Which of the following procedures would an auditor most likely perform in searching for unrecorded liabilities?
a. Scan the cash disbursement entries recorded just before year-end for indications of unusual transactions.
b. Trace a sample of accounts payable entries recorded just before year-end to the unmatched receiving report file.
c. Compare a sample of purchase orders issued just after year-end with the year-end accounts payable trial balance.
d. Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendors invoices.
e. None of the choices.
In auditing long-term bonds payable, an auditor most likely would:
a. Perform analytical procedures on the bond premium and discount accounts.
b. Compare interest expense with the bond payable amount for reasonableness.
c. Examine documentation of assets purchased with bond proceeds for liens.
d. Confirm the existence of individual bond holders at year-end.
*Which of the ff audit procedures would the auditor most likely fo to verify the valuation and allocation of lease liabilities?
a. Inspection of supporting documentations pertaining to the lease.
b. Confirmation of lease liability with the lessor.
c. Analytical review procedures comparing the lease expense and lease liability.
d. Search for unrecorded lease liability by reading through minutes of meetings of the board.
VOID - not well-defined choices
An audit for the examination of the retained earnings account should include a step that requires verification of the:
a. Market value used to charge retained earnings to account for a two-for-one stock split.
b. Approval of the adjustment to the beginning balance as a result of a write-down of an account receivable.
c. Authorization for both cash and stock dividends.
d. Gain or loss resulting from disposition of treasury shares.
c. Authorization for both cash and stock dividends
During an audit of an entity’s stockholders’ equity accounts, the auditor determines whether there are restrictions on retained earnings resulting from loans, agreements, or state law. This audit procedure most likely is intended to verify management’s assertion of:
a. Existence or occurrence
b. Presentation and disclosure
c. Valuation or allocation
d. Completeness
e. None of the choices
*In performing tests concerning the granting of stock options, an auditor should
a. Confirm the transaction with the corporate secretary in the state of incorporation.
b. Verify the existence of option holders in the entity’s payroll records or stock ledgers.
c. Determine that sufficient treasury stock is available to cover any new stock issued.
d. Trace the authorization for the transaction to a vote of the board of directors.
*b. Verify the existence of option holders in the entity’s payroll records or stock ledgers.
Which of the ff procedures is the most effective in detecting overstatement of revenue?
a. Tracing entries in the sales journal to the related sales invoices and shipping documents.
b. Tracing sales invoices and shipping documents to the entries in the sales journal.
c. Inquiry of sales personnel and with personnel responsible for recording sales transaction.
d. Inspection of physical inventories in the shipping room.
Which of the ff procedures is most effective in detecting understatement of cost and expenses?
a. Reviewing cash disbursements recorded before and subsequent to the reporting date.
b. Footing the list of liabilities in the subsidiary ledger and reconciling it to the general ledger.
c. Examining unusual relationships between monthly accounts payable balances and recorded cash payments.
d. Examining file of unpaid bills and tracing it in the general journal.
In which of the ff circumstances would an auditor most likely add an emphasis of matter paragraph to the auditor’s report while expressing an unmodified opinion?
a. Management’s estimates of the effects of future events are unreasonable.
b. The company applied a new accounting standard before its effectivity date.
c. No depreciation has been provided in the financial statements.
d. Certain transactions cannot be tested because of management’s retention policy.
In your audit, you discovered that a payroll supervisor of the company being audited has misappropriated P50,000. The company’s total assets and income before tax are P70 million and P15 million, respectively. Assuming no other issue affect the report, the auditor’s report will most likely contain a/an:
a. Unmodified opinion
b. Adverse opinion
c. Disclaimer of opinion
d. Scope qualification
If an accounting change has no material effect on the financial statements in the current year, but the change is reasonably certain to have material effect in later years, the change should be:
a. Treated as a consistency modification in the auditor’s report for the current year.
b. Disclosed in the notes to financial statements of the current year.
c. Disclosed in the notes to financial statements and referred to in the audit report for the current year.
d. Treated as a subsequent event.
b. Disclosed in the notes to the FS of the current year.
ABC Co. has a 10%, P2,000,000 loan payable as of Dec 31, 2021 that is maturing on July 1, 2022. Interest on the loan is due every July 1 and Dec 31. On Dec 31, 2021, ABC entered into a refinancing agreement with a bank to refinance the loan on a long-term basis. Both parties are capable of honoring the agreement’s provisions ABC’s financial statements were authorized for issue on Mar 15, 2022.
What should ABC do on Dec 31, 2021 about the refinancing
a. Present the loan as non-current liability and disclose the refinancing agreement.
b. Present the loan as current liability, and do not disclose the refinancing agreement.
c. Present the loan plus interest on the loan as current liability.
d. Present the loan as current liability and disclose the refinancing agreement.
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