The Multiple Choice Questions Blog

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

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Which ONE of the following constitute the best quality evidence concerning the net realisable value of inventory?

Select ONE answer:

1. Post year-end goods received notes
2. Post year-end sales orders
3. Company’s controls over inventory counting
4. Post year-end sales price list

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 – Post year-end sales invoices and sales orders. The controls over counting relate to existence, not valuation. A post year-end sales price list gives evidence of management intention in relation to inventory, but not evidence of the price that customers are genuinely prepared to pay (in the way that invoices and orders do).
3. Not correct
4. Not correct

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

Which ONE of the following constitute the best quality evidence concerning the net realisable value of inventory?

Select ONE answer:

1. Post year-end sales invoices
2. The company’s controls over inventory counting
3. Post year-end sales price list
4. Post year-end goods received notes

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 – Post year-end sales invoices and sales orders. The controls over counting relate to existence, not valuation. A post year-end sales price list gives evidence of management intention in relation to inventory, but not evidence of the price that customers are genuinely prepared to pay (in the way that invoices and orders do).
2. Not correct
3. Not correct
4. Not correct

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Which ONE of the following is the LEAST significant risk in relation to an inventory balance in the financial statements?

Select ONE answer:

1. Inventory exists but has not been included in the financial statements
2. Inventory has been valued at cost when net realisable value is lower
3. Inventory has been valued when it is obsolete and has no value
4. Inventory has not been disclosed properly in the financial statements

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 – Inventory has not been disclosed properly in the financial statements constitutes the lowest risk, as the disclosure requirements in relation to inventory are not onerous. In contrast, inventory is often easy to conceal or omit from records or count wrongly, and, as it usually consists of many items, valuation can be tricky also.

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Which ONE of the following assertions is the assurance provider least concerned with when testing a non-current asset balance?

Select ONE answer:

1. Existence
2. Rights and obligations
3. Cut-off
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 3

1. Not correct
2. Not correct
3. Correct – Cut-off is a financial statement assertion that affects classes of transactions, not account balances.
4. Not correct

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