ACCA Audit and Assurance (F8) Practice Exam

What must be reconciled when auditing share capital?

1. Sales revenue with gross profit

2. Share transfers with cash book

3. Current liabilities with bank statements

4. Asset values with market trends

The correct answer is: Share transfers with cash book

When auditing share capital, it is essential to reconcile share transfers with the cash book. This is because the cash book records all transactions involving cash, including receipts from shares issued and payments related to share buybacks or dividends. By reconciling these share transfers with the cash book, auditors can ensure that all share capital transactions have been appropriately recorded and that share capital balances match the underlying financial records. This reconciliation helps to identify any discrepancies between the shares issued and the corresponding financial entries. It ensures that the cash received from share issuance is accurately reflected in the company's cash book, and any cash outflows related to the shares are properly addressed. Maintaining accurate records regarding share capital is crucial for understanding the company's equity position and for the overall integrity of the financial statements. Other options do not pertain directly to share capital. Sales revenue with gross profit is related to income statements, current liabilities with bank statements are central to cash flow and liquidity considerations, while asset values with market trends focus on valuation rather than share capital audit activities.