The Multiple Choice Questions Blog

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

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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

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Which ONE of the following procedures are MOST appropriate to confirm the valuation of trade receivables?

Select ONE answer:

1. Direct confirmations with customers
2. Review of the receivables ledger
3. Review of sales invoices
4. Review of cash paid by suppliers after the year-end date

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 – 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.
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 procedures are MOST appropriate to confirm the valuation of trade receivables?

Select ONE answer:

1. Review of the receivables ledger
2. Review of sales invoices
3. Direct confirmations with suppliers
4. Review of cash paid by customers after the year-end date

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 – 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.

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

Which ONE of the following is the reason why the positive method of confirming receivables balances with customers is generally preferred?

Select ONE answer:

1. It is carried out in the auditor’s name
2. It only requires the customer to reply if he disagrees with the balance
3. It requires the customer to reply giving or confirming or disagreeing with the balance
4. It requires replies to be sent to the client

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 fact that a positive confirmation requires the customer to reply to confirm or deny the balance (or to reply stating the balance) is the reason why this method is generally preferred over a negative confirmation. A negative confirmation only requires a reply if the balance is not agreed, which provides poorer-quality evidence because, if there is no reply, the auditor cannot be sure whether the customer has simply ignored the letter or has even received it. The answer is not option 1, as negative confirmations are also sent in the auditor’s name. Option 2 describes a negative confirmation and is therefore not correct. Option 4 does not apply to any type of confirmation.
4. Not correct

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