Tag: Topic 18

In each of the following three examples, select whether control risk is higher or lower than normal.

Example 1 – The company has an established and well-resourced internal audit function.

Example 2 – The company has a history of reviewing financial performance on a regular basis at the board level.

Example 3 – Purchase invoices are not authorised before payment.

Select ONE answer:

1. Example 1. Higher and Example 2. Higher and Example 3. Lower
2. Example 1. Lower and Example 2. Higher and Example 3. Lower
3. Example 1. Lower and Example 2. Lower and Example 3. Higher
4. Example 1. Lower and Example 2. Higher and Example 3. Higher

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 =>   Control risk is lower than normal (ie, internal controls are stronger) where the company has an established internal audit function (which strengthens the control environment by monitoring the adequacy and effectiveness of the controls in place) and where the board has a track record of performance review, monitoring and investigating deviations from expected performance. Control risk is higher than normal where purchase invoices are not authorised (control deficiency).
3. Not correct
4. Not correct

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

ISA (UK) 315 Identifying and Assessing the Risks of Material Misstatement Through Understanding of the Entity and Its Environment states that an internal control system in an organisation consists of five components:

• the control environment
• the entity’s risk assessment process
• the information system
• controls activities
• monitoring of controls

For the following example, select the component which it illustrates.

– Locking the inventory storeroom

Select ONE answer:

1. Information system
2. Controls activities
3. Control environment
4. Monitoring of controls

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 => Locking the inventory storeroom is a specific control activity.. Note – the control environment refers to the management style and philosophy towards controls.
3. Not correct
4. Not correct

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

ISA (UK) 315 Identifying and Assessing the Risks of Material Misstatement Through Understanding of the Entity and Its Environment states that an internal control system in an organisation consists of five components:

• the control environment
• the entity’s risk assessment process
• the information system
• controls activities
• monitoring of controls

For the following example, select the component which it illustrates.

– The process of preparing the financial statements

Select ONE answer:

1. Information system
2. Controls activities
3. Control environment
4. Monitoring of controls

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 process of preparing the financial statements forms part of the information processing system. Note – the control environment refers to the management style and philosophy towards controls.
2. Not correct
3. Not correct
4. Not correct

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

An auditor’s report prepared in accordance with ISA 700 (UK), Forming an Opinion and Reporting on Financial Statements, expresses an opinion on a number of matters.

Some of these matters are required by the Companies Act 2006 to be reported on by exception only.

Which ONE of the following are reported on by exception only?

Select ONE answer:

1. The financial statements have been prepared in accordance with the requirements of the Companies Act 2006
2. Information in the strategic report and the directors’ report is consistent with the financial statements
3. Adequate accounting records have NOT been kept
4. Directors’ remuneration has been disclosed correctly

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 => As per Companies Act 2006, ‘Directors’ remuneration has been disclosed correctly’ is reported on by exception.

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

An auditor’s report prepared in accordance with ISA 700 (UK), Forming an Opinion and Reporting on Financial Statements, expresses an opinion on a number of matters.

Some of these matters are required by the Companies Act 2006 to be reported on by exception only.

Which ONE of the following are reported on by exception only?

Select ONE answer:

1. The financial statements have been prepared in accordance with the requirements of the Companies Act 2006
2. Information in the strategic report and the directors’ report is consistent with the financial statements
3. Adequate accounting records have been kept
4. Directors’ remuneration has NOT been disclosed correctly

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 => As per Companies Act 2006, ‘That adequate accounting records have been kept’ is reported on by exception.
4. Not correct

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