The Institute of Chartered Accountants of Bangladesh

Sample Multiple Choice Question (MCQ)

Course Name: Assurance
Chapter 13: Substantive procedures – key financial statement figures

Prepared by: Abdullah Al Mamun, FCA (En # 1142)

1. Which of the following is an example of intangible non-current assets?

(a) Land
(b) Building
(c) Development costs
(d) Equipment

2. When net realizable value is likely to be less than cost

(a) Fall in selling price

(b) Physical deterioration
(c) Obsolescence of products
(d) All of the above

3. Under which method the customer is requested to give the balance or to confirm the
accuracy of the balance shown or state in what respect he is in disagreement

(a) Positive method

(b) Negative method
(c) (a) + (b)
(d) None of the above

4. To whom customers provide the confirmation of receivable balances

(a) Management of the company

(b) Auditor
(c) (a) + (b)
(d) None of the above

5. Which sources of information the auditor may use to test the misstatements in respect
of inventory

(a) Confirmations with third parties

(b) Attendance at the annual inventory count
(c) Purchase invoices for inventories
(d) All of the above

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6. Bank Reconciliation is used to confirm the following

(a) Cash balance

(b) Bank balance
(c) Receivable balance
(d) Payable balance

7. To confirm the suppliers’ balance which method can be used by auditor

(a) Positive method

(b) Negative method
(c) (a) + (b)
(d) None of the above

8. Which of the following source is used by auditor for examination of long-term loan?

(a) Board minutes

(b) Confirmation from supplier
(c) Purchase invoice
(d) Assets register

9. Why customer disagrees with receivable balance

(a) Cut-off problems

(b) Net off balances
(c) (a) + (b)
(d) None of the above

10. Analytical procedures are often carried out on payroll costs as there are strong
relationships among

(a) Numbers of staff

(b) Pay rates
(c) Tax rates
(d) All of the above

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

(a) A purchase invoice

(b) A registration document

(c) A hire-purchase agreement

(d) An asset register

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 12. Which one of the following procedures should be undertaken to confirm the 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 the final inventory sheets

13. 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

14. 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 bank 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.

Indicate whether the following statements are true or false.

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

(a) True
(b) False

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

(a) True
(b) False

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17. 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.

(a) True
(b) False

18. Nil balances should not be included in a supplier statement test.

(a) True
(b) False

19. 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) A marketing decision to manufacture and sell products at a loss

(d) Errors in recording or counting

20. 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

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