ACCA AA · Chapter 9
Audit evidence and financial statement assertions MCQs with Answers
10 multiple-choice questions on Audit evidence and financial statement assertions for ACCA AA Audit and Assurance. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Under ISA 500, what do the terms 'sufficient' and 'appropriate' refer to?
- A) Sufficient refers to its quality; appropriate refers to the quantity of evidence
- B) Sufficient refers to evidence on significant risks; appropriate refers to evidence on other areas
- C) Sufficient refers to the quantity of evidence; appropriate refers to its quality, being relevance and reliability
- D) Sufficient refers to evidence from third parties; appropriate refers to evidence generated internally
Show answer & explanation
Answer: C) Sufficient refers to the quantity of evidence; appropriate refers to its quality, being relevance and reliability
Sufficiency is the measure of the quantity of evidence, which depends on the assessed risks and the quality of the evidence. Appropriateness is the measure of quality, made up of relevance and reliability. The two are interrelated: higher-quality evidence may mean less is needed, but more evidence cannot compensate for poor quality.
Question 2
Which of the following sources of audit evidence about a trade receivable balance is generally the most reliable?
- A) An oral explanation from the credit controller
- B) A photocopy of the sales invoice provided by the client
- C) The client's aged receivables listing
- D) A confirmation received directly by the auditor from the customer
Show answer & explanation
Answer: D) A confirmation received directly by the auditor from the customer
ISA 500 states that evidence from independent external sources, evidence obtained directly by the auditor and documentary evidence are generally more reliable. A confirmation sent and received directly by the auditor meets all three conditions. Photocopies, oral explanations and client-generated reports are less reliable.
Question 3
The auditor selects a sample of assets from the non-current asset register and physically inspects them. Which assertion is primarily being tested?
- A) Classification
- B) Existence
- C) Rights and obligations
- D) Completeness
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Answer: B) Existence
Testing from the register to the physical asset confirms that recorded assets exist. To test completeness the auditor works in the opposite direction, from physical assets to the register. Physical inspection gives little evidence of ownership, which is better tested by inspecting purchase invoices or title documents.
Question 4
During an inventory count, the auditor selects items on the warehouse floor and traces them to the inventory records. Which assertion does this procedure primarily test?
- A) Valuation and allocation
- B) Occurrence
- C) Completeness
- D) Existence
Show answer & explanation
Answer: C) Completeness
Starting with the physical items and tracing them to the records checks that all inventory held has been recorded, which is completeness. Testing from records to the floor would test existence. Occurrence applies to transactions rather than to balances.
Question 5
Which assertion is most directly tested by examining goods dispatched notes dated just before and just after the year end and checking that the related sales were recorded in the correct period?
- A) Cut-off
- B) Existence
- C) Classification
- D) Accuracy
Show answer & explanation
Answer: A) Cut-off
The cut-off assertion is that transactions and events have been recorded in the correct accounting period. Comparing dispatch dates around the year end with the date revenue was recorded directly tests this. Accuracy concerns whether amounts were recorded correctly, not when.
Question 6
Which audit procedure provides the best evidence of the rights and obligations assertion for a freehold property included in non-current assets?
- A) Comparing the property's carrying amount with the prior year
- B) Inspecting the title deeds or land registry records in the name of the entity
- C) Physically inspecting the property
- D) Recalculating the depreciation charge on the property
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Answer: B) Inspecting the title deeds or land registry records in the name of the entity
Title documents show that the entity owns the property and therefore has rights over it. Physical inspection confirms existence but not ownership, recalculating depreciation tests valuation, and comparison with the prior year is an analytical procedure that does not address ownership.
Question 7
What is the difference between recalculation and reperformance as audit procedures?
- A) Recalculation involves third parties; reperformance involves only internal records
- B) Recalculation is performed by the client; reperformance is performed by the auditor
- C) Recalculation provides evidence about controls; reperformance provides evidence only about balances
- D) Recalculation checks the mathematical accuracy of records; reperformance is the auditor independently executing procedures or controls originally performed by the entity
Show answer & explanation
Answer: D) Recalculation checks the mathematical accuracy of records; reperformance is the auditor independently executing procedures or controls originally performed by the entity
ISA 500 describes recalculation as checking the mathematical accuracy of documents or records, such as casting a ledger or recomputing depreciation. Reperformance involves the auditor independently carrying out a procedure or control, such as re-doing a bank reconciliation, and is often used as a test of controls.
Question 8
Why is enquiry alone generally not sufficient audit evidence?
- A) It does not usually provide sufficient evidence of the absence of a material misstatement or of the operating effectiveness of controls
- B) Enquiries may only be made of those charged with governance
- C) Enquiry is not recognised as an audit procedure by ISA 500
- D) Answers to enquiries can only be obtained in writing
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Answer: A) It does not usually provide sufficient evidence of the absence of a material misstatement or of the operating effectiveness of controls
Enquiry is a valid procedure used throughout the audit, but its reliability depends on the knowledge and objectivity of the person asked. ISA 500 and ISA 330 state that enquiry alone is not sufficient to test operating effectiveness of controls or to detect material misstatements, so it should be corroborated with other procedures.
Question 9
The auditor of Dowel Co is concerned that revenue may be overstated by recording sales that did not occur. Which procedure is most appropriate?
- A) Select customer orders and agree them to goods dispatched notes
- B) Select sales invoices recorded in the sales day book and agree them to customer orders and goods dispatched notes
- C) Select goods dispatched notes and agree them to sales invoices recorded in the sales day book
- D) Recalculate the total of the sales day book and agree it to the general ledger
Show answer & explanation
Answer: B) Select sales invoices recorded in the sales day book and agree them to customer orders and goods dispatched notes
To test occurrence, the auditor starts with recorded transactions and seeks evidence that they really happened, so the direction is from the sales day book to supporting dispatch notes and orders. Testing from dispatch notes to recorded invoices tests completeness instead. Casting the day book tests accuracy of totals, not whether sales occurred.
Question 10
A bank loan repayable in instalments over five years has been shown entirely within non-current liabilities. Which assertion has been breached?
- A) Completeness
- B) Cut-off
- C) Classification
- D) Existence
Show answer & explanation
Answer: C) Classification
The loan exists and is recorded in full, but the portion repayable within twelve months should be shown as a current liability. Splitting a balance into the correct categories relates to the classification (and presentation) assertion.