The Multiple Choice Questions Blog

Alex Anderson LLP is a global firm of chartered accountants.

It has a reputation for excellence in the banking and insurance industry and has been invited to accept engagements by various institutions as follows.

1. The audit of Your Staffordshire Savings plc, the leading building society in the UK. 40% of Alex Anderson LLP staff members with mortgages have mortgaged their homes with Your Staffordshire Savings plc.
2. The audit of Your Money Ltd, a large business which banks cheques and cash items for the general public and advances loans. A member of the proposed audit team was impressed by the loan rate offered during the tendering process and took out a loan with Your Money Ltd to buy a car.

Which, if any, of the above companies present a major threat to the independence of Alex Anderson LLP, if the engagement were to be accepted?

Select ONE answer:

1. A Your Staffordshire Savings plc and Your Money Ltd
2. Your Staffordshire Savings plc only
3. Your Money Ltd only
4. Neither Your Staffordshire Savings plc nor Your Money Ltd

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 – Your Money Ltd is a threat as it is implied that an audit team member took advantage of the loan rate mentioned in the audit tendering process. Your Staffordshire Savings plc is not a threat as it is acceptable for staff to have mortgages on commercial terms with an audit client who is a mortgage provider, especially if it is the leading building society.
4. Not correct

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Which ONE of the following threats to independence might NOT arise on the current audit when an audit team member is involved in employment negotiations with an audit client during the audit?

Select ONE answer:

1. Self-interest
2. Self-review
3. Intimidation
4. Familiarity

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 – does not apply as given the staff member does not yet work for the audit client, there is no risk of self-review at this stage.
3. Not correct
4. Not correct

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Which ONE of the following Classes Of Individual MAYBE permitted to own a material financial interest in an audit client?

Select ONE answer:

1. A parent of a member of the audit team
2. A member of the audit team
3. A minor child of a member of the audit team
4. A spouse of a member of the audit team

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 – a parent of a member of an audit team may own a material financial interest in an audit client – provided they are not a dependant, which would not normally be assumed to be the case.
2. Not correct
3. Not correct
4. Not correct

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Which ONE of the following should an auditor consider NOT if there is a threat to independence?

Select ONE answer:

1. Withdrawing from the engagement
2. Applying specific safeguards
3. Making disclosures to the client
4. Making disclosures to ICAEW

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 – Making disclosures to ICAEW is no substitute for the other options.

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There are two main approaches to a code of professional ethics: a rules-based ethical code and a principles-based code.

Indicate whether the following statement is true, false, not relevant or depends on the situation.

• ICAEW uses a rules-based approach.

Select ONE answer:

1. Is not relevant
2. True
3. False
4. Depends on the situation

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 – ICAEW uses a principles-based approach.
4. Not correct

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