The Multiple Choice Questions Blog

Lucy, an audit senior, has obtained a list of items which make up the cash and cash equivalents balance (£3,556) in the financial statements of Alex Manufacturing Ltd.

Materiality has been set at £4,000.

For the item below, select whether Lucy should test or should NOT test the item, or whether they should consult a senior colleague or a junior colleague.

• Current account balance (overdrawn) £5,600

Select ONE answer:

1. Test
2. Not Test
3. Consult a senior colleague
4. Consult a junior 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 1

1. Correct – The current account balance should be tested as it is over the materiality threshold.
2. Not correct
3. Not correct
4. Not correct

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Lucy, an audit junior, has carried out the following tests to verify the valuation of inventory in the financial statements of Alex Manufacturing Ltd.

For the case described below: select whether the test proves the assertion of valuation, does not prove the assertion of valuation, it depends on the type of company, or needs to be referred to a senior colleague.

• Comparing cost on several inventory items to sales invoices after the year end

Select ONE answer:

1. It depends on the type of company
2. Needs to be referred to a senior colleague
3. Does not prove valuation
4. Proves valuation

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 – Checking inventory items against sales invoices tests for NRV and hence valuation of the inventory.

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

Lucy, an audit junior, has carried out the following tests to verify the valuation of inventory in the financial statements of Alex Manufacturing Ltd.

For the case described below: select whether the test proves the assertion of valuation, does not prove the assertion of valuation, it depends on the type of company, or needs to be referred to a senior colleague.

• Attending the inventory count and carrying out sample counts on several items

Select ONE answer:

1. It depends on the type of company
2. Needs to be referred to a senior colleague
3. Does not prove valuation
4. Proves valuation

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 first statement represents a test of control over inventory counting procedures and therefore, the completeness or existence of the quantity of inventory. It is not a test of valuation.
4. Not correct

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

The auditor of Alex Manufacturing Ltd carried out an external confirmation of receivables 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 confirmations disagreed with the balance.

For the disagreement, select from the options below what impact the disagreement will have for the purposes of evaluating the accuracy of total trade receivables in the statement of financial position at the year end.

• Arthur Imports Ltd disagreed the balance because their records did not contain invoice number ABC001. This invoice and associated goods were dispatched by Alex Manufacturing Ltd on the last day of the year. The auditor has verified that the despatch note and cut-off with inventory are correct.

Select ONE answer:

1. Would be considered a misstatement
2. Would NOT be considered a misstatement
3. Would depend on circumstances
4. Would be referred to a senior colleagues

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 disagreement is due to timing differences and hence does not constitute a misstatement in the accuracy of total trade receivables.
3. Not correct
4. Not correct

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

The auditor of Alex Manufacturing Ltd carried out an external confirmation of receivables 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 confirmations disagreed with the balance.

For the disagreement, select from the options below what impact the disagreement will have for the purposes of evaluating the accuracy of total trade receivables in the statement of financial position at the year end.

• Lucy Trading Ltd disagreed the balance because they had made a payment two days before the year end. The auditor has confirmed that the cheque cleared the bank two days after the year-end.

Select ONE answer:

1. Would NOT be considered a misstatement
2. Would be considered a misstatement
3. Would depend on circumstances
4. Would be referred to a senior colleagues

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 – The disagreement is due to timing differences and hence does not constitute a misstatement in the accuracy of total trade receivables.
2. Not correct
3. Not correct
4. Not correct

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