The Multiple Choice Questions Blog

The result of a substantive audit test at Alex Manufacturing Ltd is set out below.

The materiality threshold set for substantive tests was £1,000.

For the result below, select the action to be taken by the audit senior.

• A misstatement of £10 was found, sanctioned by the finance director

Select ONE answer:

1. Refer to senior colleague
2. Redo the substantive test
3. Draw conclusion
4. Extend sample

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct – A misstatement of £10 found, sanctioned by the FD should lead to the auditor to refer the matter to a senior colleague due to the FD’s sanctioning.
2. Not correct
3. Not correct
4. Not correct

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The result of a substantive audit test at Alex Manufacturing Ltd is set out below.

The materiality threshold set for substantive tests was £1,000.

For the result below, select the action to be taken by the audit senior.

• An arithmetical misstatement of £5,000 found

Select ONE answer:

1. Refer to a senior colleague
2. Redo the substantive test
3. Draw conclusion
4. Extend sample

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 4

1. Not correct
2. Not correct
3. Not correct
4. Correct – An arithmetic misstatement of £5,000 found would be above the materiality threshold and so the auditor should extend his sample.

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The result of a substantive audit test at Alex Manufacturing Ltd is set out below.

The materiality threshold set for substantive tests was £1,000.

For the result below, select the action to be taken by the audit senior.

• No misstatements found in inventory valuation

Select ONE answer:

1. Refer to a senior colleague
2. Redo the substantive test
3. Draw conclusion
4. Extend sample

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct – No misstatements are found therefore the appropriate action would be to draw a conclusion.
4. Not correct

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Alex Manufacturing Ltd has a head office and several branches.

The head office operates a continuous inventory counting system.

The system ensures that all items are counted at least twice a year and checked against inventory records.

During the interim audit, an examination of the counts undertaken by head office staff showed that differences between inventory records and the physical count frequently arise.

Usually, actual inventory levels at branches are higher than book inventory.

Which one of the following explains this difference?

Select ONE answer:

1. Unrecorded write offs of scrapped inventory
2. Unrecorded branch requisitions
3. Unrecorded purchase returns
4. Unrecorded branch returns

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct – Actual inventory levels at branches are higher than book inventory – ie, there must be unrecorded goods inwards. Only unrecorded branch requisitions (goods coming in from head office) would explain this. Al the others would lean to book inventory higher than actual inventory.
3. Not correct
4. Not correct

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Tick and Bash is the auditor of Alex Manufacturing Ltd and has set materiality thresholds such that items under £40,000 are not generally considered material.

For each of the following items in Alex Manufacturing Ltd’s financial statements, select whether the auditor would usually test it for overstatement, for understatement, whether the item would not be tested at all, or whether it should be referred to a senior colleague.

• Sundry income £35,000

Select ONE answer:

1. Not Test
2. Consult a senior colleague
3. Understatement
4. Overstatement

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct – the amount is below the materiality threshold. The likelihood of material fraud or misstatement within the balance is very low.
2. Not correct
3. Not correct
4. Not correct

This work is licensed under a Creative Commons Attribution 4.0 International License.