The Multiple Choice Questions Blog

For the procedure below, select whether the auditor will be testing primarily for an overstatement or primarily for an understatement.

• The auditor calculates for himself the warranty provision and compares their figure to the balance stated in the statement of financial position

Select ONE answer:

1. Primarily for the overstatement of provisions
2. Primarily for the understatement of provisions
3. Primarily for the overstatement of warranty provision
4. Primarily for the understatement of warranty provision

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 – The auditor’s primary concern when testing assets is that they may be overstated, whereas the concern with liabilities is that they may be understated. Performing the calculation on the warranty provision and then comparing that figure with the balance stated, is testing a liability and therefore testing for understatement.

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For the procedure below, select whether the auditor will be testing primarily for an overstatement or primarily for an understatement.

• Reviewing the aged inventory analysis to identify old/obsolete inventory

Select ONE answer:

1. Primarily for the overstatement of provisions
2. Primarily for the understatement of provisions
3. Primarily for the overstatement of inventory
4. Primarily for the understatement of inventory

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 auditor’s main concern in testing assets is that they might be overstated whereas he will be concerned that liabilities might be understated. Reviewing the aged inventory analysis is testing for overstatement in the valuation of inventories, as the existence of old/obsolete inventory may require a write-down to net realisable value.
4. Not correct

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For the procedure below, select whether the auditor will be testing primarily for an overstatement or primarily for an understatement.

• Communicating with the client’s legal advisers for details about outstanding legal claims

Select ONE answer:

1. Primarily for the overstatement of provisions
2. Primarily for the understatement of provisions
3. Primarily for the overstatement of the warranty provision
4. Primarily for the understatement of the warranty provision

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 auditor’s main concern in testing assets is that they might be overstated whereas he will be concerned that liabilities might be understated. Communicating with the company’s legal advisers about outstanding legal claims is testing for understatement in liabilities.
3. Not correct
4. Not correct

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When determining a sample size for tests of details, an auditor should consider several factors.

For the factor described below, select whether it would cause the sample size to increase, decrease, have no impact, or depend on the size of the business.

• An increase in the level of misstatements that the auditor expects to find when testing the assertion

Select ONE answer:

1. Increase
2. Decrease
3. There is no impact
4. It depends on the size of the business

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 – An increase in the expected misstatements would lead to an increase in the sample size.
2. Not correct
3. Not correct
4. Not correct

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

When determining a sample size for tests of details, an auditor should consider several factors.

For the factor described below, select whether it would cause the sample size to increase, decrease, have no impact, or depend on the size of the business.

• An increase in the use of analytical procedures to test the same assertion

Select ONE answer:

1. There is no impact
2. It depends on the size of the business
3. Increase
4. Decrease

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 increase in the use of analytical procedures to test the same assertion would decrease the sample size, so that the area is not over-audited.

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