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Danish Revisoreksamen (Statsautoriseret Revisor) - independent subject foundations study materials
Danish Revisoreksamen (Statsautoriseret Revisor) - independent subject foundations study resources

Danish Revisoreksamen (Statsautoriseret Revisor) - independent subject foundations practice questions

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Question 1Audit purposes, risk, ethics and engagement planning

Under ISA 315 (Revised 2019), what is the overarching objective of the auditor when performing risk assessment procedures?

  1. To obtain a sufficient understanding of the entity and its environment, the applicable financial reporting framework, and the system of internal control to identify and assess risks of material misstatement Correct answer.
  2. To test the operational effectiveness of every automated and manual control implemented by management
  3. To verify whether management's accounting estimates are mathematically identical to the auditor's independent point estimates
  4. To guarantee that the financial statements contain zero undetected errors or fraudulent journal entries

Explanation

ISA 315.11 establishes that the auditor's objective is to identify and assess the risks of material misstatement, whether due to fraud or error, at both the financial-statement and assertion levels. This is achieved through understanding the entity, its environment, the applicable reporting framework, and its internal control system, which forms the basis for designing further audit procedures under ISA 330.

Question 2Audit purposes, risk, ethics and engagement planning

When establishing overall materiality under ISA 320 for a commercial, profit-oriented entity with stable earnings, which benchmark is ordinarily relevant?

  1. Profit before tax from continuing operations Correct answer.
  2. Total liabilities, typically applying 15% to 20%
  3. Share capital, typically applying 25% to 50%
  4. Net working capital, typically applying 2% to 3%

Explanation

ISA 320's application material identifies profit before tax from continuing operations as a benchmark often used for profit-oriented entities. The auditor must select an appropriate benchmark and percentage using professional judgment; ISA 320 does not prescribe a universal percentage range.

Question 3Audit purposes, risk, ethics and engagement planning

An auditor audits a Danish manufacturing company (Regnskabsklasse C-mellem) with revenue of DKK 120,000,000 and stable profit before tax of DKK 10,000,000. Overall materiality is set at 5% of profit before tax (DKK 500,000). The auditor sets performance materiality at 75% of overall materiality and the threshold for clearly trivial misstatements at 5% of overall materiality. What are the performance materiality and clearly trivial thresholds?

  1. Performance materiality DKK 375,000; Clearly trivial threshold DKK 25,000 Correct answer.
  2. Performance materiality DKK 250,000; Clearly trivial threshold DKK 50,000
  3. Performance materiality DKK 400,000; Clearly trivial threshold DKK 10,000
  4. Performance materiality DKK 300,000; Clearly trivial threshold DKK 100,000

Explanation

Using the engagement-specific percentages stated in the question, performance materiality is 75% × DKK 500,000 = DKK 375,000 and the clearly-trivial threshold is 5% × DKK 500,000 = DKK 25,000. ISA 450 explains that clearly trivial is not another expression for immaterial: an item must be clearly inconsequential by size, nature, and circumstances, and uncertainty means it is not clearly trivial.

Question 4Audit purposes, risk, ethics and engagement planning

In evaluating internal controls under ISA 315, why must the auditor perform walkthroughs and evaluate control design before testing operating effectiveness?

  1. A control that is inadequately designed or not implemented cannot prevent or detect material misstatements regardless of how consistently it operates Correct answer.
  2. Danish law prohibits the testing of automated IT controls unless manual walkthroughs have been validated by the supervisory board
  3. Walkthrough procedures provide conclusive audit evidence of operating effectiveness throughout the entire twelve-month period
  4. Evaluating design allows the auditor to dispense with all substantive analytical procedures at year-end

Explanation

Under ISA 315.26 and A166, evaluating design involves determining whether the control, individually or in combination with other controls, is capable of effectively preventing or detecting and correcting material misstatements. If a control is poorly designed or has not been implemented, testing its operating effectiveness is futile because the control cannot mitigate the assessed risk.

Question 5Audit purposes, risk, ethics and engagement planning

An auditor tests controls over sales invoicing at an interim date (month 9) and concludes they operated effectively. Under ISA 330, what must the auditor do to rely on those controls for the remaining three months of the financial year?

  1. Obtain audit evidence about whether significant changes in the controls occurred subsequent to the interim period and determine the additional evidence required for the remaining period Correct answer.
  2. Assume the controls operated without change if no major management personnel were replaced during the fourth quarter
  3. Re-perform the entire sample of interim tests at the balance sheet date across all twelve months
  4. Obtain a written representation from the chief financial officer confirming that no IT errors occurred after month nine

Explanation

Under ISA 330.12, when the auditor obtains audit evidence about the operating effectiveness of controls during an interim period, the auditor must obtain audit evidence about significant changes to those controls subsequent to the interim period and determine the additional audit evidence to be obtained for the remaining period (the roll-forward period).

Question 6Audit purposes, risk, ethics and engagement planning

Under ISA 240, what rebuttable presumption must the auditor make regarding the risks of material misstatement due to fraud?

  1. That there are risks of fraud in revenue recognition Correct answer.
  2. That the board of directors has colluded with internal audit to misstate inventory
  3. That all payroll tax withholdings contain deliberate irregularities
  4. That depreciation periods for plant and machinery have been fraudulently doubled

Explanation

ISA 240.26 states that when identifying and assessing the risks of material misstatement due to fraud, the auditor shall, based on a presumption that there are risks of fraud in revenue recognition, evaluate which types of revenue, revenue transactions, or assertions give rise to such risks. If the auditor concludes that the presumption is rebutted, the reasons must be documented under ISA 240.47.

Question 7Audit purposes, risk, ethics and engagement planning

When designing audit procedures to address the risk of management override of controls under ISA 240, which journal entries should the auditor prioritize for testing?

  1. Entries made to round numbers, entries posted at period-end, entries recorded by unauthorized personnel, and entries made to unrelated, unusual, or seldom-used accounts Correct answer.
  2. Standard recurring monthly depreciation and amortization entries generated by the fixed asset ledger
  3. Automated electronic bank fee entries reconciled daily against external banking statements
  4. Standard bi-weekly payroll runs processed through third-party certified payroll service bureaus

Explanation

ISA 240.32(a) requires testing journal entries throughout the period and at period-end. Risk characteristics include entries made to unrelated or seldom-used accounts, recorded by individuals who typically do not make entries, posted at period-end with little or no explanation, containing round numbers, or made outside normal working hours.

Question 8Audit purposes, risk, ethics and engagement planning

Under ISA 610 (Revised 2013), which responsibility must remain with the external auditor when the internal audit function's work is used?

  1. Making the significant judgments in the audit, including the external auditor's own assessment of risks of material misstatement Correct answer.
  2. Preparing a list of routine vendor invoices selected by the external auditor for testing
  3. Retrieving warehouse count sheets requested by the external auditor
  4. Performing a mechanical recalculation under the external auditor's direction

Explanation

ISA 610 requires the external auditor to make all significant judgments in the audit and prevents overuse of the internal audit function's work in areas of greater judgment or higher assessed risk. Direct assistance, where law permits it, is separately subject to the external auditor's direction, supervision, and review; using either route never transfers responsibility for the audit opinion.

Question 9Audit evidence, assertions, sampling and transaction cycles

During substantive analytical procedures under ISA 520, the auditor identifies a significant variance of DKK 1,200,000 between recorded freight expenses and the auditor's independent expectation. Management explains that freight rates increased by 20% in the second half of the year. What is the auditor's required next step?

  1. Inquire of management and obtain sufficient appropriate audit evidence to corroborate management's explanation, and perform other audit procedures as necessary Correct answer.
  2. Accept management's explanation if the explanation is consistent with general industry news reported in the financial press
  3. Immediately issue a qualified audit opinion due to an uncorrected material misstatement
  4. Reduce overall planning materiality to eliminate the unexplained difference

Explanation

ISA 520.7 requires that if analytical procedures identify fluctuations or relationships inconsistent with other relevant information or that differ by a significant amount, the auditor shall investigate such differences by inquiring of management and obtaining sufficient appropriate audit evidence corroborating management's responses (e.g., freight contract amendments, invoices), as well as performing other audit procedures as needed.

Question 10Audit evidence, assertions, sampling and transaction cycles

An auditor applies Monetary Unit Sampling (MUS / PPS) under ISA 530 to test trade receivables with a recorded book value of DKK 10,000,000 using a sampling interval of DKK 200,000. One sample item with a recorded book value of DKK 100,000 has an audited value of DKK 60,000. What is the projected misstatement for this sample item?

  1. DKK 80,000 Correct answer.
  2. DKK 40,000
  3. DKK 100,000
  4. DKK 200,000

Explanation

Under Monetary Unit Sampling, for items where the book value is less than the sampling interval, the tainting percentage is calculated as the misstatement divided by the book value: (DKK 100,000 - DKK 60,000) / DKK 100,000 = 40%. The projected misstatement is the tainting percentage multiplied by the sampling interval: 40% × DKK 200,000 = DKK 80,000.

Question 11Audit evidence, assertions, sampling and transaction cycles

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

  1. Evidence obtained directly by the auditor from an independent source outside the entity, such as a bank confirmation Correct answer.
  2. Internal sales orders generated by the client's sales department without customer confirmation
  3. Oral explanations provided by the warehouse supervisor during a site tour
  4. A photocopied spreadsheet provided by management without underlying system logs

Explanation

ISA 500.A31 outlines the hierarchy of evidence reliability: evidence obtained from independent external sources is more reliable than internal evidence; evidence obtained directly by the auditor (e.g. observation, direct confirmation) is more reliable than evidence obtained indirectly; and documented evidence is more reliable than oral representations.

Question 12Audit evidence, assertions, sampling and transaction cycles

An auditor performs attributes sampling for tests of controls over credit approvals. The Tolerable Deviation Rate (可容忍偏差率) is set at 7%, and the Sample Deviation Rate (样本偏差率) is found to be 6.5%. After adding the allowance for sampling risk, the Computed Upper Deviation Rate (总体偏差率上限) is determined to be 8.5%. What conclusion MUST the auditor draw regarding the control?

  1. The control is operating effectively because the sample deviation rate (6.5%) is below the tolerable deviation rate (7%).
  2. The control CANNOT be relied upon as operating effectively because the computed upper deviation rate (8.5%) exceeds the tolerable deviation rate (7%). Correct answer.
  3. The auditor must immediately adjust the tolerable deviation rate upward to 9% to accept the control.
  4. The auditor should discard the sample deviations as non-sampling errors and conclude the control is effective.

Explanation

In attributes sampling, the auditor compares the Computed Upper Deviation Rate (Sample Deviation Rate + Allowance for Sampling Risk) against the Tolerable Deviation Rate. Since the Upper Deviation Rate (8.5%) exceeds the Tolerable Deviation Rate (7%), there is an unacceptably high sampling risk that the true population deviation rate exceeds what the auditor can tolerate. Therefore, the auditor cannot rely on the operating effectiveness of the control and must expand substantive testing.

Question 13Audit evidence, assertions, sampling and transaction cycles

Which of the following is a PRIMARY ADVANTAGE of using Monetary Unit Sampling (MUS / PPS 抽样 / 概率比例规模抽样) over classical variables sampling in substantive testing of accounts receivable?

  1. MUS is exceptionally well-suited for detecting understatement errors and zero or negative account balances.
  2. MUS automatically stratifies the population because each monetary unit has an equal chance of selection, giving individual physical items with larger monetary values a proportionally higher probability of being selected. Correct answer.
  3. MUS requires no calculation of tolerable misstatement or expected misstatement.
  4. MUS sample sizes increase exponentially when the expected misstatement is zero.

Explanation

Monetary Unit Sampling (MUS / Probability-Proportional-to-Size / PPS) treats each individual currency unit (e.g., RMB 1) as a sampling unit. Consequently, physical ledger items with larger recorded amounts contain more monetary units and thus have a proportionally higher probability of selection, achieving automatic stratification without complex manual subgrouping.

Question 14Audit evidence, assertions, sampling and transaction cycles

Which of the following scenarios BEST illustrates a 'Dual-Purpose Test' (双重目的测试) as defined in Chinese Auditing Standards?

  1. Performing a positive confirmation and a negative confirmation on the same customer balance.
  2. Examining a sample of vendor payment vouchers concurrently to verify whether the voucher was signed by the authorized finance manager (Test of Control) and whether the payment amount matches the purchase invoice and general ledger entry (Test of Details). Correct answer.
  3. Observing the client's inventory count while simultaneously negotiating the next year's audit fee.
  4. Sending identical audit inquiries to both the internal auditor and external legal counsel.

Explanation

A dual-purpose test is a test designed to be performed concurrently to achieve two objectives: (1) a test of control (evaluating whether a control operated effectively, such as checking for authorized approval signature), and (2) a substantive test of details (detecting monetary misstatement, such as verifying the invoice amount and ledger coding) on the very same transaction item.

Question 15Audit evidence, assertions, sampling and transaction cycles

An auditor performs a revenue cut-off test by selecting sales invoices recorded in the sales journal during the last five days of the current reporting period and tracing them to the related shipping documents (bills of lading / customer sign-offs). Which assertion and misstatement direction is this procedure PRIMARILY designed to test?

  1. Completeness assertion: detecting unrecorded sales that occurred before year-end.
  2. Occurrence and Cut-off assertions: detecting premature revenue recognition or fictitious sales recorded before goods were actually shipped (Overstatement of current year revenue). Correct answer.
  3. Classification assertion: verifying whether sales were categorized as domestic or international.
  4. Accuracy assertion: recalculating Value-Added Tax (VAT) output rates.

Explanation

Tracing from the accounting records (sales journal entries before year-end) to the underlying source documents (shipping notes / bills of lading) tests whether the recorded transactions actually occurred in the current period before year-end. If shipping documents reveal shipment occurred after year-end (or no shipping document exists), revenue has been recognized prematurely or fictitiously, testing the Occurrence and Cut-off assertions for overstatement.

Question 16Audit evidence, assertions, sampling and transaction cycles

In an effective internal control system for the sales and collection cycle, which of the following duties MUST be strictly segregated (职责分离)?

  1. Taking customer orders and maintaining warehouse physical safety equipment.
  2. Credit authorization (信用审批) and sales order entry / sales execution (销售执行). Correct answer.
  3. Typing sales emails and answering incoming phone calls.
  4. Preparing employee lunch vouchers and mailing customer catalogs.

Explanation

In the sales cycle, credit approval must be strictly independent of sales order taking/execution. If sales representatives have the authority to approve customer credit limits, they have an inherent incentive to approve uncreditworthy customers to maximize their sales commissions, resulting in uncollectible debts.

Question 17Audit evidence, assertions, sampling and transaction cycles

During the audit of Company D, the auditor notices a massive 300% surge in sales during the last two weeks of December, followed by massive sales returns (over 70%) in January and February of the next year. Which fraud scheme is MOST LIKELY occurring, and what specific audit procedure should the auditor perform?

  1. Lapping of accounts receivable; perform cash count of petty cash.
  2. Channel stuffing / early revenue recognition with undisclosed side agreements (抽屉协议 / 渠道压货); inspect sales contracts for undisclosed return rights, review post-period sales return documentation, and confirm commercial terms directly with distributors. Correct answer.
  3. Understatement of inventory; perform full reperformance of physical inventory counting at raw materials warehouses.
  4. Payroll fraud; verify ghost employees on the factory floor.

Explanation

A dramatic spike in year-end sales followed by significant post-year-end returns is a classic indicator of 'channel stuffing' (渠道压货) or premature/fictitious revenue recognition facilitated by undisclosed side agreements (抽屉协议) granting unconditional return rights. Auditors must inspect underlying contracts, confirm rights of return and side clauses directly with buyers, and trace post-period returns back to year-end revenue.

Question 18Audit evidence, assertions, sampling and transaction cycles

Which of the following audit procedures is the MOST EFFECTIVE substantive test for the 'Completeness' assertion of Accounts Payable (Search for Unrecorded Liabilities / 查找未入账应付账款)?

  1. Confirming recorded accounts payable balances with vendor confirmation requests.
  2. Examining cash disbursements made subsequent to the balance sheet date, reviewing vendor invoices received after year-end, and matching them with receiving reports (GRNs) dated prior to year-end to verify whether the liability was properly recorded in the correct period. Correct answer.
  3. Recalculating the mathematical accuracy of the accounts payable sub-ledger balance.
  4. Vouching recorded year-end accounts payable balances back to purchase orders.

Explanation

To detect unrecorded liabilities (completeness of accounts payable), the auditor performs a 'Search for Unrecorded Liabilities' by inspecting cash disbursements made after year-end and unpaid vendor invoices received after year-end. If goods were received on or before December 31 (verified via receiving reports / GRNs) but the invoice was entered in the new year or paid in the new year without an accrual at year-end, an unrecorded liability exists.

Question 19Audit evidence, assertions, sampling and transaction cycles

When designing external confirmation procedures for Accounts Payable, how does the auditor's sample selection strategy DIFFER from that used for Accounts Receivable?

  1. Accounts payable confirmations are completely prohibited under Chinese Auditing Standards.
  2. For accounts payable (testing for understatement/completeness), the auditor prioritizes major active suppliers with high transaction volume during the year even if their year-end recorded balance is small or zero, whereas for accounts receivable (testing for overstatement/existence), the auditor prioritizes large recorded ending balances. Correct answer.
  3. Accounts payable confirmations must only be sent to suppliers located in foreign jurisdictions.
  4. Accounts payable confirmations only confirm the supplier's registered share capital.

Explanation

Because the primary risk for accounts receivable is overstatement (existence), the auditor samples large recorded balances. In contrast, the primary risk for accounts payable is understatement/omission (completeness). Therefore, for accounts payable, the auditor focuses on major suppliers with significant annual purchasing volume, active trading relationships, or unusual fluctuations, even if their recorded year-end balance is very small or zero.

Question 20Audit evidence, assertions, sampling and transaction cycles

In the procurement and payment internal control cycle, what is the 'Three-Way Match' (三单核对) control procedure required prior to approving a vendor invoice for payment?

  1. Matching the client's business license, tax registration, and bank permit.
  2. Matching the Purchase Order (采购订单), the Receiving Report / Goods Received Note (验收单/入库单), and the Vendor's Invoice (供应商发票) to verify agreement of descriptions, quantities, prices, and terms. Correct answer.
  3. Matching the employee's ID card, resume, and labor contract.
  4. Matching the sales budget, production budget, and cash budget.

Explanation

The three-way match is a fundamental internal control in the purchasing and disbursement cycle. Before accounts payable records the liability and treasury issues payment, the independent accounting clerk matches: (1) Purchase Order (authorized items, terms, and prices); (2) Goods Received Note (actual verified quantities received in good condition); and (3) Vendor Invoice (billed quantities and prices).

Question 21Audit evidence, assertions, sampling and transaction cycles

During the audit of 'Prepayments' (预付款项), the auditor observes a large prepayment of RMB 50,000,000 made to a newly registered trading company with no physical office, for which no goods have been delivered for over 18 months. What risk does this scenario PRIMARILY represent, and what action should the auditor take?

  1. Normal business credit terms; no further action required.
  2. High risk of misappropriation of corporate funds, fictitious purchasing, or unrecorded related-party lending/tunneling (资金占用/利益输送); the auditor should inspect the contract, perform corporate registry background checks on the supplier, confirm the balance, and evaluate whether an impairment provision or related-party disclosure is required. Correct answer.
  3. Understatement of revenue; accrue additional sales revenue immediately.
  4. Immediate modification of the audit opinion to an adverse opinion without seeking management explanation.

Explanation

Long-outstanding, large prepayments to obscure or newly established entities with no commercial deliveries are classic red flags for fund misappropriation, illegal related-party fund occupation (资金占用), or fictitious assets. The auditor must exercise heightened professional skepticism, conduct enterprise registry investigations, perform external confirmations, inspect collateral/contracts, and evaluate asset recoverability and related-party disclosure implications.

Question 22Audit evidence, assertions, sampling and transaction cycles

Which of the following audit procedures is MOST EFFECTIVE in identifying unrecorded disposals or retirements of Fixed Assets (testing the 'Completeness' of asset derecognition / 'Existence' of recorded fixed assets)?

  1. Recalculating the mathematical accuracy of the depreciation schedule.
  2. Selecting fixed assets from the fixed asset register and attempting to locate and physically inspect them on the factory floor, inquiring about idle or scrapped machinery, and examining disposal authorization minutes and salvage receipts. Correct answer.
  3. Reading the company's employee handbook.
  4. Sending positive confirmations to raw material suppliers.

Explanation

To detect unrecorded fixed asset retirements or disposals (where an asset was sold, scrapped, or abandoned but remains improperly listed on the books, overstating fixed assets), the auditor samples recorded assets from the asset register and inspects them on the factory floor. If an asset cannot be physically located, or is found dismantled/scrapped, an unrecorded disposal exists. Examining disposal approvals and salvage scrap receipts also corroborates disposals.

Question 23Audit evidence, assertions, sampling and transaction cycles

During the observation of the physical inventory count on December 31, what CRITICAL CUT-OFF AUDIT PROCEDURE must the auditor execute regarding shipping and receiving documentation?

  1. Obtain and record the document numbers of the last Goods Received Notes (入库单) and last Goods Dispatch Notes (出库单) issued up to the count time, and verify that subsequent receipts/dispatches are segregated and excluded from count sheets. Correct answer.
  2. Shred all previous shipping notes to ensure clean accounting records.
  3. Instruct the client to stop all factory production permanently.
  4. Sign the bills of lading as the legal freight carrier.

Explanation

During inventory count observation, the auditor must obtain and document cut-off information: noting the sequential serial numbers of the last pre-numbered receiving reports (GRNs) and shipping documents (dispatch notes) issued prior to the count. This enables the auditor to verify subsequent cut-off testing: ensuring pre-count receipts are included in inventory and accounts payable, and pre-count shipments are excluded from inventory and recorded in sales.

Question 24Audit evidence, assertions, sampling and transaction cycles

When auditing the 'Cost of Goods Sold' (主营业务成本) and inventory cost allocation in a manufacturing enterprise, which procedure is MOST EFFECTIVE in testing whether manufacturing overhead has been allocated accurately and consistently?

  1. Vouching executive travel expenses to hotel receipts.
  2. Testing the methodology of allocating direct materials, direct labor, and manufacturing overhead (e.g., machine hours, labor hours), verifying calculation accuracy, and testing whether standard cost variances were appropriately allocated between ending inventory and cost of goods sold. Correct answer.
  3. Confirming customer cash balances.
  4. Counting raw material steel coils.

Explanation

Manufacturing cost accounting testing requires verifying that production costs (direct materials, direct labor, manufacturing overhead) are properly accumulated and systematically allocated using reasonable allocation bases (e.g., actual vs standard cost rates, machine hours). If standard costing is used, the auditor must test the allocation of variances between ending Work-in-Progress / Finished Goods and Cost of Goods Sold to prevent misstatement of inventory and gross margin.

Question 25Audit evidence, assertions, sampling and transaction cycles

When auditing the client's 'Bank Reconciliation Statement' (银行存款余额调节表) as of December 31, which of the following procedures is the MOST CRITICAL substantive test to verify reconciling items?

  1. Verifying that the arithmetic addition on the reconciliation statement is correct, and simply accepting all listed reconciling items without supporting documentation.
  2. Tracing the bank balance to the bank confirmation and cutoff bank statement, inspecting supporting documents for 'Deposits in Transit' (企业已收银行未收款) to verify they cleared the bank in early January, and inspecting subsequent bank debits for 'Outstanding Checks' (企业已付银行未付款) to verify they were valid, uncancelled checks. Correct answer.
  3. Asking the bank teller whether the client's accountant is trustworthy.
  4. Adjusting the client's general ledger balance directly to match the unadjusted bank statement balance.

Explanation

Auditing a bank reconciliation statement requires: (1) agreeing the bank balance to the bank statement and independent bank confirmation; (2) agreeing the book balance to the general ledger; and (3) testing reconciling items by inspecting cutoff bank statements (期后银行对账单) to verify that deposits in transit cleared promptly in early January and outstanding checks cleared or remained genuine obligations, ensuring reconciling items are not fictitious amounts used to conceal cash deficits.

Question 26Audit evidence, assertions, sampling and transaction cycles

Regarding the execution of a 'Surprise Cash Count' (库存现金监盘), which of the following operational protocols is MANDATORY under Chinese Auditing Standards?

  1. Notifying the cashier one week in advance so that missing cash vouchers can be cleared.
  2. Conducting the count on a surprise (unannounced) basis, simultaneously counting all cash locations / safes across different departments/branches, in the physical presence of the cashier and accounting supervisor. Correct answer.
  3. Allowing the auditor to take physical custody of the client's safe keys and count the cash alone in a locked room.
  4. Performing cash counts exclusively over video call without physical inspection.

Explanation

Under standard auditing procedures for petty cash, the cash count must be: (1) conducted on a surprise (unannounced) basis; (2) performed simultaneously across all cash holding locations (safes/cashboxes) to prevent the cashier from transferring funds between boxes to cover shortages; (3) executed in the physical presence of the cashier and chief accountant; and (4) signed off by the cashier on the cash count sheet.

Question 27Audit evidence, assertions, sampling and transaction cycles

During the audit of a corporate group, the auditor discovers that Client E participates in a centralized 'Cash Pooling' (资金池) arrangement managed by its parent company finance company, where Client E's daily cash balances are automatically swept into the parent company's master account. What is the PRIMARY AUDIT CONCERN and disclosure requirement?

  1. Cash pooling is completely exempt from audit scrutiny under corporate law.
  2. Evaluating whether Client E retains legal rights and unrestricted access to the swept funds, verifying whether the balances are subject to credit risk/encumbrance by parent creditors, ensuring proper disclosure as restricted funds or related-party balances, and verifying interest allocation accuracy. Correct answer.
  3. Client E must immediately be declared bankrupt.
  4. The auditor must combine all cash balances into a single tax return.

Explanation

Cash pooling arrangements introduce significant risks regarding asset ownership, liquidity availability, and related-party fund occupation (资金占用). The auditor must: (1) inspect cash pooling agreements; (2) verify whether Client E has unhindered withdrawal rights; (3) confirm balances directly with the finance company/bank; (4) evaluate whether funds are restricted or pledged for group loans; and (5) ensure proper financial statement presentation and footnote disclosures.

Question 28Audit evidence, assertions, sampling and transaction cycles

An auditor prepares a 'Bank Transfer Schedule' (银行存款跨行转账明细表) for transactions occurring just before and after the balance sheet date (e.g., Dec 25 to Jan 5). Which of the following fraudulent practices is this procedure PRIMARILY designed to detect?

  1. Payroll tax calculation errors.
  2. Cash Kiting / Window Dressing (通过跨行转账虚增期末银行存款余额): recording a bank transfer as a receipt in Bank Account B before year-end without recording the corresponding disbursement in Bank Account A until after year-end. Correct answer.
  3. Depreciation understatement on company vehicles.
  4. Physical obsolescence of warehouse inventory.

Explanation

Cash kiting (or window dressing) involves transferring funds between an entity's own bank accounts near year-end and recording the deposit in the receiving account before year-end while delaying recording the disbursement from the paying account until the new year. This results in the same cash balance being counted twice on the balance sheet. A Bank Transfer Schedule matches the disbursement date and receipt date across all internal bank transfers to detect this manipulation.

Question 29Audit evidence, assertions, sampling and transaction cycles

When auditing 'Other Monetary Funds' (其他货币资金), including bank acceptance deposits (银行承兑汇票保证金), letter of credit deposits (信用证保证金), and investment deposits, what SPECIFIC PROCEDURE must the auditor perform regarding restricted cash?

  1. Treat all deposit margins as completely free and unrestricted liquid cash in the statement of cash flows.
  2. Verify the contractual pledge terms, confirm the restricted nature and maturity of the margin deposits with the issuing banks, and verify that restricted cash is properly disclosed in the notes and excluded from cash and cash equivalents in the Cash Flow Statement. Correct answer.
  3. Instruct the client to convert all margin deposits into physical gold.
  4. Assume other monetary funds have zero audit risk.

Explanation

Under CAS and CSA standards, margin deposits for bank acceptance bills, letters of credit, or bank loan pledges are legally restricted funds that cannot be freely drawn for general corporate use. The auditor must: (1) confirm restriction terms with banks; (2) verify appropriate balance sheet disclosure; and (3) ensure that restricted cash balances are excluded from 'Cash and Cash Equivalents' in the Statement of Cash Flows (现金流量表).

Question 30Completion, quality, documentation and supported reporting

Under ISA 705 (Revised), what is the decisive difference between expressing a qualified opinion (forbehold) versus an adverse opinion (afkræftende konklusion) regarding a material misstatement of the financial statements?

  1. A qualified opinion is issued when the misstatement is material but not pervasive; an adverse opinion is issued when the misstatement is both material and pervasive to the financial statements Correct answer.
  2. A qualified opinion is issued for errors in current assets; an adverse opinion is issued only for errors in equity
  3. A qualified opinion requires client consent, whereas an adverse opinion does not
  4. A qualified opinion applies only to tax misstatements, while an adverse opinion applies to inventory

Explanation

Under ISA 705.7–8, when the auditor obtains sufficient appropriate audit evidence that misstatements are material: if the effects are material but NOT pervasive, the auditor expresses a qualified opinion ('forbehold'). If the misstatements are both material AND pervasive to the financial statements (e.g. invalidating the financial statements as a whole), the auditor must express an adverse opinion ('afkræftende konklusion').

Question 31Completion, quality, documentation and supported reporting

Under ISA 706 (Revised), what is the function of an Emphasis of Matter paragraph (Fremhævelse af forhold i regnskabet) in an independent auditor's report?

  1. To draw users' attention to a matter appropriately presented or disclosed in the financial statements that, in the auditor's judgment, is of such importance that it is fundamental to users' understanding, without modifying the opinion Correct answer.
  2. To report a material disagreement with management that management refused to correct
  3. To modify the audit opinion due to an undetected scope limitation
  4. To describe the auditor's internal fee calculation methodology

Explanation

ISA 706.5 defines an Emphasis of Matter paragraph as a paragraph included in the auditor's report that refers to a matter appropriately presented or disclosed in the financial statements that, in the auditor's judgment, is of such importance that it is fundamental to users' understanding of the financial statements. Crucially, an Emphasis of Matter paragraph does not modify the auditor's opinion (ISA 706.8(c)).

Question 32Completion, quality, documentation and supported reporting

When may the auditor use an Other Matter paragraph (Fremhævelse af andre forhold) under ISA 706?

  1. To refer to a matter other than those presented or disclosed in the financial statements that is relevant to users' understanding of the audit, the auditor's responsibilities, or the auditor's report Correct answer.
  2. To communicate sensitive commercial trade secrets discovered during inventory observation
  3. To criticize management's marketing strategies in the local consumer market
  4. To override the statutory independence requirements of Revisorloven

Explanation

ISA 706.5 defines an Other Matter paragraph as a paragraph that refers to a matter other than those presented or disclosed in the financial statements that, in the auditor's judgment, is relevant to users' understanding of the audit, the auditor's responsibilities, or the auditor's report (e.g. reporting on predecessor auditor work or reporting on other legal duties).

Question 33Completion, quality, documentation and supported reporting

Under ISRE 2400 (Revised), what are the primary procedures performed by a practitioner conducting a review of financial statements?

  1. Inquiries of management and analytical procedures Correct answer.
  2. Independent external confirmations of all accounts receivable and observation of physical inventory counting
  3. Detailed testing of internal operating controls over IT application systems
  4. Physical inspection of title deeds at the Danish Land Registry (Tinglysningsretten)

Explanation

ISRE 2400.43 specifies that the practitioner's procedures in a review engagement consist primarily of making inquiries of management and others within the entity, and applying analytical procedures, and evaluating the audit evidence obtained. Substantive tests of details and controls testing are not standard requirements.

Question 34Completion, quality, documentation and supported reporting

Under ISRS 4400 (Revised), what level of assurance does the practitioner express in an Agreed-Upon Procedures (AUP) report?

  1. No assurance is expressed; the practitioner reports only factual findings resulting from the specific procedures agreed upon with the engaging party Correct answer.
  2. Reasonable assurance that the agreed figures contain no material misstatement
  3. Limited negative assurance that nothing came to the practitioner's attention
  4. Absolute assurance regarding the specific line items tested

Explanation

Under ISRS 4400.11, an agreed-upon procedures engagement does not express any opinion or assurance conclusion. The practitioner performs the procedures agreed upon with the engaging party and reports only the factual findings. Users assess the procedures and findings themselves and draw their own conclusions.

Question 35Completion, quality, documentation and supported reporting

In a compilation engagement conducted under ISRS 4410 (Revised), what is the practitioner's core responsibility?

  1. Applying accounting and financial reporting expertise to assist management in preparing and presenting financial information in accordance with an applicable financial reporting framework Correct answer.
  2. Verifying the completeness of revenue through third-party customer confirmations
  3. Expressing an opinion on the accuracy of management's tax filings
  4. Issuing a comfort letter to institutional bond investors

Explanation

ISRS 4410.10 states that the practitioner's objective in a compilation engagement is to apply accounting and financial reporting expertise to assist management in the preparation and presentation of financial information in accordance with an applicable financial reporting framework, without obtaining or verifying evidence to express any assurance.

Question 36Completion, quality, documentation and supported reporting

What is the distinction between an attestation engagement (erklæringsopgave med sikkerhed) and a direct engagement under ISAE 3000 (Revised)?

  1. In an attestation engagement, a party other than the practitioner measures or evaluates the underlying subject matter against criteria and presents the information; in a direct engagement, the practitioner measures or evaluates the subject matter directly Correct answer.
  2. An attestation engagement relates only to financial data, while a direct engagement relates only to environmental carbon credits
  3. An attestation engagement requires verbal reporting, while a direct engagement requires written reporting
  4. There is no distinction; ISAE 3000 applies exclusively to historical tax returns

Explanation

Under ISAE 3000.12(a), in an attestation engagement, the responsible party evaluates the underlying subject matter against criteria and produces the subject matter information (e.g., management's sustainability report), on which the practitioner reports. In a direct engagement, the practitioner directly measures or evaluates the underlying subject matter and presents the resulting information in the assurance report.

Question 37Completion, quality, documentation and supported reporting

Under ISAE 3402, what is the key difference between a Type 1 report and a Type 2 report on controls at a service organization (servicevirksomhed)?

  1. A Type 1 report reports on the description and design of controls at a specific point in time; a Type 2 report also includes testing the operating effectiveness of controls throughout a specified period Correct answer.
  2. A Type 1 report is issued for IT cloud hosts, while a Type 2 report is issued exclusively for payroll bureaus
  3. A Type 1 report provides reasonable assurance, whereas a Type 2 report provides zero assurance
  4. A Type 1 report is published on Virk.dk, while a Type 2 report is confidential to the tax authorities

Explanation

Under ISAE 3402, a Type 1 report comprises management's description of the service organization's system and the suitability of control design as of a specified date. A Type 2 report includes everything in Type 1 plus the auditor's testing and evaluation of the operating effectiveness of those controls throughout a specified period (typically 6 to 12 months). User auditors relying on service organization controls require Type 2 reports.

Question 38Financial statements, assets, inventory and cash-flow models

A contractor has a fixed-price contract of DKK 10,000,000. At 31 December 2025, total incurred contract costs are DKK 4,000,000, and expected total costs to complete the contract are DKK 4,000,000 (total estimated costs DKK 8,000,000). The contractor has invoiced on account DKK 4,500,000. Applying the percentage of completion method based on cost-to-cost, what is the recognized contract revenue and the balance sheet presentation of work in progress?

  1. Recognized revenue DKK 5,000,000; Balance sheet asset (igangværende arbejder) DKK 500,000 Correct answer.
  2. Recognized revenue DKK 4,000,000; Balance sheet liability (forudfakturering) DKK 500,000
  3. Recognized revenue DKK 4,500,000; Balance sheet asset DKK 0
  4. Recognized revenue DKK 10,000,000; Balance sheet liability DKK 5,500,000

Explanation

Stage of completion = Incurred costs / Total expected costs = DKK 4,000,000 / DKK 8,000,000 = 50%. Recognized revenue = 50% × DKK 10,000,000 = DKK 5,000,000. Work in progress sales value is DKK 5,000,000. Subtracting on-account invoicing of DKK 4,500,000 leaves a net contract asset of DKK 500,000 presented under current assets (igangværende arbejder for fremmed regning).

Question 39Financial statements, assets, inventory and cash-flow models

An entity applying IFRS 16 enters into a 3-year office lease on 1 January 2025. Annual lease payments are DKK 100,000 payable at the beginning of each year (advance payment). The entity's incremental borrowing rate is 5%. The present value of the lease payments is DKK 285,941. What is the interest expense recognized in profit or loss for the year ended 31 December 2025?

  1. DKK 9,297 Correct answer.
  2. DKK 14,297
  3. DKK 5,000
  4. DKK 0

Explanation

The DKK 285,941 stated amount includes the DKK 100,000 paid at commencement. IFRS 16 measures the lease liability using payments not paid at commencement, so the opening liability after that payment is DKK 185,941; interest for 2025 is 5% × DKK 185,941 = DKK 9,297, rounded.

Question 40Financial statements, assets, inventory and cash-flow models

In preparing consolidated financial statements under Årsregnskabsloven, a parent company sold inventory to its wholly owned subsidiary during 2025 for DKK 1,000,000 at a profit margin of 25% on sales price (internal profit DKK 250,000). At 31 December 2025, 40% of this inventory remains unsold in the subsidiary's warehouse. What consolidation elimination entry is required?

  1. Eliminate internal group turnover of DKK 1,000,000 and cost of sales of DKK 900,000, and reduce inventory by DKK 100,000 for unrealized internal profit Correct answer.
  2. Eliminate inventory by DKK 250,000 and reduce parent share capital by DKK 250,000
  3. No elimination is permitted because parent and subsidiary are separate legal entities under Selskabsloven
  4. Recognize an additional DKK 100,000 financial expense in the consolidated income statement

Explanation

In group accounts, all intercompany transactions must be fully eliminated. Total intercompany sales of DKK 1,000,000 must be eliminated against cost of sales. For the remaining unsold inventory (40% × DKK 1,000,000 = DKK 400,000), the unrealized internal profit is 25% × DKK 400,000 = DKK 100,000. Group inventory must be written down by DKK 100,000, and cost of sales adjusted accordingly (reducing consolidated profit by DKK 100,000).

Question 41Financial statements, assets, inventory and cash-flow models

Under IAS 1 'Presentation of Financial Statements', a complete set of financial statements MUST include all of the following EXCEPT:

  1. A statement of financial position
  2. A statement of profit or loss and other comprehensive income
  3. A statement of cash flows
  4. A statement of board-approved budget for the next year Correct answer.

Explanation

IAS 1 requires: (1) a statement of financial position, (2) a statement of profit or loss and OCI, (3) a statement of changes in equity, (4) a statement of cash flows (per IAS 7), and (5) notes. A budget statement is internal management information - not part of IFRS financial statements.

Question 42Financial statements, assets, inventory and cash-flow models

Under IAS 16 'Property, Plant and Equipment', the COST of a self-constructed asset includes all of the following EXCEPT:

  1. Directly attributable costs of bringing the asset to working condition
  2. Initial estimate of decommissioning costs
  3. Borrowing costs (where IAS 23 applies)
  4. Internal profits/markups added by the construction division Correct answer.

Explanation

Internal profits or notional intra-group markups are eliminated when capitalising self-constructed assets. IAS 16 cost includes purchase price, directly attributable costs, decommissioning provisions (per IAS 37), and capitalised borrowing costs under IAS 23 for qualifying assets.

Question 43Financial statements, assets, inventory and cash-flow models

Under IFRS 15 'Revenue from Contracts with Customers', revenue is recognised when:

  1. Cash is received from the customer
  2. Control of the goods or services transfers to the customer Correct answer.
  3. The contract is signed
  4. The invoice is issued

Explanation

IFRS 15's core principle: revenue is recognised when (or as) the entity satisfies a performance obligation by transferring control of a promised good or service to the customer. The 5-step model: identify contract → identify POs → determine transaction price → allocate price to POs → recognise revenue when PO is satisfied.

Question 44Financial statements, assets, inventory and cash-flow models

Under IFRS 16 'Leases', a lessee must generally recognise:

  1. Only an expense in profit or loss for all leases
  2. A right-of-use asset and a lease liability for most leases Correct answer.
  3. Lease payments only as cash flows from financing
  4. Only operating leases on the balance sheet

Explanation

IFRS 16 (effective 2019) requires lessees to recognise a right-of-use (ROU) asset and a corresponding lease liability for substantially all leases. Exemptions exist for short-term leases (<12 months) and low-value assets. This eliminates the previous IAS 17 operating-lease off-balance-sheet treatment.

Question 45Financial statements, assets, inventory and cash-flow models

Under IAS 36 'Impairment of Assets', the recoverable amount of an asset is the:

  1. Original cost less accumulated depreciation
  2. Higher of fair value less costs of disposal and value in use Correct answer.
  3. Lower of fair value less costs of disposal and value in use
  4. Tax-base value

Explanation

IAS 36 defines recoverable amount as the HIGHER of (a) fair value less costs of disposal, and (b) value in use (the present value of future cash flows from the asset). An impairment loss arises when carrying amount exceeds recoverable amount.

Question 46Financial statements, assets, inventory and cash-flow models

Under IAS 37 'Provisions, Contingent Liabilities and Contingent Assets', a PROVISION is recognised when:

  1. A possible obligation may or may not exist
  2. There is a present obligation, probable outflow, and reliable estimate Correct answer.
  3. Management decides to set aside funds
  4. An asset is acquired

Explanation

IAS 37 requires three conditions to recognise a provision: (1) a present obligation (legal or constructive) from a past event, (2) probable (more likely than not) outflow of economic benefits, and (3) reliable estimate of the amount. Otherwise, a contingent liability is disclosed (or, if remote, ignored).

Question 47Financial statements, assets, inventory and cash-flow models

Under IFRS 9 'Financial Instruments', loans and most trade receivables are subject to which impairment model?

  1. Incurred loss model
  2. Expected credit loss (ECL) model Correct answer.
  3. Lower-of-cost-or-market model
  4. FIFO impairment model

Explanation

IFRS 9 replaced the IAS 39 'incurred loss' model with a forward-looking 'expected credit loss' (ECL) model. Entities must recognise lifetime ECL on origination for trade receivables and a 12-month ECL (or lifetime if credit risk has significantly increased) on financial assets at amortised cost.

Question 48Financial statements, assets, inventory and cash-flow models

Under F1 principles of taxation, which of the following BEST describes the difference between tax avoidance and tax evasion?

  1. Avoidance is legal, evasion is illegal Correct answer.
  2. Avoidance is illegal, evasion is legal
  3. Both are illegal
  4. Both are legal

Explanation

Tax avoidance uses legal means (allowances, structures, deductions) to reduce tax liability. Tax evasion is the illegal non-payment or under-payment of tax (e.g., concealing income, false invoices). CIMA's ethics framework also flags 'aggressive avoidance' as ethically questionable even if legal.

Question 49Financial statements, assets, inventory and cash-flow models

An asset has a carrying amount of £1,000,000 and a tax base of £700,000. The tax rate is 25%. What deferred tax balance arises under IAS 12?

  1. £75,000 deferred tax asset
  2. £75,000 deferred tax liability Correct answer.
  3. £300,000 deferred tax liability
  4. Nil

Explanation

Taxable temporary difference = Carrying amount £1,000,000 − Tax base £700,000 = £300,000. Deferred tax liability = £300,000 × 25% = £75,000. (When carrying > tax base for an asset, a DTL arises because the larger future taxable economic benefits will be taxed.)

Question 50Financial statements, assets, inventory and cash-flow models

Under IFRS, the statement of cash flows (IAS 7) classifies cash outflows for the purchase of property, plant and equipment as:

  1. Operating activities
  2. Investing activities Correct answer.
  3. Financing activities
  4. Other comprehensive income

Explanation

IAS 7 classifies cash flows into three categories: operating (principal revenue-producing activities), investing (acquisition/disposal of long-term assets), and financing (changes in equity and borrowings). Buying PP&E is investing.