Tick and Bash is the auditor of Alex Manufacturing Ltd and has set materiality thresholds such that items under £40,000 are not generally considered material.
For each of the following items in Alex Manufacturing Ltd’s financial statements, select whether the auditor would usually test it for overstatement, for understatement, whether the item would not be tested at all, or whether it should be referred to a senior colleague.
- Sundry income £35,000
Select ONE answer:
- Not Test
- Consult a senior colleague
- Understatement
- Overstatement
Show your workings to arrive at your answer, and explain and justify your reasons:
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This multiple-choice question is suitable for Accounting KS5 classes.
The answer is 1
- Correct – the amount is below the materiality threshold. The likelihood of material fraud or misstatement within the balance is very low.
- Not correct
- Not correct
- Not correct
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