The Multiple Choice Questions Blog

The results of substantive tests in relation to non-current assets at Alex Manufacturing Ltd are set out below.

The materiality threshold set for these tests was £5,000.

For each of the following results, select the action which should be taken by the audit senior.

• A sample of three assets, valued at £2,000 in total, had been excluded from the non-current asset register and the financial statements.

Select ONE answer:

1. Extend sample
2. Draw conclusion
3. Refer to a senior colleague
4. Refer to a junior colleague

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 – Extending the sample of assets inspected will test if the misstatement found to date is an anomaly or represents a larger misstatement.
2. Not correct
3. Not correct
4. Not correct

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Which ONE of the following relationships/ratios are reasons why analytical procedures can NOT give strong evidence in relation to the accuracy of purchases?

Select ONE answer:

1. Purchases and payables
2. Purchases and inventories
3. Gross margin
4. Operating margin

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 – Applying analytical procedures to the operating margin which contains the effect of all expenses, not just purchases, will not provide direct evidence as to the accuracy of purchases.

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Which ONE of the following options is a reason why sales are often verified by testing the internal controls in place over sales?

Select ONE answer:

1. There are usually too many individual transactions to test them individually
2. Sales constitute a very low volume of similar transactions which are NOT suitable for controls testing
3. Controls over sales in a company are often strong
4. Because there are so many individual transactions, there is a significant risk that sales are misstated

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 – Regarding option 3 – where controls are expected to be strong, ISA 330 requires that the auditors test them, so this is also correct. Option1 cannot be used as a reason for testing internal controls over sales – however many transactions there are, if controls appear to be deficient, then those transactions will need to be subjected to tests of detail. Option 4 is incorrect as where there is a high risk of misstatement, substantive procedures should be used.
4. Not correct

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

Which ONE of the following options is a reason why sales are often verified by testing the internal controls in place over sales?

Select ONE answer:

1. There are usually too many individual transactions to test them individually
2. Sales constitute a high volume of similar transactions, which are suitable for controls testing
3. Controls over sales in a company are non-existent
4. Because there are so many individual transactions, there is a significant risk that sales are misstated

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 – Option 2 is correct – that sales constitute a high volume of similar transactions and are hence suitable to controls testing. Option1 cannot be used as a reason for testing internal controls over sales – however many transactions there are, if controls appear to be deficient, then those transactions will need to be subjected to tests of detail. Option 4 is incorrect as where there is a high risk of misstatement, substantive procedures should be used.
3. Not correct
4. Not correct

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

Which ONE of the following are reasons why the auditors might NOT seek direct confirmation of balances due from suppliers?

Select ONE answer:

1. To obtain third-party evidence
2. The auditors suspect that the client is deliberately understating payables
3. The internal controls relating to purchases are weak
4. Supplier statements are unavailable

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 – Although a payables circularisation does provide third party evidence, it is unnecessary on those grounds alone, because supplier statements provide third party evidence as well. Therefore, a payables circularisation will only be needed where there is some problem, such as those described in options 2, 3 and 4.
2. Not correct
3. Not correct
4. Not correct

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