Tag: Topic 2

Which ONE of the following populations should the auditor start from when testing for the completeness of reported sales of a manufacturing company?

Select ONE answer:

1. Sales receipts
2. Sales invoices
3. Goods dispatch notes
4. Sales orders

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 – Revenue is usually recognised when goods have been despatched to the customer as this is the point at which control transfers to the customer. To test for completeness of sales, auditors should therefore start from the goods despatched notes.
4. Not correct

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Which ONE of the following controls would provide the most positive assurance as to the completeness of the sales figures recorded in the financial statements of an engineering company?

Select ONE answer:

1. Segregation of duties between the preparation of goods dispatched notes and the preparation of the sales invoices
2. The use of a pre-numbered goods despatched note for every sales transaction, and internal checking for completeness of processing
3. The issue of pre-numbered sales invoices for every sales transaction and internal checking for completion of processing
4. Authorisation of all sales invoices by the sales manager before processing

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 – A sale should be recognised as soon as goods have been safely despatched to a customer and every despatch should be accompanied with a goods despatched note. Consequently to obtain assurance about the completeness of sales, the auditor needs to be confident that all despatch notes have been recorded in the accounting system. Checking that all sales invoices have been processed merely confirms that ‘all sales invoices have been processed (option 3) and similarly the existence of authorisation controls merely provides assurance as to whether transactions have been authorised (option 4). The existence of segregation of duty controls (option 1) does not in itself provide assurance as to completeness of recording of sales transactions.
3. Not correct
4. Not correct

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

Which ONE of the following is a control objective relating to the sales system?

Select ONE answer:

1. Credit notes are only issued for valid reasons
2. Sales invoices are checked to Goods Despatched Notes by accounts staff
3. Customer accounts are scrutinised to see if credit limits have been observed
4. Orders are made only to authorised suppliers

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 – Statement 2 is a control activity, not a control objective. Statement 3 is a test of controls, not a control objective. Statement 4 is a control objective relating to the purchases system, not the sales system.
2. Not correct
3. Not correct
4. Not correct

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

The following process describes aspects of the sales system in operation at Alex plc:

For each process, select whether it represents a big strength, a big deficiency, a minor impact or no impact on the system.

• The order generates a despatch note, which is sent to the warehouse, and an invoice, which is sent to accounts receivable. Goods in inventory are dispatched immediately, and the dispatch note is amended manually for unavailable goods.

Select ONE answer:

1. a minor impact
2. a big strength
3. a big deficiency
4. no impact

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 order should only be accepted once it has been confirmed that the goods ordered are available. The invoice should be generated once it is confirmed that the goods have reached the customer (as evidenced by the customer signing the dispatch note).
4. Not correct

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

The following process describes aspects of the sales system in operation at Alex plc:

For each process, select whether it represents a big strength, a big deficiency, a minor impact or no impact on the system.

• Orders are placed by telephone. On receipt of a call, following credit checks, the order is immediately entered onto the system

Select ONE answer:

1. a minor impact
2. a big strength
3. no impact
4. a big deficiency

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 – that orders placed by telephone, once credit checked, are entered into the system is a strength as it ensures the prompt recording of an order. Also, the customer is checked for creditworthiness before the order being generated – indicating that the company is protecting itself from loss.
3. Not correct
4. Not correct

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