Tag: Topic 2

The auditor of Alex Manufacturing Ltd carried out an external confirmation of receivables at year-end to verify the accuracy of the total trade receivables in the statement of financial position at that date.

One of the replies to the confirmations disagreed with the balance.

For the disagreement, select from the options below what impact the disagreement will have for the purposes of evaluating the accuracy of total trade receivables in the statement of financial position at the year end.

• Lucy Trading Ltd disagreed the balance because they had made a payment two days before the year end. The auditor has confirmed that the cheque cleared the bank two days after the year-end.

Select ONE answer:

1. Would NOT be considered a misstatement
2. Would be considered a misstatement
3. Would depend on circumstances
4. Would be referred to a senior colleagues

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 disagreement is due to timing differences and hence does not constitute a misstatement in the accuracy of total trade receivables.
2. Not correct
3. Not correct
4. Not correct

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The results of substantive tests in relation to trade payables at Alex Manufacturing Ltd are set out below.

The materiality threshold set for these tests was £17,000.

For each of the following results, select the action which should be taken by the audit senior.

• Three goods inwards notes dated before the year end, relating to goods worth £16,000, were traced to purchase invoices that were included in the subsequent year and not provided for this year.

Select ONE answer:

1. Draw conclusion
2. Refer to a senior colleague
3. Extend sample
4. Refer to a junior colleague

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 – For the misstatement in cut-off, the sample should be extended to measure the full extent of the cut-off misstatement.
4. Not correct

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The results of substantive tests in relation to non-current assets at Alex Manufacturing Ltd are set out below.

The materiality threshold set for these tests was £5,000.

For each of the following results, select the action which should be taken by the audit senior.

• A building revalued to £100,000 during the year was vouched to an expert valuation carried out by a firm of chartered surveyors.

Select ONE answer:

1. Extend sample
2. Draw conclusion
3. Refer to a senior colleague
4. Refer to a junior colleague

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 – Vouching the revalued building to a valuer’s report is sufficient to enable a conclusion to be drawn.
3. Not correct
4. Not correct

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

The results of substantive tests in relation to non-current assets at Alex Manufacturing Ltd are set out below.

The materiality threshold set for these tests was £5,000.

For each of the following results, select the action which should be taken by the audit senior.

• A sample of three assets, valued at £2,000 in total, had been excluded from the non-current asset register and the financial statements.

Select ONE answer:

1. Extend sample
2. Draw conclusion
3. Refer to a senior colleague
4. Refer to a junior colleague

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 – Extending the sample of assets inspected will test if the misstatement found to date is an anomaly or represents a larger misstatement.
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 options is a reason why sales are often verified by testing the internal controls in place over sales?

Select ONE answer:

1. There are usually too many individual transactions to test them individually
2. Sales constitute a very low volume of similar transactions which are NOT suitable for controls testing
3. Controls over sales in a company are often strong
4. Because there are so many individual transactions, there is a significant risk that sales are misstated

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 – Regarding option 3 – where controls are expected to be strong, ISA 330 requires that the auditors test them, so this is also correct. Option1 cannot be used as a reason for testing internal controls over sales – however many transactions there are, if controls appear to be deficient, then those transactions will need to be subjected to tests of detail. Option 4 is incorrect as where there is a high risk of misstatement, substantive procedures should be used.
4. Not correct

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