Substantive Procedures - Key Financial Statement Figures

Question 1

Which three of the following might an auditor vouch when testing the rights and obligations of a company in respect of a vehicle?

A. Purchase invoice
B. Registration document
C. Hire-purchase document
D. Asset register

Answer 1

A, B and C

Asset register can be used for completeness and existence, but not for rights and obligations

Question 2

Which of the following procedures should be undertaken to confirm existence of inventory?

A. Attendance at inventory count
B. Follow up of inventory count sheets to final inventory sheets
C. Trace items of inventory to purchase invoices
D. Cast of final inventory sheets

Answer 2

A. Attendance at inventory count

Question 3

Which one of the following procedures should be undertaken to confirm the rights and obligations of trade receivables?

A. Review of cash received after date
B. Tests of controls over ordering
C. Receivables external confirmation
D. Recalculation of specific allowance for doubtful debts

Answer 3

C. Receivables external confirmation

Question 4

Which one of the following will be confirmed by obtaining a bank letter from a specific bank?

A. That the bank balance stated on the reconciliation is correct
B. That the unpresented cheques listed on the bank reconciliation were sent out pre year-end
C. That the company possesses only the bank accounts it declares
D. That the cash floats of the company are fairly stated

Answer 4

A. That the bank balance on the reconciliation is correct

Question 5

True/False

Supplier statements are a strong source of evidence as they are third party evidence; however, as the assurance provided receives them through the medium of the client, the assurance provider must treat supplier statements with professional scepticism

Answer 5

True. You must treat everything with professional scepticism!

Question 6

True/False

Payables may be tested by cash payments after date as these give an indication that debts were owed and value of those debts has not been understated

Answer 6

False

Correspondence could be covered up by client company indicating that cash payments are not for full amount. This would mean that client liabilities are understated

Question 7

Which of the following is not a reason why NRV of inventory should be lower than cost?

A. An increase in costs or a fall in selling price
B. Physical deterioration
C. Marketing decision to manufacture and sell products at a loss
D. Errors in recording or counting

Answer 7

D. Errors in recording or counting

Question 8

True/False

The negative method of receivables’ external confirmation should only be used if the client has a good internal control and a small number of large receivables accounts

Answer 8

False.

This could be used if the client has a large number of small receivables accounts

Question 9

At which two of the following locations would auditors expect to see more substantial cash floats?

A. Hotels
B. Retail outlets
C. Manufacturing company
D. Solicitor’s practice

Answer 9

A and B

Question 10

True/False

Nil balances should not be included in a supplier statement test

Answer 10

False

All balances should be included in a supplier statement test