance with legal and professional reporting requirements, including to management, those charged with governance, and where required, regulators. Concealment, silent resignation, or private settlement would breach professional duties.

Question 15Legal and Regulatory Framework of Auditing

Which of the following circumstances most clearly impairs an auditor's independence?

  1. The auditor reviews prior-year working papers
  2. The auditor uses the client's meeting room
  3. The auditor charges a fixed fee
  4. The auditor holds a material loan from the client Correct answer.

Explanation

A material loan from a client creates a direct financial self-interest threat that impairs independence. Using a meeting room, reviewing prior working papers, and charging a fixed fee do not by themselves impair independence.

Question 16Legal and Regulatory Framework of Auditing

What are the professional consequences for an auditor who repeatedly violates the code of professional ethics?

  1. Disciplinary measures up to revocation of the qualification certificate Correct answer.
  2. A reduced audit fee schedule
  3. Automatic promotion within the Chamber
  4. Exemption from future examinations

Explanation

The Chamber of Auditors and the authorized state body may impose disciplinary measures for ethical violations, up to and including revocation of the qualification certificate. There is no promotion, exemption, or fee reduction as a consequence of violations.

Question 17Legal and Regulatory Framework of Auditing

Which body maintains the register of auditors and audit organizations in Azerbaijan?

  1. The Ministry of Economy
  2. The Central Bank
  3. The authorized state body (Ministry of Finance) Correct answer.
  4. The Chamber of Auditors

Explanation

The authorized state body maintains the state register of auditors and audit organizations. The Chamber of Auditors is a professional organization and does not maintain the state register.

Question 18Legal and Regulatory Framework of Auditing

An audit organization wishes to audit an entity whose financial statements are controlled by a close family member of the engagement partner. What should the firm do?

  1. Accept the engagement without further action
  2. Accept the engagement if the fee is increased
  3. Assess and address the threat, declining if it cannot be eliminated Correct answer.
  4. Accept the engagement and disclose the relationship in the report

Explanation

Close family relationships with client personnel in a position to influence the financial statements create a familiarity or intimidation threat that must be evaluated and, if it cannot be eliminated or reduced, results in declining the engagement. Disclosure in the report or a higher fee does not resolve the threat.

Question 19Legal and Regulatory Framework of Auditing

What is the required form of the audit report issued following a statutory audit?

  1. An oral presentation to management
  2. An internal memorandum only
  3. A written report in the form prescribed by standards Correct answer.
  4. A press release

Explanation

The audit report must be a written document prepared in the form prescribed by auditing standards, expressing the auditor's opinion. Oral, press, or internal-only formats do not satisfy the requirement.

Question 20Legal and Regulatory Framework of Auditing

Which of the following is a type of audit opinion an auditor may express?

  1. Deferred opinion
  2. Conditional approval
  3. Unmodified opinion Correct answer.
  4. Provisional opinion

Explanation

Auditors express an unmodified (unqualified) opinion, a qualified opinion, an adverse opinion, or a disclaimer of opinion. Conditional approval, provisional, and deferred opinions are not recognized audit opinion types.

Question 21Legal and Regulatory Framework of Auditing

An auditor is unable to obtain sufficient appropriate evidence about a material but not pervasive matter. Which opinion is appropriate?

  1. Unmodified opinion
  2. Qualified opinion Correct answer.
  3. Adverse opinion
  4. Disclaimer of opinion

Explanation

When a material but not pervasive scope limitation exists, a qualified opinion is appropriate. An adverse opinion applies to material and pervasive misstatements, while a disclaimer applies when the possible effects are both material and pervasive.

Question 22Legal and Regulatory Framework of Auditing

What must an audit organization do to begin providing statutory audit services?

  1. Obtain a license from the authorized state body Correct answer.
  2. Join a foreign audit network
  3. Publish its fee schedule
  4. Open a branch in every region

Explanation

Audit organizations must obtain a license from the authorized state body before providing statutory audit services. Joining a foreign network, publishing fees, or opening branches are not licensing prerequisites.

Question 23Legal and Regulatory Framework of Auditing

Which principle requires an auditor to avoid conduct that could discredit the profession?

  1. Professional competence and due care
  2. Objectivity
  3. Confidentiality
  4. Professional behavior Correct answer.

Explanation

Professional behavior requires auditors to comply with laws and avoid conduct that discredits the profession. Competence concerns skill and diligence, confidentiality concerns information protection, and objectivity concerns bias.

Question 24Legal and Regulatory Framework of Auditing

An auditor is offered a substantial gift by a client's chief executive during the audit. How should the auditor respond?

  1. Accept it if it is disclosed to the Chamber
  2. Accept it and reduce the audit fee
  3. Accept it as a token of appreciation
  4. Refuse it because it creates a self-interest threat Correct answer.

Explanation

Accepting a substantial gift creates a self-interest threat and may also amount to improper inducement, so it must be refused. Disclosure to the Chamber or a fee reduction does not neutralize the threat.

Question 25Legal and Regulatory Framework of Auditing

Which of the following best describes the relationship between auditing standards and the Law on Auditing Activity?

  1. Standards replace the law entirely
  2. Standards are optional guidance with no legal effect
  3. Standards apply only to foreign auditors
  4. Standards operate within the framework established by the law Correct answer.

Explanation

Auditing standards are applied within the legal framework set by the Law on Auditing Activity, which establishes the binding nature of standards. They neither replace the statute nor apply only to foreign auditors.

Question 26Legal and Regulatory Framework of Auditing

Under the Azerbaijani Law on Auditing Activity, which of the following best describes the status of an auditor's working papers and the confidentiality duty that applies to them?

  1. They become the property of the audited entity once the audit is completed
  2. They may be freely shared with any third party who requests them
  3. They must be treated as confidential and may be disclosed only in cases provided by law Correct answer.
  4. They must be published together with the audited financial statements

Explanation

The law imposes an audit secrecy (confidentiality) obligation on auditors and audit organizations covering information obtained during the engagement. Disclosure is permitted only where the law expressly provides for it, for example at the request of authorized state bodies or with client consent in legally defined circumstances.

Question 27Legal and Regulatory Framework of Auditing

An audit organization has been providing bookkeeping services to a company for several years. The company now asks the same organization to perform its mandatory statutory audit. Under the ethical and legal framework, what is the primary concern?

  1. Excessive audit fees charged to a long-standing client
  2. Lack of technical competence to audit a former client
  3. Absence of a written engagement letter for the prior services
  4. Self-review threat arising from the auditor reviewing work it prepared itself Correct answer.

Explanation

When an audit organization has prepared the accounting records, auditing those same records creates a self-review threat because the auditor would be evaluating its own work. Safeguards must eliminate or reduce this threat to an acceptable level, and in some cases the non-assurance service must be discontinued before the audit can proceed.

Question 28Legal and Regulatory Framework of Auditing

Which of the following statements correctly describes the role of the audit report in relation to an entity's financial statements?

  1. It certifies the future profitability of the audited entity
  2. It expresses the auditor's opinion on whether the statements are presented fairly in accordance with the applicable framework Correct answer.
  3. It replaces the management's responsibility for preparing the financial statements
  4. It guarantees that the financial statements are free of every error regardless of materiality

Explanation

The audit report conveys the auditor's opinion on the fair presentation of the financial statements in accordance with the applicable financial reporting framework. It provides reasonable, not absolute, assurance and does not transfer management's responsibility to the auditor.

Question 29Legal and Regulatory Framework of Auditing

An audit organization is asked to audit an entity in which a former partner of that organization served as chief financial officer during the period under audit. What is the most appropriate response under the independence rules?

  1. Rely on the former partner's assurances that no conflict exists
  2. Accept the engagement provided the audit fee is increased
  3. Proceed without any evaluation because the individual is no longer a partner
  4. Assess the threat and apply safeguards, or decline the engagement if the threat cannot be reduced Correct answer.

Explanation

A former partner in a key management position with the audit client may create a familiarity or self-interest threat that must be evaluated. The audit organization must apply safeguards to reduce the threat to an acceptable level or decline the engagement if it cannot.

Question 30Legal and Regulatory Framework of Auditing

Which of the following best explains why the Law on Auditing Activity and the auditing standards operate together rather than independently?

  1. Standards are optional guidance that auditors may follow at their discretion
  2. The law applies only to state-owned entities, while standards apply to all others
  3. Standards override the law whenever the two conflict in a specific engagement
  4. The law sets binding legal requirements, while standards provide the detailed methodology for meeting them Correct answer.

Explanation

The Law establishes mandatory legal obligations for auditing activity, and the auditing standards supply the detailed principles and procedures through which those obligations are fulfilled. Compliance with the law is required, and the standards are the recognized means of demonstrating that compliance in practice.

Question 31International Standards on Auditing (ISAs)

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

  1. 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.
  2. To guarantee that the financial statements are free from all error and fraud
  3. To provide absolute assurance that the entity will continue as a going concern
  4. To prepare the financial statements on behalf of management

Explanation

ISA 200 states 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. Preparing the statements remains management's responsibility.

Question 32International Standards on Auditing (ISAs)

According to ISA 315, which of the following best describes the entity's risk assessment process that the auditor must understand?

  1. The engagement partner's process for evaluating independence
  2. The entity's process for identifying business risks relevant to financial reporting objectives and deciding how to address them Correct answer.
  3. The internal audit function's annual plan for testing controls
  4. The auditor's own process for assessing audit risk at the planning stage

Explanation

ISA 315 requires the auditor to obtain an understanding of the entity's own risk assessment process, which is how management identifies business risks relevant to financial reporting and estimates their significance and likelihood. It is a component of the entity's internal control, not the auditor's own procedures.

Question 33International Standards on Auditing (ISAs)

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

  1. To comply with a requirement that all misstatements be detected
  2. To satisfy the entity's lenders who require a lower threshold
  3. To reduce the risk that the aggregate of uncorrected and undetected misstatements exceeds overall materiality Correct answer.
  4. To increase the amount of audit evidence that can be ignored

Explanation

ISA 320 requires the auditor to determine performance materiality 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 reflects professional judgment about the risk of undetected misstatements.

Question 34International Standards on Auditing (ISAs)

Under ISA 230, what is the minimum retention period for audit documentation, absent a longer period required by law?

  1. Three years from the date of the auditor's report
  2. Five years from the date of the auditor's report Correct answer.
  3. Ten years from the date of the financial statements
  4. Seven years from the date of the engagement letter

Explanation

ISA 230 requires the auditor to assemble the final audit file on a timely basis and retain audit documentation for a period no shorter than five years from the date of the auditor's report, unless a longer period is required by law or regulation.

Question 35International Standards on Auditing (ISAs)

Under ISA 700, which of the following is a required element of the auditor's report?

  1. A statement of the auditor's fee for the engagement
  2. An opinion section and a basis for opinion section Correct answer.
  3. A detailed listing of all audit procedures performed
  4. A representation that no fraud exists in the entity

Explanation

ISA 700 requires the auditor's report to include, among other elements, an opinion section and a basis for opinion section. The basis for opinion section states that the audit was conducted in accordance with ISAs and that the auditor is independent.

Question 36International Standards on Auditing (ISAs)

An auditor identifies that a misstatement in inventory is material but not pervasive. Which opinion is appropriate under ISA 705?

  1. Qualified opinion Correct answer.
  2. Disclaimer of opinion
  3. Unmodified opinion with an emphasis of matter paragraph
  4. Adverse opinion

Explanation

Under ISA 705, when the auditor concludes that misstatements are material but not pervasive, a qualified opinion is expressed. An adverse opinion is used when misstatements are both material and pervasive.

Question 37International Standards on Auditing (ISAs)

Under ISA 240, which of the following best describes the auditor's responsibility regarding fraud?

  1. To report every suspected fraud directly to the police
  2. To obtain reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error Correct answer.
  3. To detect all fraud regardless of materiality
  4. To design controls that prevent management fraud

Explanation

ISA 240 states that the auditor's objective is to obtain reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. The auditor does not guarantee detection of all fraud and does not design the entity's controls.

Question 38International Standards on Auditing (ISAs)

Under ISA 550, how should the auditor treat a related party transaction that appears to lack a legitimate business rationale?

  1. Report it to the tax authority immediately
  2. Ignore it because related party transactions are outside the scope of an audit
  3. Treat it as a significant risk and obtain sufficient appropriate audit evidence about its purpose Correct answer.
  4. Assume it is fraudulent and issue an adverse opinion

Explanation

ISA 550 requires the auditor to treat identified significant related party transactions outside the normal course of business as giving rise to significant risks. The auditor then obtains sufficient appropriate audit evidence about whether the transaction was appropriately authorized and whether its business rationale is consistent with the auditor's understanding.

Question 39International Standards on Auditing (ISAs)

Under ISA 560, up to what date does the auditor have an active duty to perform procedures regarding events after the date of the financial statements?

  1. The date the financial statements were approved by management
  2. The date of the auditor's report Correct answer.
  3. The date the financial statements are issued
  4. The date of the annual general meeting

Explanation

ISA 560 requires the auditor to perform procedures to identify subsequent events up to the date of the auditor's report. After that date, the auditor has no obligation to perform procedures, although there are requirements if facts become known before the statements are issued.

Question 40International Standards on Auditing (ISAs)

Under ISA 580, a written representation from management is dated as of which date?

  1. The date the audit fieldwork began
  2. The date the financial statements were prepared
  3. The date of the engagement letter
  4. As near as practicable to, but not after, the date of the auditor's report Correct answer.

Explanation

ISA 580 requires written representations to be dated as near as practicable to, but not after, the date of the auditor's report. This ensures the representations cover the period up to the report date.

Question 41International Standards on Auditing (ISAs)

An auditor is unable to obtain sufficient appropriate audit evidence about a single investment whose possible effects are material but not pervasive. What opinion should be issued under ISA 705?

  1. Disclaimer of opinion
  2. Unmodified opinion
  3. Adverse opinion
  4. Qualified opinion Correct answer.

Explanation

When the auditor is unable to obtain sufficient appropriate audit evidence and the possible effects are material but not pervasive, a qualified opinion is issued. A disclaimer is used only when the possible effects are both material and pervasive.

Question 42International Standards on Auditing (ISAs)

Under ISA 620, when the auditor uses the work of an auditor's expert, who bears responsibility for the audit opinion?

  1. The auditor's expert, to the extent of the expert's field of expertise
  2. Jointly the auditor and the expert
  3. The auditor, who retains sole responsibility for the opinion Correct answer.
  4. Those charged with governance

Explanation

ISA 620 states that the auditor has sole responsibility for the audit opinion expressed and that this responsibility is not reduced by the use of an auditor's expert. The auditor must evaluate the adequacy of the expert's work for the auditor's purposes.

Question 43International Standards on Auditing (ISAs)

Under ISA 530, which sampling method gives every item in the population an equal chance of selection?

  1. Random selection Correct answer.
  2. Haphazard selection
  3. Judgmental selection
  4. Block selection

Explanation

ISA 530 describes random selection as a method where each item in the population has an equal chance of being selected, often using random number generators. Haphazard and block selection do not provide equal selection probability.

Question 44International Standards on Auditing (ISAs)

Under ISA 501, what must the auditor do regarding litigation and claims affecting the entity?

  1. Refer the matter to the entity's external legal counsel without further action
  2. Rely solely on management's oral assurances
  3. Disclose the claims in the auditor's report
  4. Perform procedures to identify litigation and claims and obtain sufficient appropriate audit evidence about them Correct answer.

Explanation

ISA 501 requires the auditor to design and perform audit procedures to identify litigation and claims involving the entity that may give rise to a material misstatement, and to obtain sufficient appropriate audit evidence regarding them. This includes communication with the entity's legal counsel.

Question 45International Standards on Auditing (ISAs)

Under ISA 600, who is responsible for the direction, supervision and performance of the group audit engagement?

  1. The group's internal audit function
  2. The component auditor
  3. The group engagement partner Correct answer.
  4. The component management

Explanation

ISA 600 states that the group engagement partner is responsible for the direction, supervision and performance of the group audit engagement. The group engagement team must be involved in the work of component auditors to the extent necessary.

Question 46International Standards on Auditing (ISAs)

Under ISA 220, when must the engagement quality control review be completed for an audit of financial statements?

  1. Within 30 days after the auditor's report is issued
  2. Before the engagement letter is signed
  3. At any time before the financial statements are filed
  4. Before the auditor's report is dated Correct answer.

Explanation

ISA 220 requires that, for audits subject to an engagement quality control review, the review be completed before the auditor's report is dated. This ensures significant judgments and conclusions are evaluated before the opinion is issued.

Question 47International Standards on Auditing (ISAs)

Under ISA 265, to whom should the auditor communicate significant deficiencies in internal control?

  1. To the entity's customers
  2. To the external regulator in all cases
  3. Only to the engagement partner's file
  4. To those charged with governance on a timely basis Correct answer.

Explanation

ISA 265 requires the auditor to communicate in writing significant deficiencies in internal control identified during the audit to those charged with governance on a timely basis. The communication is part of the auditor's responsibility to report relevant matters to governance.

Question 48International Standards on Auditing (ISAs)

Under ISA 570, what is the auditor's responsibility if events or conditions cast significant doubt on the entity's ability to continue as a going concern but adequate disclosure is made?

  1. Issue a disclaimer of opinion
  2. Include a material uncertainty related to going concern section and express an unmodified opinion Correct answer.
  3. Issue an adverse opinion
  4. Do not refer to going concern in the report

Explanation

When the auditor concludes that a material uncertainty exists and adequate disclosure is made, the auditor expresses an unmodified opinion but includes a separate section under the heading 'Material Uncertainty Related to Going Concern'. This highlights the matter without modifying the opinion.

Question 49International Standards on Auditing (ISAs)

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

  1. Oral representations from management
  2. Audit evidence obtained directly by the auditor from an independent external source Correct answer.
  3. A draft schedule prepared by the entity's staff
  4. Internally generated documents with no external corroboration

Explanation

ISA 500 states that audit evidence is more reliable when it is obtained from independent sources outside the entity and when it is obtained directly by the auditor. External confirmations are generally more reliable than internal, entity-generated evidence.

Question 50International Standards on Auditing (ISAs)

Under ISA 505, when an external confirmation request is not returned, what should the auditor do?

  1. Treat the non-response as audit evidence that the balance is correct
  2. Perform alternative audit procedures to obtain relevant and reliable evidence Correct answer.
  3. Ask management to confirm the balance on the third party's behalf
  4. Immediately issue a qualified opinion

Explanation

ISA 505 requires the auditor, when a confirmation request is not returned, to perform alternative audit procedures to obtain relevant and reliable audit evidence. A non-response is not itself evidence that the balance is correct.