Tag: Ethics

Which ONE of the following are true in respect of related party transactions?

Select ONE answer:

1. Related party transactions do not always need to be disclosed in the financial statements
2. Related party transactions tend to be low-risk to the auditor
3. Related party transactions disclosure is unlikely to be material to the financial statements
4. Related party transactions will probably pose a significant control risk in relation to the entity

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 =>    is correct, because it is commonly the case that management has not put in place reliable internal controls to identify related party transactions.

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

Which ONE of the following are true in respect of related party transactions?

Select ONE answer:

1. Related party transactions must be completely disclosed in the financial statements
2. Related party transactions tend to be low-risk to the auditor
3. Related party transactions disclosure is unlikely to be material to the financial statements
4. Related party transactions will probably pose an insignificant control risk in relation to the entity

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 => Disclosure should be complete.
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 best describes the principal difference between fraud and error?

Select ONE answer:

1. Fraud may result in the financial statements being materially misstated
2. Fraud is an intentional act, whereas error is unintentional
3. A misstatement can be material whether it is caused by fraud or by error
4. Fraud may be the result of negligence, whereas error is unintentional

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 => It is true that fraud may result in a material misstatement, but this is also true of error, so Answer 1 is incorrect. Answer 4 is incorrect, since fraud is an intentional act. Answer 2 is correct – fraud is an intentional act, but an error is not.
3. Not correct
4. Not correct

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

Which ONE of the following statements correctly describes the principal purpose of an external audit of a limited company?

Select ONE answer:

1. To help in the preparation of the company’s financial statements
2. To prevent fraud within the company
3. To examine and express an opinion on the company’s financial statements
4. To help the directors improve the company’s financial reporting process

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 => It is management’s responsibility to prevent fraud within a company (option 2). There are auditor independence issues regarding external auditors’ involvement in the preparation of financial statements and in assisting management to improve reporting processes (options 1 and 2). It should therefore be apparent that option (3) is the correct one
4. Not correct

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

Alex plc’s current ratio this year is 1.5:1 compared to 1.25:1 last year.

Which ONE of the following might help to explain this increase in the ratio?

Select ONE answer:

1. Alex plc paid its payables earlier than usual out of a bank overdraft
2. Alex plc made an unusually large sale immediately after the year-end
3. Alex plc made an unusually large purchase of goods for cash immediately before the year-end, and these goods remain in inventory
4. Alex plc paid its payables earlier than usual out of a positive cash balance

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 => If payables are paid out of a positive cash balance, then this will reduce both cash (assets) and payables by the same absolute amount. However, since the current ratio is positive (assets are greater than liabilities), the ratio will increase.

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