ISA 505 External confirmation MCQs

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ISA 505 External confirmations requires the auditor to maintain control over external confirmation requests when using external confirmations as a
ISA 505 External confirmation MCQs

ISA 505, External confirmation

ISA 505 External confirmations requires the auditor to maintain control over external confirmation requests when using external confirmations as a source of audit evidence. Here on MCQs.club we have prepared easy Multiple-Choice Questions (MCQs) on ISA 505 revised IFAC that fully cover the ISA 505 summary, ISA 505 External confirmations MCQs with answers, these MCQs are a basis of conclusions. These MCQ on SA 505 are helpful for Competitive exams, Professional Accountancy exams and Business management exams.

  1. ISA 505 External confirmations requires the auditor to maintain control over external confirmation requests when using external confirmations as a source of audit evidence.
    1. True
    2. False
  1. Control over external confirmation requests when using external confirmations as a source of audit evidence can be achieved by the auditor by:
    1. Preparing the confirmation letters and determining the information to be requested and the information that should be included in the request.
    2. Selecting the sample of external parties from which to obtain confirmation.
    3. Sending the requests to the confirming party.
    4. All of the above
  1. The Various requirements in relation to the results of the external confirmation procedures include:
    1. If there are doubts about the reliability of any response the auditor should obtain further evidence to resolve those doubts.
    2. For any non-response, the auditor should perform alternative audit procedures.
    3. Both A&B
    4. None
  1. If management refuse to allow the auditor to send a confirmation request the auditor should:
    1. inquire as to management’s reasons for the refusal, and seek audit evidence as to the validity and reasonableness of those reasons
    2. evaluate the implications of management’s refusal on the auditor’s assessment of the relevant risks of material misstatement, including the risk of fraud, and on the nature, timing and extent of other audit procedures.
    3. perform alternative audit procedures designed to obtain relevant and reliable audit evidence.
    4. All of the above
  1. Audit procedures relating to confirmation of receivables balances are:
      1. Planning the confirmation exercise
      2. Positive or negative confirmation?
      3. Sample selection and performing the confirmation exercise
      4. Audit procedures following the receipt of replies
      5. Preparing a summary and reaching a conclusion
    1. All of the above
    2. (I) (III) and (V) only
    3. (II) (III) and (IV) only
    4. None
  1.  
  1. The type of confirmation to obtain by the auditor include:
    1. Positive confirmation
    2. Negative confirmation
    3. Both A&B
    4. None
  1. Positive confirmation – request asks the customer to reply to the auditor whether or not he agrees with the balance on his account that is in the client company’s accounting records.
    1. True
    2. False

  1. Positive confirmation can be obtained by:
    1. By providing the customer with details of the balance on his account, and asking him to indicate his agreement that this information is correct, or to indicate that it is wrong.
    2. By asking the respondent to provide details of his balance at the selected date, but not providing any details of the balance in the client company’s receivables ledger.
    3. Both A&B
    4. None
  1. Negative confirmation –
    1. A negative confirmation request asks the customer to reply to the auditor only where he disagrees with the balance recorded by the company.
    2. The absence of a reply could mean that the customer agrees with the balance, but is not required to provide written evidence.
    3. The use of negative confirmation requests provides audit evidence that is less reliable than evidence obtained with positive confirmation requests.
    4. All of the above
  1. ISA 505 only permits the sole use of negative confirmation where:
    1. The risk of material misstatement has been assessed as low and controls have been tested.
    2. The population is comprised of a large number of small account balances or transactions.
    3. A very low exception rate is expected.
    4. The auditor is not aware of circumstances which would case the respondent to ignore his request for confirmation.
    5. All of the conditions are met
  1. Where no reply has been received, the auditor should therefore perform alternative procedures in order to obtain evidence to confirm the customer’s balance. Which of the following is correct?
    1. If the customer has subsequently paid all of the amount due at the confirmation date, this is strong evidence of the validity of the receivable.
    2. If no payment (or only part-payment) has been received, all the relevant documentation supporting the amount still due should be examined.
    3. Both A&B
    4. None
  1. What substantive procedures the auditor should perform in respect of Irrecoverable receivables?
    1. Review the company’s procedures for identifying irrecoverable and doubtful receivables.
    2. Review any correspondence of the client company with customers, lawyers and collection agencies that deal with unpaid or disputed debts.
    3. Review the replies from customers for the confirmation of balances exercise, for evidence of receivables that may not be collectable.
    4. All of the above
  1. The cut-off assertion is concerned with ensuring that revenue (and therefore receivables) is properly recorded in the correct accounting period.
    1. True
    2. False
  1. To ensure the cut-off assertion the auditor should:
    1. Check that sales invoices and credit notes dated shortly before and after the year end are recorded in the correct financial year.
    2. Review of the control account entries shortly before and after the year end for unusual items, which the client should then be asked to explain.
    3. The use of analytical procedures to confirm that inventory levels, cost of sales and gross margins can be explained in terms of known business facts.
    4. All of the above

  1. To satisfy the classification and presentation assertion the auditor will need to ensure that:
    1. the list of receivables ledger balances agrees to the financial statements
    2. receivables are correctly classified and presented in the financial statements
    3. Both A&B
    4. None
  1. Substantive procedures on prepayments may include the following:
    1. Obtain or prepare a list of prepayments with supporting calculations.
    2. Check the calculations if the list has been prepared by the client’s staff
    3. Review the list of prepayments for any obvious errors or omissions, based on the auditor’s knowledge of the business.
    4. All of the above

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