The Multiple Choice Questions Blog

Lucy, an audit senior, has obtained a list of items which make up the cash and cash equivalents balance (£3,556) in the financial statements of Alex Manufacturing Ltd.

Materiality has been set at £4,000.

For the item below, select whether Lucy should test or should NOT test the item, or whether they should consult a senior colleague or a junior colleague.

• Special directors’ cash account £1,294

Select ONE answer:

1. Consult a senior colleague
2. Consult a junior colleague
3. Test
4. Not Test

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 – The special directors’ cash account should be tested whatever its monetary value. Strict materiality thresholds do not apply to directors’ emoluments which need to be disclosed whatever their amount. In any case the auditor needs to ascertain what this balance represents.
4. Not correct

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

Lucy, an audit senior, has obtained a list of items which make up the cash and cash equivalents balance (£3,556) in the financial statements of Alex Manufacturing Ltd.

Materiality has been set at £4,000.

For the item below, select whether Lucy should test or should NOT test the item, or whether they should consult a senior colleague or a junior colleague.

• Petty cash float £750

Select ONE answer:

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

1. Not correct
2. Correct – The petty cash float is not material and hence need not be tested.
3. Not correct
4. Not correct

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

Lucy, an audit senior, has obtained a list of items which make up the cash and cash equivalents balance (£3,556) in the financial statements of Alex Manufacturing Ltd.

Materiality has been set at £4,000.

For the item below, select whether Lucy should test or should NOT test the item, or whether they should consult a senior colleague or a junior colleague.

• Current account balance (overdrawn) £5,600

Select ONE answer:

1. Test
2. Not Test
3. Consult a senior colleague
4. Consult 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 – The current account balance should be tested as it is over the materiality threshold.
2. Not correct
3. Not correct
4. Not correct

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

Lucy, an audit junior, has carried out the following tests to verify the valuation of inventory in the financial statements of Alex Manufacturing Ltd.

For the case described below: select whether the test proves the assertion of valuation, does not prove the assertion of valuation, it depends on the type of company, or needs to be referred to a senior colleague.

• Comparing cost on several inventory items to sales invoices after the year end

Select ONE answer:

1. It depends on the type of company
2. Needs to be referred to a senior colleague
3. Does not prove valuation
4. Proves valuation

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 – Checking inventory items against sales invoices tests for NRV and hence valuation of the inventory.

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

Lucy, an audit junior, has carried out the following tests to verify the valuation of inventory in the financial statements of Alex Manufacturing Ltd.

For the case described below: select whether the test proves the assertion of valuation, does not prove the assertion of valuation, it depends on the type of company, or needs to be referred to a senior colleague.

• Attending the inventory count and carrying out sample counts on several items

Select ONE answer:

1. It depends on the type of company
2. Needs to be referred to a senior colleague
3. Does not prove valuation
4. Proves valuation

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 – The first statement represents a test of control over inventory counting procedures and therefore, the completeness or existence of the quantity of inventory. It is not a test of valuation.
4. Not correct

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