The Multiple Choice Questions Blog

Which ONE of the following are reasons why the auditors might NOT seek direct confirmation of balances due from suppliers?

Select ONE answer:

1. To obtain third-party evidence
2. The auditors suspect that the client is deliberately understating payables
3. The internal controls relating to purchases are weak
4. Supplier statements are unavailable

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 – Although a payables circularisation does provide third party evidence, it is unnecessary on those grounds alone, because supplier statements provide third party evidence as well. Therefore, a payables circularisation will only be needed where there is some problem, such as those described in options 2, 3 and 4.
2. Not correct
3. Not correct
4. Not correct

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

Which ONE of the following is the key assertion with which auditors are concerned in relation to payables?

Select ONE answer:

1. Completeness
2. Existence
3. Accuracy
4. Classification

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 – Completeness (i.e. understatement): liabilities are generally tested for understatement, as they are more likely to be understated than overstated. Existence (overstatement) is a higher-risk assertion for assets, as opposed to liabilities. Presentation and classification are generally less risky assertions in this case.
2. Not correct
3. Not correct
4. Not correct

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

In which ONE of the following situations should an auditor carry out a cash count?

Select ONE answer:

1. A client has many cash floats, which are immaterial in total
2. A client has poor controls over cash floats, which are immaterial in total
3. An individual cash float is NOT material
4. The auditor suspects that a fraud has been committed in relation to immaterial cash floats

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 should count an individual cash float which is material because he should test all material items. He should also count immaterial cash floats where he suspects that a fraud has been committed as although the individual floats are immaterial, the overall impact of such a fraud could be material to the financial statements if repeated over time.

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

In which ONE of the following situations should an auditor carry out a cash count?

Select ONE answer:

1. A client has many cash floats, which are immaterial in total
2. A client has poor controls over cash floats, which are immaterial in total
3. An individual cash float is material
4. The auditor does NOT suspect that a fraud has been committed in relation to immaterial cash floats

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 should count an individual cash float which is material because he should test all material items. He should also count immaterial cash floats where he suspects that a fraud has been committed as although the individual floats are immaterial, the overall impact of such a fraud could be material to the financial statements if repeated over time.
4. Not correct

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

Which ONE of the following procedures which could be undertaken to confirm the valuation of a client’s bank balance is the MOST reliable?

Select ONE answer:

1. Inspection of the bank reconciliation
2. Inspection of the bank letter
3. Inspection of the bank statement
4. Inspection of the cash book

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 – Direct confirmations with customers and review of cash paid after date are most appropriate as these provide independent confirmation of the year-end trade receivables balance, whereas the receivables ledger and sales invoices are part of the client’s own records.
3. Not correct
4. Not correct

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