The Multiple Choice Questions Blog

Which ONE of the following describe tests for understatement?

Select ONE answer:

1. Selecting a sample of despatch notes and tracing these to a matching sales invoice
2. Selecting a sample of sales invoices and tracing these to a matching despatch note
3. Selecting a sample of items of plant from the asset register and physically verifying their existence
4. Selecting a sample of items of plant physically verified by the assurance provider and tracing these to an entry in the asset register

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 – Tests for understatement (i.e., omission) cannot start from the source being tested for understatement/omission. They must start from some other source and trace through to the accounting records, to prove that nothing has been omitted (i.e., the entity’s transactions or balances are not understated).

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Which ONE of the following circumstances would reduce the reliability of the results of analytical procedures?

Select ONE answer:

1. Detailed information is available analysed by department
2. Budgeted figures in the past have proved to be highly realistic
3. Significant deficiencies in the internal control system have been identified in the past
4. Reliable industry data are available

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 – Deficiencies in internal controls reduce the reliability of the basic accounting information which will be used in the analytical procedures.
4. Not correct

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Which ONE of the following circumstances would reduce the reliability of the results of analytical procedures?

Select ONE answer:

1. Detailed information is available and analysed by department
2. Budgeted figures in the past have proved to be highly optimistic
3. Reliable industry data are available
4. NO deficiencies in the internal control system have been identified in the past

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 – If budgets are not realistic, they will not provide a reasonable basis for comparison with actual.
3. Not correct
4. Not correct

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In accordance with ISAs 315 and 520, select whether analytical procedures are not allowed, for PLCs only, compulsory or optional in each of the following circumstances.

• At the overall review stage of the audit

Select ONE answer:

1. compulsory
2. not allowed
3. for PLCs only
4. optional

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 – Per ISA 315, analytical procedures must be used at the risk assessment stage of an audit. Per ISA 520 they must also be used at the overall review stages of an audit and may be used as a substantive procedure.
2. Not correct
3. Not correct
4. Not correct

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

In accordance with ISAs 315 and 520, select whether analytical procedures are not allowed, for PLCs only, compulsory or optional in each of the following circumstances.

• As a substantive procedure

Select ONE answer:

1. not allowed
2. for PLCs only
3. compulsory
4. optional

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 – Per ISA 315, analytical procedures must be used at the risk assessment stage of an audit. Per ISA 520 they must also be used at the overall review stages of an audit and may be used as a substantive procedure.

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