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Norwegian Auditor Practical Exam (Statsautorisert revisor) study materials
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Norwegian Auditor Practical Exam (Statsautorisert revisor) practice questions

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Question 1Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

Under ISA 315 (Revised 2019), which of the following best describes the auditor's required understanding of the entity's system of internal control?

  1. A documented walkthrough of every transaction cycle to confirm that no control deficiencies exist in the design of controls.
  2. A general awareness of the entity's control environment sufficient to assess management's tone at the top, without further procedures.
  3. An understanding of each of the five components of internal control sufficient to identify and assess risks of material misstatement. Correct answer.
  4. A detailed evaluation of the operating effectiveness of all key controls that management has implemented over financial reporting.

Explanation

ISA 315 (Revised 2019) requires the auditor to obtain an understanding of the entity and its environment, including each of the five components of internal control, to the extent needed to identify and assess risks of material misstatement. This understanding is a risk assessment procedure, not an evaluation of operating effectiveness. Testing operating effectiveness is a separate decision made under ISA 330 when the auditor plans to rely on controls.

Question 2Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor sets overall materiality for a listed client at NOK 5 million. Performance materiality is determined at 60% of overall materiality. Which amount should be used as the threshold for designing audit procedures on individual account balances?

  1. NOK 5.0 million
  2. NOK 2.0 million
  3. NOK 0.5 million
  4. NOK 3.0 million Correct answer.

Explanation

Performance materiality is the amount or amounts set by the auditor at less than overall materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality. Applying 60% to NOK 5 million yields NOK 3 million. Procedures are designed against performance materiality, while overall materiality remains the benchmark for evaluating the effect of identified misstatements.

Question 3Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

Which of the following is the primary purpose of the auditor's engagement letter under ISA 210?

  1. To provide management with a written representation that all known frauds have been disclosed to the auditor.
  2. To record the audit strategy and the timing of substantive procedures planned for each significant account.
  3. To confirm acceptance of the engagement and the respective responsibilities of management and the auditor. Correct answer.
  4. To document the auditor's preliminary assessment of the risks of material misstatement at the assertion level.

Explanation

ISA 210 requires the auditor to agree the terms of the audit engagement with management or those charged with governance, ordinarily recorded in an engagement letter. The letter confirms acceptance of the engagement and clarifies the respective responsibilities of management and the auditor. It is agreed before the audit begins and is not a vehicle for risk assessment or management representations.

Question 4Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor obtains a bank confirmation directly from the client's bank and receives it at the auditor's own office. Which assertion is this procedure primarily designed to address for the bank balance?

  1. Completeness of disclosures
  2. Rights and obligations
  3. Valuation and allocation
  4. Existence Correct answer.

Explanation

A confirmation obtained directly from an independent third party provides reliable audit evidence that the bank balance exists at the reporting date. External confirmation is a substantive procedure particularly suited to existence. Completeness of disclosures and rights and obligations would require additional procedures beyond the confirmation of the balance itself.

Question 5Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

Which of the following best describes the auditor's responsibility when the auditor concludes that there is a material uncertainty related to going concern that is adequately disclosed in the financial statements?

  1. Include a separate section in the auditor's report headed 'Material Uncertainty Related to Going Concern' drawing attention to the disclosure. Correct answer.
  2. Express an adverse opinion because the going concern basis is no longer appropriate.
  3. Issue a qualified opinion because a material uncertainty always constitutes a misstatement.
  4. Make no reference to the uncertainty in the auditor's report because it is already disclosed by management.

Explanation

Under ISA 570 (Revised), when the auditor concludes that a material uncertainty exists and is adequately disclosed, the auditor expresses an unmodified opinion and includes a separate section in the auditor's report drawing attention to the note. The section is headed 'Material Uncertainty Related to Going Concern'. It is not a modification of the opinion.

Question 6Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

Which of the following best describes the purpose of the auditor's overall audit strategy under ISA 300?

  1. To set the scope, timing and direction of the audit and guide the development of the more detailed audit plan. Correct answer.
  2. To record the client's accounting policies and the auditor's assessment of their appropriateness.
  3. To list every substantive procedure to be performed, with the responsible team member and completion date.
  4. To document the auditor's conclusion on the sufficiency of audit evidence obtained for each assertion.

Explanation

ISA 300 distinguishes the overall audit strategy, which sets scope, timing and direction and guides the more detailed audit plan, from the audit plan itself. The strategy is established at the start of the engagement and is updated as the audit progresses. Detailed procedures and conclusions are documented in the audit plan and working papers, not in the strategy.

Question 7Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

The auditor's assessment of the risk of material misstatement is set at the maximum for a particular assertion. Which approach is most consistent with ISA 330?

  1. Perform substantive procedures responsive to the assessed risk, with more persuasive evidence for higher risk. Correct answer.
  2. Reduce the extent of substantive testing because higher risk implies stronger controls in place.
  3. Rely on analytical procedures alone because substantive testing is unnecessary at the assertion level.
  4. Eliminate the need for an understanding of the entity because the risk is already known to be high.

Explanation

ISA 330 requires the auditor to design and perform substantive procedures that are responsive to the assessed risks of material misstatement at the assertion level. The higher the assessed risk, the more persuasive the evidence required and the more reliable the procedures should be. The auditor cannot substitute reliance on controls for substantive procedures when risk is assessed at the maximum without testing controls.

Question 8Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

Which of the following is the most reliable form of audit evidence for the existence of a trade receivable at year-end?

  1. An aged receivables listing prepared by the client's accounting department.
  2. A management representation that all receivables are collectible.
  3. A confirmation response received directly by the auditor from the customer. Correct answer.
  4. A copy of the sales invoice retained in the client's accounting system.

Explanation

Audit evidence is more reliable when it is obtained from independent sources outside the entity and when it is obtained directly by the auditor. A confirmation response received directly from the customer satisfies both criteria. Internally generated documents and management representations are less persuasive because they originate within the entity.

Question 9Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

During the audit of a Norwegian manufacturing company, the auditor identifies a risk of material misstatement related to revenue recognition from sales with unusual terms near year-end. Which of the following is the most appropriate response under ISA 240?

  1. Ignore the risk because revenue recognition is presumed to be a routine transaction subject to normal controls.
  2. Disclose the risk to the client's customers to obtain corroborating evidence about the sales terms.
  3. Rely solely on the client's monthly analytical review of gross margin to address the risk.
  4. Treat the risk as a significant risk and design procedures specifically addressing revenue recognition, including testing cut-off and unusual terms. Correct answer.

Explanation

ISA 240 establishes a rebuttable presumption that there are risks of fraud in revenue recognition and requires the auditor to treat such risks as significant risks. The auditor must design and perform procedures specifically responsive to the risk, such as testing cut-off and examining the terms of unusual sales near year-end. Relying only on management's analytical review is insufficient.

Question 10Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor plans to rely on the operating effectiveness of a control over the completeness of purchases. Which of the following procedures provides the most appropriate evidence of operating effectiveness?

  1. Review of the entity's organisation chart to confirm segregation of duties is documented.
  2. Inquiry of the purchasing manager about whether the control was performed throughout the year.
  3. Inspection of the control's design documentation prepared by management at the planning stage.
  4. Inspection of evidence that the control was performed, combined with observation and, where appropriate, re-performance. Correct answer.

Explanation

To test operating effectiveness, the auditor must obtain evidence that the control operated as designed throughout the period of reliance. Inspection of evidence of performance, observation, and re-performance provide such evidence; inquiry alone is never sufficient. Documentation of design addresses design, not operating effectiveness.

Question 11Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

The auditor identifies a misstatement of NOK 400,000 in inventory that management refuses to correct. Overall materiality is NOK 5 million and performance materiality is NOK 3 million. How should the auditor evaluate this misstatement?

  1. The misstatement must be reported to the client's bank because it exceeds the trivial threshold.
  2. The misstatement requires an immediate disclaimer of opinion regardless of other factors.
  3. The misstatement can be ignored because it is below performance materiality.
  4. The misstatement is accumulated with other misstatements and evaluated in aggregate against overall materiality, considering qualitative factors. Correct answer.

Explanation

ISA 450 requires the auditor to accumulate misstatements identified during the audit, other than those that are clearly trivial, and to evaluate their effect in aggregate against overall materiality. Qualitative factors, such as the effect on trends or covenants, may make a quantitatively small misstatement material. Performance materiality guides the design of procedures but does not determine whether a misstatement is material.

Question 12Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

Which of the following best describes the auditor's use of analytical procedures as a substantive procedure under ISA 520?

  1. Comparing recorded amounts with the auditor's developed expectations to identify fluctuations that require further investigation. Correct answer.
  2. Recalculating depreciation expense to verify the mathematical accuracy of the fixed asset register.
  3. Obtaining a representation from management that all significant variances have been explained.
  4. Reviewing the entity's internal audit reports to confirm that controls are operating effectively.

Explanation

Substantive analytical procedures involve evaluating financial information by analysing plausible relationships among both financial and non-financial data. The auditor develops an expectation and compares it with recorded amounts, investigating significant differences. Recalculation is a test of details, not an analytical procedure.

Question 13Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor is unable to obtain sufficient appropriate audit evidence regarding a subsidiary that represents 15% of group total assets, and the possible effect is material but not pervasive. What type of opinion should the auditor express on the group financial statements?

  1. Unmodified opinion with an emphasis of matter paragraph
  2. Disclaimer of 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 appropriate under ISA 705. A disclaimer is used when the possible effects are both material and pervasive. An adverse opinion relates to misstatements that are material and pervasive, not to a scope limitation.

Question 14Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

Which of the following best describes the auditor's documentation requirements for significant risks under ISA 315 and ISA 230?

  1. The auditor must document only the conclusion reached, without recording the risk or the rationale.
  2. The auditor must document significant risks only if they relate to fraud.
  3. The auditor must document the identified significant risks and the reasons why they are considered significant. Correct answer.
  4. The auditor must document significant risks orally to the engagement partner without written record.

Explanation

ISA 315 and ISA 230 require the auditor to document the identified risks of material misstatement, including significant risks, and the reasons for the assessment. Documentation supports the design of responsive procedures and provides evidence of the auditor's reasoning. Oral communication does not satisfy the documentation requirement.

Question 15Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

The auditor of a Norwegian savings bank obtains an external confirmation of a loan portfolio balance from a borrower. The borrower returns the confirmation directly to the auditor but disputes the outstanding amount. What is the most appropriate next step?

  1. Investigate the difference by examining the loan agreement, payment records and correspondence, and consider the effect on the assessment of risk. Correct answer.
  2. Accept the client's recorded balance because the confirmation was received directly by the auditor.
  3. Discard the confirmation because a dispute means the evidence is unreliable.
  4. Issue a qualified opinion immediately without further procedures.

Explanation

A difference identified through external confirmation indicates a possible misstatement or dispute that the auditor must investigate. The auditor examines supporting documents and correspondence to determine whether the recorded balance is correct. The outcome may affect the risk assessment and the nature and extent of further procedures.

Question 16Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

Which of the following best describes the auditor's responsibility to communicate with those charged with governance under ISA 260?

  1. The auditor may delegate all communication with those charged with governance to the entity's internal audit function.
  2. The auditor must communicate significant findings from the audit, including significant difficulties encountered and uncorrected misstatements, to those charged with governance. Correct answer.
  3. The auditor must communicate all audit findings to the entity's shareholders before the financial statements are approved.
  4. The auditor is required to communicate only matters that are also disclosed in the financial statements.

Explanation

ISA 260 requires the auditor to communicate clearly with those charged with governance the auditor's responsibilities and an overview of the planned scope and timing of the audit, as well as significant findings from the audit. Significant findings include significant difficulties encountered, uncorrected misstatements, and significant matters discussed with management. Communication is with those charged with governance, not directly with shareholders.

Question 17Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor is auditing a company that uses a service organisation to process payroll. The service organisation's controls are relevant to the payroll balance. Which of the following best describes the auditor's approach under ISA 402?

  1. The auditor obtains an understanding of the services and the service organisation's controls and may use a service auditor's report as audit evidence. Correct answer.
  2. The auditor is prohibited from relying on the service organisation's controls because they are outside the entity.
  3. The auditor must perform the payroll processing personally to obtain direct evidence.
  4. The auditor must always obtain a service auditor's report and may not perform any other procedures.

Explanation

ISA 402 requires the user auditor to obtain an understanding of the nature of the services provided and the service organisation's controls where they are relevant to the user entity's internal control over financial reporting. A service auditor's report, such as a SOC 1 report, can be used as audit evidence about those controls. The user auditor may supplement it with other procedures.

Question 18Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

Which of the following best describes the auditor's responsibility for obtaining written representations under ISA 580?

  1. Written representations are required from management confirming certain matters, but they do not replace other audit evidence. Correct answer.
  2. Written representations are a substitute for other audit evidence that the auditor could reasonably expect to obtain.
  3. Written representations must be obtained from the entity's external legal counsel rather than management.
  4. Written representations are only required when the auditor expresses a modified opinion.

Explanation

ISA 580 requires the auditor to obtain written representations from management and, where appropriate, those charged with governance on matters such as the preparation of the financial statements and the completeness of information provided. Written representations are necessary audit evidence but do not substitute for other evidence the auditor could reasonably expect to obtain. They are obtained in every audit, not only when the opinion is modified.

Question 19Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

The auditor of a Norwegian listed company identifies a suspected fraud involving the finance director. Which of the following is the most appropriate action under ISA 240?

  1. Conceal the matter to preserve client confidentiality until the audit report is issued.
  2. Communicate the matter to those charged with governance and consider whether the auditor has a responsibility to report to an appropriate authority. Correct answer.
  3. Report the matter directly to the police without informing management or those charged with governance.
  4. Resign from the engagement immediately without further communication.

Explanation

ISA 240 requires the auditor to communicate fraud or suspected fraud to the appropriate level of management and, where relevant, to those charged with governance. The auditor also considers whether there is a responsibility to report to an appropriate authority, which may be required by law or regulation. The auditor does not unilaterally report to the police without considering the communication and legal framework.

Question 20Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

Which of the following best describes the auditor's assessment of the appropriateness of the going concern assumption under ISA 570 (Revised)?

  1. The auditor assesses management's use of the going concern basis only when there are indicators of financial difficulty.
  2. The auditor is required to guarantee that the entity will continue operating for at least twelve months after the reporting date.
  3. The auditor evaluates management's assessment of the entity's ability to continue as a going concern and considers the period covered by that assessment. Correct answer.
  4. The auditor relies solely on management's written representation that the going concern basis is appropriate.

Explanation

ISA 570 (Revised) requires the auditor to evaluate management's assessment of the entity's ability to continue as a going concern and to consider the period covered by that assessment. The auditor's assessment is performed in every audit, not only when indicators of difficulty exist. The auditor provides an opinion on the financial statements and does not guarantee the entity's future viability.

Question 21Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor of a Norwegian company is evaluating a complex fair value estimate of an unquoted derivative. Management used a valuation model with unobservable inputs. Which of the following is the most appropriate audit approach under ISA 540 (Revised)?

  1. Compare the estimate with the client's budget and accept it if the difference is below materiality.
  2. Rely solely on the prior year's estimate because the derivative was recognised last year.
  3. Evaluate the methods and assumptions used, test the underlying data, and consider whether the estimate is within a reasonable range. Correct answer.
  4. Accept the estimate because it was prepared by a qualified actuary employed by the entity.

Explanation

ISA 540 (Revised) requires the auditor to evaluate the methods, assumptions and data used by management in developing an accounting estimate, and to consider whether the estimate is reasonable in the circumstances. The auditor may use the work of a management's expert but retains responsibility and must evaluate the expert's work. Comparing with a budget is not a sufficient procedure for a complex estimate.

Question 22Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor concludes that the financial statements contain a material misstatement that is pervasive to the financial statements as a whole. Which opinion is appropriate under ISA 705?

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

Explanation

Under ISA 705, an adverse opinion is expressed when the auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements are both material and pervasive to the financial statements. A qualified opinion is used when misstatements are material but not pervasive. A disclaimer relates to an inability to obtain sufficient appropriate audit evidence, not to a known misstatement.

Question 23Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

A group auditor uses a component auditor to audit a significant component. The group auditor concludes that the component auditor's work is insufficient for the group audit's purposes. Which of the following is the most appropriate action under ISA 600 (Revised)?

  1. Issue a disclaimer of opinion on the group financial statements without further procedures.
  2. Perform additional procedures at the group level or at the component to obtain sufficient appropriate audit evidence for the group audit. Correct answer.
  3. Disclose the insufficiency in the group financial statements rather than addressing it in the audit.
  4. Accept the component auditor's work because component auditors are professionally qualified.

Explanation

Under ISA 600 (Revised), the group auditor is responsible for the group audit opinion and must obtain sufficient appropriate audit evidence for the group. If the component auditor's work is insufficient, the group auditor performs additional procedures or directs additional work to be performed. The group auditor cannot simply accept the component auditor's work based on professional qualification.

Question 24Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor of a listed Norwegian entity is assessing the risk of management override of controls. Which of the following procedures is required by ISA 240 to address this risk?

  1. Test journal entries and other adjustments made in the preparation of the financial statements. Correct answer.
  2. Perform a full reconciliation of every general ledger account to the prior year's audited balance.
  3. Obtain a representation from the audit committee that no override has occurred.
  4. Rely on the entity's automated controls over journal entries without further testing.

Explanation

ISA 240 requires the auditor to perform procedures to address the risk of management override of controls, including testing journal entries and other adjustments, reviewing accounting estimates for bias, and evaluating the business rationale for significant unusual transactions. A representation alone is not sufficient. Automated controls over journal entries must still be tested if relied upon.

Question 25Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor identifies that a client has changed its revenue recognition policy in a way that is not in accordance with the applicable financial reporting framework, and the effect is material but not pervasive. Which of the following is the most appropriate conclusion?

  1. The auditor should issue a disclaimer of opinion because the policy change affects revenue recognition.
  2. The auditor should express a qualified opinion because the financial statements contain a material misstatement that is not pervasive. Correct answer.
  3. The auditor should express an adverse opinion because any departure from the framework is pervasive by definition.
  4. The auditor should express an unmodified opinion because changes in accounting policy are matters for management judgment.

Explanation

When the financial statements contain a material misstatement that is not pervasive, ISA 705 requires a qualified opinion. A change in accounting policy that does not comply with the applicable financial reporting framework is a misstatement, and its effect must be evaluated. An adverse opinion is reserved for misstatements that are both material and pervasive.

Question 26Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

Under ISA 320, which benchmark is most commonly used as a starting point for determining overall materiality for a profit-oriented Norwegian manufacturing company?

  1. Total assets excluding goodwill
  2. Profit before tax from continuing operations Correct answer.
  3. Total equity reported at the prior year-end
  4. Gross revenue including VAT

Explanation

ISA 320 requires the auditor to determine materiality for the financial statements as a whole, and for profit-oriented entities profit before tax from continuing operations is the most commonly applied benchmark. Equity, revenue and assets are acceptable alternatives but are typically used where profit is volatile or not representative.

Question 27Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

In designing audit procedures, which of the following best describes the relationship between the risk of material misstatement and the extent of substantive testing?

  1. Higher assessed risk generally requires more extensive substantive procedures and more persuasive evidence Correct answer.
  2. Higher assessed risk allows the auditor to reduce substantive testing where controls are documented
  3. The assessed risk level has no bearing on the nature, timing and extent of further audit procedures
  4. Lower assessed risk requires the auditor to obtain evidence from external rather than internal sources

Explanation

ISA 330 requires the auditor to design and perform further audit procedures whose nature, timing and extent are responsive to the assessed risks of material misstatement. As risk increases, the auditor needs more reliable and more extensive evidence, often shifting toward external and year-end procedures.

Question 28Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor selects a sample of 60 sales invoices from a population of 3,000 and applies sampling risk. Which statement best describes sampling risk in this context?

  1. The risk that the auditor misinterprets an accounting standard when evaluating the sample results
  2. The risk that the client's staff deliberately conceal a misstatement from the auditor
  3. The risk that the audit file is not completed within the required time frame
  4. The risk that the auditor's conclusion based on the sample differs from the conclusion that would be reached by testing the entire population Correct answer.

Explanation

Sampling risk arises because the auditor tests only part of a population, so the sample conclusion may differ from what testing the whole population would produce. Non-sampling risk covers other failures such as misinterpretation or human error.

Question 29Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

Which of the following best describes the auditor's primary purpose in performing a risk assessment procedure during planning under ISA 315 (Revised 2019)?

  1. To test the operating effectiveness of the revenue cycle controls for the full period
  2. To gather substantive evidence about the valuation of year-end inventory balances
  3. To obtain an understanding of the entity and its environment, including its internal control, in order to identify and assess risks of material misstatement Correct answer.
  4. To determine the exact amount of the audit fee for the engagement

Explanation

Risk assessment procedures under ISA 315 are designed to build the auditor's understanding of the entity, its environment and its system of internal control, providing the basis for identifying and assessing risks of material misstatement. They are not substantive tests and do not by themselves provide sufficient evidence on balances.

Question 30Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

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

  1. Draft schedules prepared by the client's accounting staff
  2. Internally generated reports reviewed only by management
  3. Oral representations from the client's financial controller
  4. Documents obtained directly from an independent third party Correct answer.

Explanation

ISA 500 provides that evidence is more reliable when it is obtained from independent sources outside the entity and when it exists in documentary form. External, independently sourced documents therefore rank above internal documents and oral representations.

Question 31Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

Under ISA 230, what is the ordinary maximum period for completing assembly of the final audit file after the date of the auditor's report?

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

Explanation

ISA 230 requires the auditor to assemble the audit documentation in the audit file on a timely basis. Its application guidance states that an appropriate time limit for final assembly is ordinarily no more than 60 days after the date of the auditor's report.

Question 32Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

Which of the following best describes the auditor's objective when performing audit procedures on the entity's compliance with laws and regulations that have a direct effect on the determination of material amounts and disclosures in the financial statements?

  1. Report every instance of non-compliance to the police as a matter of course
  2. Limit procedures to reading the minutes of the board of directors
  3. Assume management has complied unless a whistleblower provides evidence to the contrary
  4. Obtain sufficient appropriate audit evidence about compliance with those laws and regulations Correct answer.

Explanation

ISA 250 distinguishes laws and regulations with a direct effect on the financial statements, such as tax and pension legislation, for which the auditor obtains sufficient appropriate audit evidence of compliance. Other laws without a direct effect are addressed through inquiry and inspection of correspondence.

Question 33Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor is planning the audit of a Norwegian retail group and decides to use a substantive analytical procedure to test monthly rental expense. Which condition best supports the reliability of this procedure?

  1. The prior year's rental expense was audited without any findings
  2. The lease contracts have been reviewed by the client's external legal adviser
  3. The client's rental expense is immaterial and therefore does not require corroboration
  4. The relationship between floor space, lease terms and rental expense is stable and predictable, and expectations can be developed with sufficient precision Correct answer.

Explanation

ISA 520 requires that substantive analytical procedures rely on plausible and predictable relationships and on expectations precise enough to identify a material misstatement. Stable relationships and reliable underlying data support a sufficiently precise expectation.

Question 34Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

During the audit of a Norwegian shipping company, the auditor assesses a significant risk relating to revenue cut-off around year-end. Which combination of procedures is most responsive to this risk?

  1. Increasing the sample size for payroll testing and reviewing the fixed asset register
  2. Performing a trend analysis of fuel costs and confirming the bank balance
  3. Reviewing board minutes and obtaining a management representation letter
  4. Testing shipping documents and invoices either side of the year-end and examining post year-end credit notes for returns Correct answer.

Explanation

A cut-off risk is addressed by testing transactions immediately before and after the reporting date and by examining post year-end returns and credit notes that reveal revenue recorded in the wrong period. These procedures directly target whether revenue was recognised in the correct accounting period.

Question 35Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor has assessed control risk as low for the completeness of trade payables and intends to rely on controls. Which of the following is required before that reliance can be justified?

  1. Obtain only a walkthrough of the control once at an interim date
  2. Document the control environment but perform no tests of controls
  3. Obtain audit evidence about the operating effectiveness of the controls throughout the period of reliance Correct answer.
  4. Confirm payables directly with all suppliers at year-end

Explanation

ISA 330 requires the auditor to obtain evidence about the operating effectiveness of controls on which reliance is placed, covering the period of intended reliance. A single walkthrough supports understanding of the design but is not sufficient to conclude that the control operated effectively.

Question 36Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor discovers that a client's management has recorded a large round-sum journal entry at year-end with no supporting documentation, posted by the CFO. Which procedure is most appropriate to address the risk of management override of controls under ISA 240?

  1. Rely solely on the CFO's verbal explanation without corroboration
  2. Reduce the extent of substantive testing on the grounds that the entry was approved internally
  3. Accept the entry because journal entries are inherently immaterial at year-end
  4. Test the appropriateness of the journal entry and evaluate whether it indicates a fraud risk factor requiring further investigation Correct answer.

Explanation

ISA 240 requires the auditor to design procedures to test the appropriateness of journal entries recorded in the general ledger and other adjustments, focusing on unusual entries. An unsupported round-sum entry posted by senior management is a fraud risk factor that must be investigated and corroborated.

Question 37Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

The auditor's tests of details on accounts receivable reveal a projected misstatement of NOK 250,000 from the sample, and overall materiality is NOK 1,000,000. Which conclusion is most appropriate?

  1. Increase materiality to NOK 1,500,000 so that the misstatement becomes immaterial
  2. Accumulate the projected misstatement with other misstatements and evaluate whether the aggregate could exceed materiality Correct answer.
  3. Conclude that receivables are fairly stated because the projected misstatement is below materiality
  4. Extend the audit report to disclose the projected misstatement to shareholders

Explanation

ISA 450 requires the auditor to accumulate misstatements identified during the audit, including projected misstatements from sampling, and to evaluate whether the aggregate could exceed materiality. A projected misstatement below materiality in isolation does not end the evaluation because other misstatements and qualitative factors must be considered.

Question 38Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor is considering the use of the work of an auditor's expert in valuing a complex defined benefit pension obligation. Which of the following is the auditor's primary responsibility?

  1. Accept the expert's valuation without further consideration because the expert is independent
  2. Ensure the expert is a licensed Norwegian auditor
  3. Evaluate the competence, capabilities and objectivity of the expert and the adequacy of the expert's work as audit evidence Correct answer.
  4. Delegate the audit conclusion on the pension obligation entirely to the expert

Explanation

Under ISA 620, the auditor remains responsible for the audit opinion and must evaluate the expert's competence, capabilities and objectivity, understand the expert's field of expertise, and evaluate the adequacy of the expert's work as audit evidence. The expert's findings are not a substitute for the auditor's judgement.

Question 39Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

A Norwegian listed company changes its accounting policy for revenue recognition in a way that is not permitted by IFRS 15, and the effect is material but not pervasive. Which opinion is appropriate?

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

Explanation

ISA 705 requires a qualified opinion where the auditor, having obtained sufficient appropriate evidence, concludes that misstatements are material but not pervasive. An adverse opinion is reserved for misstatements that are both material and pervasive.

Question 40Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

Which of the following best describes the auditor's responsibility regarding the entity's system of internal control when planning the audit under ISA 315 (Revised 2019)?

  1. Rely exclusively on management's self-assessment of internal control
  2. Express an opinion on the effectiveness of internal control in every audit engagement
  3. Obtain an understanding of each of the five components of internal control relevant to the audit, including the entity's risk assessment process and monitoring activities Correct answer.
  4. Test the operating effectiveness of all controls identified during the walkthrough

Explanation

ISA 315 (Revised 2019) requires the auditor to obtain an understanding of the entity's system of internal control across its five components to the extent relevant to the audit. This understanding informs risk identification and does not amount to an opinion on internal control.

Question 41Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor uses monetary unit sampling to test a population of trade receivables with a sampling interval of NOK 50,000. Which statement best describes the effect of this method?

  1. The method eliminates sampling risk entirely
  2. Each customer account has an equal chance of selection regardless of its balance
  3. The method is only appropriate for tests of controls, not substantive testing
  4. Each individual monetary unit has an equal chance of selection, so larger balances are more likely to be selected Correct answer.

Explanation

Monetary unit sampling treats the population as a series of monetary units, giving each unit an equal selection probability, which means larger balances have a higher chance of selection. It is a substantive sampling technique and does not eliminate sampling risk.

Question 42Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor identifies that a client has not disclosed a material related-party transaction required by the applicable framework. Management refuses to correct the omission. What is the most appropriate auditor response?

  1. Treat the omission as a material misstatement and modify the opinion in accordance with ISA 705 Correct answer.
  2. Issue an unmodified opinion with a paragraph describing the transaction
  3. Disclose the transaction in the auditor's report as a substitute for the missing note
  4. Resign from the engagement immediately without further procedures

Explanation

An omitted required disclosure is a misstatement of the financial statements under ISA 450 and ISA 705, and the auditor responds by modifying the opinion. The auditor's report cannot be used to supply disclosures that management is responsible for making.

Question 43Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

Which of the following best describes the auditor's responsibility when using the work of a component auditor in a group audit under ISA 600 (Revised)?

  1. The group engagement partner remains responsible for the group audit opinion and must evaluate the sufficiency of the component auditor's work Correct answer.
  2. The component auditor's opinion is automatically incorporated without further evaluation
  3. The group auditor may rely on the component auditor without communicating with them
  4. Responsibility for the group opinion is shared equally between the group and component auditors

Explanation

ISA 600 (Revised) makes clear that the group engagement partner is responsible for the group audit opinion and for directing, supervising and evaluating the work of component auditors. The group auditor must determine the sufficiency of that work and communicate with component auditors.

Question 44Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor is evaluating whether the going concern assumption remains appropriate for a Norwegian company with a net current liability position and a covenant breach. Which of the following is the most appropriate first step?

  1. Defer the assessment until the subsequent year's audit
  2. Assume the entity will continue because the shareholders have provided an informal letter of comfort
  3. Issue a disclaimer of opinion because a covenant breach always indicates going concern failure
  4. Obtain management's assessment of the entity's ability to continue as a going concern and evaluate the underlying cash flow forecasts and mitigation plans Correct answer.

Explanation

ISA 570 requires the auditor to evaluate management's assessment of going concern, including the supporting cash flow forecasts, covenant waivers and other mitigation measures. A covenant breach is an indicator, not a conclusion, and the auditor must gather evidence before deciding on the reporting implications.

Question 45Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

Under ISA 701, when is the auditor required to communicate key audit matters in the auditor's report?

  1. In every audit of a Norwegian company regardless of listing status
  2. Only when the auditor issues a qualified opinion
  3. Only when the entity's audit committee requests them in writing
  4. When the auditor is engaged to audit the financial statements of a listed entity, or when required by law or regulation Correct answer.

Explanation

ISA 701 applies to audits of complete sets of general purpose financial statements of listed entities, and may also apply where law or regulation requires key audit matters. It is not a general requirement for all entities.

Question 46Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor is designing procedures to address the risk that the client has understated accrued liabilities at year-end. Which procedure provides the most relevant evidence?

  1. Confirm the year-end bank balance directly with the bank
  2. Recalculate depreciation on the fixed asset register
  3. Vouch a sample of payments made before year-end to supplier invoices
  4. Search for unrecorded liabilities by examining post year-end payments and supplier invoices Correct answer.

Explanation

Understated liabilities are identified by searching for unrecorded items, typically through post year-end payments, invoices and statements received after the reporting date. Vouching pre-year-end payments tests recorded liabilities for existence, not completeness.

Question 47Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

The auditor of a Norwegian listed entity concludes that the financial statements contain a material misstatement relating to revenue recognition that is pervasive because it affects the entire revenue stream and related receivables. Which opinion is appropriate?

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

Explanation

ISA 705 requires an adverse opinion where the auditor concludes that misstatements are both material and pervasive to the financial statements. A qualified opinion is used only where the misstatement is material but not pervasive.

Question 48Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor is evaluating the reliability of audit evidence obtained through a remote video walkthrough of a warehouse stock count. Which consideration is most important in assessing the sufficiency of this evidence?

  1. Whether the prior year's count was observed on site
  2. Whether the auditor could observe the count procedures directly and whether the client's camera work and connectivity allowed reliable observation of the physical count Correct answer.
  3. Whether the warehouse manager verbally confirmed the count was accurate
  4. Whether the client provided a signed representation that the count was complete

Explanation

ISA 501 requires the auditor to attend physical inventory counts, and remote alternatives must be evaluated for whether they provide evidence of comparable reliability. Direct observation and control over what is seen are central, so limitations in camera work or connectivity reduce the sufficiency of the evidence.

Question 49Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor is assessing the appropriateness of management's use of the expected credit loss model under IFRS 9 for a Norwegian bank's loan portfolio. Which of the following best describes the auditor's evaluation of the model's assumptions?

  1. Restrict testing to the arithmetic accuracy of the model's formulas
  2. Evaluate whether the assumptions, including forward-looking macroeconomic scenarios and probability weights, are reasonable and supported, and consider whether the model is applied consistently Correct answer.
  3. Rely on the prior year's model without considering changes in the economic environment
  4. Accept the model output because it was produced by a licensed software vendor

Explanation

Under ISA 540 (Revised), the auditor must evaluate the reasonableness of management's assumptions and the consistency of application, including forward-looking information used in expected credit loss models. Arithmetic accuracy alone is insufficient because the assumptions drive the estimate.

Question 50Statutory audit methodology and audit process (planning, risk assessment, evidence, reporting)

An auditor identifies that a client's management has deliberately failed to record a material year-end accrual to meet an earnings target. Which conclusion best reflects the auditor's assessment under ISA 240?

  1. The misstatement is a trivial error that can be ignored because it is a single accrual
  2. The matter should be treated as a control deficiency only, with no further audit response
  3. The auditor should resign without communicating the matter to those charged with governance
  4. The misstatement is intentional and indicates a fraud risk that requires evaluation of its implications for the financial statements and communication with those charged with governance Correct answer.

Explanation

An intentional misstatement to meet an earnings target is a fraud indicator under ISA 240, and the auditor must evaluate its implications, consider the effect on the financial statements and communicate with those charged with governance. It cannot be treated as a trivial error or a mere control deficiency.