Deck 14: Final Work: Non-Current Assets, Trade Receivables and Financial Assets

Question 1

Which of the following factors will reduce the amount of work auditors deem necessary on final balances?

A) Inherent risk to the balance is higher.
B) Size of the balance, in terms of overall financial statements, is larger.
C) Control risk related to the balance is higher.
D) The account relates to tangible assets.

Answer 1

The account relates to tangible assets.

Question 2

Which of the following would be least likely to affect the inherent risk associated with tangible non-current assets?

A) The assets are currently idle due to unforeseen delays.
B) The assets are high in value but small in size.
C) The assets are accounted for using the historic cost model.
D) There is rapid technological change in the industry.

Answer 2

The assets are accounted for using the historic cost model.

Question 3

You are auditing a company that extracts rare earth minerals from sand deposits on a beach adjacent to the Indian Ocean. Sands are transported from the beach to the processing plant in large mining trucks. Once the rare earth minerals are extracted from the sands, the remaining sand is driven back to the beach and dumped into the ocean just below the breaker line. This helps redistribute the sand evenly and washes the trucks. The company depreciates the trucks over five years. This is consistent with average expected life of the trucks used for mining. With regards to the trucks, what do you think the assertion most at risk would be as the scenario is described?

A) Occurrence
B) Cut-off
C) Valuation
D) Completeness

Answer 3

Valuation

Question 4

You are examining the financial statements of a company that has revalued its motor vehicles to fair value in accordance with IAS 16 Property, Plant and Equipment. Which of the following questions would address accuracy?

A) What method has management used to calculate the fair value?
B) How does management intend to use the motor vehicles in the future?
C) What condition are the motor vehicles in?
D) Have all motor vehicles in the same class been revalued?

Question 5

Which of the following would be least likely to affect the inherent risk associated with trade receivables?

A) Sales are made on a 'sale or return' basis.
B) The collectability of trade receivables has reduced since last year.
C) There is a large number of new customers.
D) Customers are billed shortly after purchase.

Question 6

The assertion that trade receivables represent amounts collectable is an example of what class of assertion?

A) Genuine
B) Accurate
C) Classification
D) Complete

Question 7

You are auditing a company that provides online education services. Student numbers have increased in the past year by 20 per cent, and you have evidence to support the enrolment numbers. There has been no significant increase in staff numbers. Inflation is about 3 per cent per annum.
You have extracted the following expense figures from the financial statements:
Based on simple analytics and assuming no relevant information has been withheld, which expense figure would you be most concerned about (ignore materiality)?

A) Marketing
B) Salaries
C) Depreciation Expense - Buildings
D) Depreciation Expense - Computers

Question 8

Which of the following is NOT a reason that after-date receipts may be preferred as a test of accounts receivable in preference to obtaining external confirmations?

A) Replies from credit customers may not be reliable.
B) Credit customers may choose not to reply.
C) Letters would not be sent to customers who had incorrectly been excluded from the accounts receivable records.
D) External evidence is deemed less trustworthy than internal evidence.

Question 9

What does 'factoring, mean when applied to trade receivables?

A) It is a method of determining how many are expected to 'go bad'.
B) It means that trade receivables are 'sold' to a third party.
C) It is a term applied to offering a discount for early payment of trade receivables.
D) It is the method of circularizing more credit customers than required to account for non-responses. ?