The Multiple Choice Questions Blog

Tick and Bash are the auditors of Alex Manufacturing Ltd and have carried out a direct confirmation at year-end to verify the accuracy of the total trade receivables in the statement of financial position at that date.

One of the replies to the circularisation disagreed with the balance.

For this disagreement, select whether the disagreement would be considered a misstatement for the purpose of evaluating the accuracy of total trade receivables, not a misstatement, it depends on the size of the business, or one should consult a senior colleague for a final decision

• Lucy Trading Ltd disagreed with the balance because their records indicated that the amount had been paid a few days before the year-end. Tick and Bash’s enquiries revealed that the cheque was cleared shortly after the year-end.

Select ONE answer:

1. Misstatement
2. Not a misstatement
3. Depends on the size of the business
4. Consult a senior 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 – this disagreement stems from a timing difference and, as such, does not indicate a misstatement in the receivables balance.
3. Not correct
4. Not correct

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Which ONE of the following procedures should be undertaken to confirm the existence of cash at the bank?

Select ONE answer:

1. Obtaining direct confirmation of the bank balance from the client’s bank
2. Inspecting the bank reconciliation statement prepared by the client
3. Agreeing the figures on the bank reconciliation to the bank column in the cash book
4. Reperforming the additions on the bank reconciliation

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 – Obtaining direct confirmation of the bank balance from the client’s bank will confirm the existence of the cash at bank with a third party (i.e., the bank).
2. Not correct
3. Not correct
4. Not correct

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Which ONE of the following financial statement assertions will be supported by a sample check on the numerical sequence of dispatch notes and invoices?

Select ONE answer:

1. Cut-off
2. Occurrence
3. Accuracy, valuation and allocation
4. Completeness

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 – Completeness – a sequence check will highlight missing documents which may indicate unrecorded transactions – i.e., test the completeness of sales.

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To gather sufficient and appropriate evidence, the auditor may use external confirmation requests.

For the statement below, select whether it is true, false, it depends on the size of the business, or you should consult a senior colleague

• A positive confirmation request usually provides more reliable audit evidence than a negative confirmation request.

Select ONE answer:

1. Depends on the size of the business
2. Consult a senior colleague
3. True
4. False

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 – True => with a positive confirmation, a response is expected whether there is agreement or disagreement. With a negative confirmation, there is an element of uncertainty as to the reasons for non-response. Hence the former is ordinarily more reliable than the latter.
4. Not correct

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

To gather sufficient and appropriate evidence, the auditor may use external confirmation requests.

For the statement below, select whether it is true, false, it depends on the size of the business, or you should consult a senior colleague

• A sample of confirmation requests drawn from the client’s list of balances is more appropriate for receivables than for payables.

Select ONE answer:

1. False
2. True
3. Depends on the size of the business
4. Consult a senior 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 – True => receivables are tested for overstatement therefore it is acceptable to select the sample from the client’s list of balances. The direct confirmation would be likely to elicit a response (even if negative confirmation is used) if the balance is indeed overstated. However, payables are tested for understatement and the auditor is looking for balances which are not on the client’s list but should be. Therefore, this sample should be drawn from a list of all possible payables, not from the client’s list, which may already be understated.
3. Not correct
4. Not correct

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