Tag: ACA

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 Inventory has been valued when it is obsolete and has no value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

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Which ONE of the following does NOT provide evidence to support the rights and obligations assertion in relation to non-current assets?

Select ONE answer:

1. Title deeds
2. Sales invoices
3. Purchase invoices
4. Vehicle registration documents

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 rights and obligations assertion means that the entity holds or controls the rights to assets. Although vehicle registration documents show registered keeper, not owner, the keeper is likely to have control of the asset. Both title deeds and purchase invoices give evidence of ownership (which gives control). Sales invoices provide evidence of no longer owning something and therefore do not support the assertion of rights and obligations.
3. Not correct
4. Not correct

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Which ONE of the following is a purpose of a written representation letter?

Select ONE answer:

1. Acknowledgement that management has fulfilled its responsibility for the preparation of the financial statements
2. Provision of evidence in respect of material items where other evidence is available
3. Confirmation by management of the scope of the work to be carried out by the assurance Firm
4. Provision of details of proposed modifications to the auditor’s report

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 written representation letter serves two purposes from the list provided: (1) acknowledging that management has fulfilled its responsibility for preparing the financial statements, and (2) confirming management’s belief that the aggregate of uncorrected misstatements is immaterial to the financial statements. Where other evidence is available on a matter, the written representation letter does not provide audit evidence. Management’s confirmation of the scope of work to be performed is included in the engagement letter.
2. Not correct
3. Not correct
4. Not correct

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