INVENTORIES (by Ngina et al)
What is the most likely course of action that an auditor would take after determining that performing substantive tests of inventory will take less time than performing tests of controls?
a. Assess control risk at a low level.
b. Perform both tests of controls and substantive tests on inventory.
c. Perform only substantive tests on inventory.
d. Perform only tests of controls on inventory.
Which of the ff is NOT one of the independent auditors’ objectives regarding the examination of inventories?
a. Verifying that inventory counted is owned by the client.
b. Verifying that the client has used proper inventory pricing.
c. Ascertaining the physical quantities of inventory on hand.
d. Verifying that all inventory owned by the client is on hand at the time of the count.
Which of the ff is NOT a reason for the special significance attached by the auditors to the verification of inventories?
a. The determination of inventory valuation directly affects the net income.
b. The existence if inventories is inherently difficult to substantiate.
c. Special valuation problems often exist for inventories.
d. Inventories are often the largest current asset of an enterprise.
Which of the ff is NOT TRUE relating to the auditor’s observation of the client’s physical inventory?
a. The auditor should evaluate the client’s planning of the physical inventory.
b. The auditor should make certain that consigned items from suppliers are included in physical inventory totals.
c. The auditors should evaluate the adequacy of the client’s counting procedures.
d. The auditors should take test counts of the client’s inventory.
Which of the ff is the best audit procedure for the discovery of damaged merchandise in a client’s ending inventory?
a. Compare the physical quantities of slow-moving items with corresponding quantities of the prior year.
b. Observe merchandise and raw materials during the client’s physical inventory taking.
c. Review the management’s inventory representation letter for accuracy.
d. Test overall fairness of inventory values by comparing the company’s turnover ratio with the industry average.
Which of the following is TRUE about the auditor’s observation of the client’s physical inventory?
a. The count must be made at year-end.
b. The auditor should supervise the client’s personnel.
c. The auditor’s observation addresses the existence assertion.
d. The auditor should justify any omission of the observation in the audit report.
Which of the ff audit procedures most likely would provide assurance that a manufacturing entity’s inventory valuation is proper?
a. Testing the entity’s computation of standard overhead rates.
b. Obtaining confirmation of inventories pledged under loan agreements.
c. Reviewing a cutoff procedure for inventories.
d. Tracing test counts to the entity’s inventory listing.
Your client performed the physical count of inventory as of November 30, one month prior to year-end. Subsequently, your client closed the sales journal on 12/29/2021, two days before year end, and reported those two days’ credit sales in January of the next year. Assuming the client uses a perpetual inventory system, which of the ff is most likely to be overstated relating to the year 2021 FS?
a. Sales
b. Inventory
c. Cash
d. Accounts receivable
Which of the ff best describes the reason that the auditors record their inventory test counts in the working papers?
a. To document every test count.
b. For subsequent comparison with the completed inventory listing.
c. To document compliance with Generally Accepted Accounting Principles.
d. For use in subsequent audits.
The auditors will usually trace the details of the test counts made during the observation of the physical inventory taking to a final inventory schedule. This audit procedure is undertaken to provide evidence that items physically present and observed by the auditors at the time of the physical inventory count are:
a. Owned by the client.
b. Not obsolete.
c. Physically present at the time of the preparation of the final inventory schedule.
d. Included in the final inventory schedule.
Which of the ff is NOT a procedure that is typically used by the auditors in their examination of a client’s goods held in the custody of a public warehouse?
a. Confirmation.
b. Obtaining reports on internal control at the warehouse.
c. Observation.
d. Corresponding with the gov’t regulator regarding the authenticity of the warehousing logistic company.
After accounting for a sequence of inventory tags, an auditor traces a sample of tags to the physical inventory listing to obtain evidence that all items:
a. Included in the listing have been counted.
b. Represented by inventory tags are included in the listing.
c. Included in the listing are represented by inventory tags.
d. Represented by inventory tags are bona fide.
An auditor has accounted for a sequence of inventory tags and is now going to trace information on a representative number of tags to the inventory summary sheets. Which assertion does this procedure relate to most directly?
a. Completeness
b. Legality
c. Existence
d. Valuation
Purchase cutoff procedures should be designed to test the merchandise is included in the inventory of the client company, if the company:
a. Has paid for the merchandise.
b. Has physical possession of the merchandise.
c. Has control to the merchandise.
d. Holds the shipping documents for the merchandise issued in the company’s name.
In auditing a manufacturing entity, which of the ff procedures would an auditor least likely perform to determine whether slow-moving defective, and obsolete items included in inventory are properly identified?
a. Test the computation of standard overhead rates.
b. Tour the manufacturing plant or production facility.
c. Compare inventory balances to anticipated sales volume.
d. Review inventory experience and trends.
A “bill and hold” scheme is most likely to include:
a. Shipment of items to a customer beyond what the customer has ordered.
b. Recording as sales items that the company retains as of year-end.
c. Billing of items that are held by customers for future revenue production purposes.
d. Selling items at substantial discounts near year-end.
Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory items provide assurance about management’s assertions of:
b. Rights and obligations
The accuracy of perpetual inventory records may be established, in part, by comparing perpetual inventory records with
a. Purchase requisitions
b. Purchase orders
c. Receiving reports
d. Vendor payments
The auditor tests the quantity of materials charged to work in process by tracing these quantities to
a. Cost ledgers
b. Receiving reports
c. Perpetual inventory records
d. Material requisitions
To measure how effectively a client employs its assets, an auditor calculates investment turnover by dividing the average inventory into:
a. Net sales
b. Operating income
c. Cost of goods sold
d. Gross sales
An inventory turnover analysis is useful to the auditor because it may detect:
a. Inadequacies in inventory pricing.
b. Methods of avoiding cyclical holding cost.
c. The optimum automatic reorder points.
d. The existence of obsolete merchandise.
INVESTMENTS (by Ngina et al)
To establish the existence and ownership of a long-term investment in the common stock of a publicly traded company, an auditor ordinarily performs a security count or
a. Relies on the client’s internal controls if the auditor has reasonable assurance that the control procedures are being applied as prescribed.
b. Confirms the number of shares owned that are held by an independent custodian.
c. Determine the market price per share at the reporting date from published quotations.
d. Confirms the number of shares owned with the issuing company.
Which of the ff is considered a primary audit procedures to establish the existence and ownership of investments?
a. Inspection of property, plant, and equipment.
b. Inquiry with management regarding ownership of investments.
c. Inspection and count of securities.
d. Recomputation of ending balance of investments.
In confirming with an outside agent, such as a financial institution, that the agent is holding investment securities in the client’s name, an auditor would most likely gather evidence in support of management’s FS assertions of existence or occurrence and:
a. Valuation and allocation
b. Rights and Obligations
c. Completeness
d. Presentation and disclosure
Ensuring that all investments owned by the entity at the reporting date are included on the SFP satisfies the assertion of?
Of the ff, which is the most efficient audit procedure for verification of interest earned on bond investments?
a. Tracing interest declarations to an independent record book.
b. Recomputing interest earned.
c. Confirming interest rate with the issuer of the bonds.
d. Vouching the receipts and deposit of interest checks.
Ensuring that investments and related investment income accounts are properly classified, described, and disclosed in the FS, including notes, in accordance with the applicable PFRS satisfies the assertion of?
a. Valuation or allocation
An auditor compares annual revenues and expenses with similar amounts from the prior year and investigates all changes exceeding 10%. This procedure most likely could indicate that
a. Fourth quarter payroll taxes were properly accrued and recorded, but were not paid until early in the subsequent year.
b. Unrealized gains from increases in the value of FVOCI securities were recorded in the income account for FVPL securities.
c. The annual provision for uncollectible accounts expense was inadequate because of worsening economic conditions.
d. Notice of an increase in property tax rates was received by management, but was not recorded until early in the subsequent year.
PPE (by Ngina et al)
In the examination of PPE, the auditor tries to determine all of the ff except the:
a. Extent of the control risk.
b. Extent of property abandoned during the year.
c. Adequacy of replacement funds.
d. Reasonableness of the depreciation.
For which of the ff accounts is it most likely that most of the audit work can be performed in advance of the reporting date?
a. Accounts receivable
b. Current marketable securities
d. Property, plant and equipment
When comparing an initial audit with a subsequent year audit for a particular client, the scope of audit procedures for which of the ff accounts would be expected to decrease the most?
b. Marketable securities
A continuing audit client’s PPE and accounts receivable accounts have approximately the same year-end balance. In this circumstance, when compared to PPE one would normally expect the audit of accounts receivable to require:
a. More audit time
b. Less audit time
c. Approximately the same amount of audit time
d. Similar confirmation procedures
Which of the ff accounts is NOT normally examined in conjunction with the audit of PPE?
a. Sales return and allowance
b. Lease expense
c. Depreciation expense
d. Repairs and maintenance expense
Which of the ff best describes the auditor’s approach to the audit of the ending balance of PPE for a continuing client?
a. Direct audit of the ending balance.
b. Agreement of the beginning balance to prior year’s working paper and audit of significant changes in the accounts.
c. Audit of changes in the accounts since inception of the company.
d. Audit of selected purchases and retirements for the last few year.
Which of the ff is NOT a test primarily used to test PPE accounts for overstatement?
a. Investigation of reductions in insurance coverage.
b. Review of property tax bills.
c. Examination of retirement work orders prepared during the year.
d. Vouching retirements of plant and equipment.
Which of the ff is a customary audit procedure for the verification of the legal ownership of real property?
a. Examination of correspondence with the corporate counsel concerning acquisition matters.
b. Examination of ownership documents registered and on file at a public hall of records.
c. Examination of corporate minutes and resolutions concerning the approval to acquire PPE.
d. Examination of deeds and title guaranty policies on hand.
Verification of the legal ownership of a property relates to the assertion of
a. Existence
b. Rights and obligation
c. Valuation and allocation
Which of the ff is least likely assertion addressed by examining supporting documents to PPE addition?
a. Existence or occurrence
b. Presentation and disclosure
c. Gross valuation
d. Rights and obligation
An auditor has identified numerous debits to accumulated depreciation of equipment. Which of the ff is most likely?
a. The estimated remaining useful lives of equipment were increased.
b. Plant assets were retired during the year.
c. The prior year’s depreciation expense was erroneously understated.
d. Overhead allocations were revised at year end.
The auditors are least likely to learn of retirements of equipment through which of the ff?
a. Review of the purchase returns and allowances account.
b. Review of depreciation.
c. Analysis of the debits to the accumulated depreciation account.
d. Review of insurance policy riders.
Ensuring that all retirements or disposal is recorded relates primary to the assertion of
b. Review of depreciation
Which of the ff is NOT one of the auditors’ objectives in auditing depreciation?
a. Establishing the reasonableness of the client’s replacement policy.
b. Establishing that the methods used are appropriate.
c. Establishing that the methods are consistently applied.
d. Establishing the reasonableness of depreciation computations.
The audit procedure of analyzing the repairs and maintenance accounts is primarily designed to provide evidence in support of the audit proposition that all
a. Expenditures for fixed assets have been recorded in the proper period.
b. Capital expenditure has been properly authorized.
c. Non-capitalizable expenditures have been properly expensed.
d. Expenditures for fixed assets have been capitalized.
Which of the ff is used to obtain evidence that the client’s equipment accounts are NOT understated?
a. Analyzing repairs and maintenance expense accounts.
b. Vouching purchases of plant and equipment.
c. Recomputing depreciation expense.
d. Analyzing the miscellaneous revenue account.
When performing an audit of the PPE accounts, an auditor should expect which of the ff to be most likely to indicate a departure from GAAP?
a. Repairs have been capitalized to repair equipment that had broken down.
b. Interest has been capitalized for self-constructed assets.
c. Assets have been acquired from affiliated corporations with the related transactions recorded and described in the financial statement.
d. The cost of freight-in on an acquisition has been capitalized.
Property acquisitions that are misclassified as maintenance expense would most likely be detected by an internal control system that provides for:
a. Investigation of variances within a formal budgeting system.
b. Review and approval of the monthly depreciation entry by the plant supervisor.
c. Segregation of duties of employees in the accounts payable department.
d. Examination by the internal auditors of vendor invoices and canceled checks for property acquisitions.
In violation of company policy, Darell Company erroneously capitalized the cost of painting its warehouse. The auditors examining Darell’s FS would most likely detect this when:
a. Discussing capitalization policies with Darell’s controller.
b. Examining maintenance expense accounts.
c. Observing during the physical inventory observation, that the warehouse had been painted.
d. Examining the construction work orders supporting items capitalized during the year.
Which of the ff explanations might satisfy an auditor who discovers significant debits to an accumulated depreciation account?
a. Extraordinary repairs have lengthened the life of an asset.
b. Prior year’s depreciation charges were erroneously understated.
c. A reserve for possible loss on retirement has been recorded.
d. An asset has been recorded at its fair value.
An auditor traces the serial numbers on equipment to a company’s sub-ledger. Which of the ff management assertions is supported by this test?
LIABILITIES (by Ngina et al)
In auditing accounts payable, an auditor’s procedures most likely would focus primarily on management’s assertions of
d. Valuation or allocation
A client’s procurement system ends with the assumption of a liability and the eventual payment of the liability. Which of the ff best describes the auditor’s primary concern with respect to liabilities resulting from the procurement system?
a. Accounts payable are not materially understated.
b. Authority to incur liabilities is restricted to one designed person.
c. Acquisition of materials is not made from one vendor or one group of vendor.
d. Commitments for all purchases are made only after established competitive bidding procedures are followed.
Which of the ff is the best audit procedure for determining the existence of unrecorded liabilities?
a. Examination of confirmation requests returned by creditors whose accounts appear on a subsidiary trial balance of accounts payable.
b. Examine unusual relationship between monthly accounts payable balances and recorded purchases.
c. Examination a sample of invoices a few days prior to and subsequent to year-end to ascertain whether they have been properly recorded.
d. Examine a sample of cash disbursements in the period subsequent to year-end.
Which of the ff procedures would an auditor most likely perform in searching for unrecorded payables?
a. Reconcile receiving reports with related cash payments made just prior to year end.
b. Contrast the ratio of accounts payable to purchases with the prior year’s ratio.
c. Vouch a sample of creditor balances to supporting invoices, receiving reports, and purchase orders.
d. Compare cash payments occurring after the balance sheet date with the accounts payable trial balance.
Which of the ff procedures relating to the examination of accounts payable could the auditor delegate entirely to the client’s employees?
a. Test footings in the accounts payable ledger.
b. Reconcile unpaid invoices to vendors’ statements.
c. Prepare a schedule of accounts payable.
d. Mail confirmation for selected account balances.
In order to efficiently establish the correctness of the accounts payable cutoff, an audit will be most likely to
a. Coordinate cutoff test with physical inventory observation.
b. Compare cutoff reports with purchase orders.
c. Compare vendors’ invoices with vendors’ statements.
d. Coordinate mailing of confirmations with cutoff tests.
Auditor confirmation of accounts payable balances at the reporting date may be unnecessary because
a. This is a duplication of cutoff tests.
b. Accounts payable balances at the reporting date may not be paid before the audit is completed.
c. Correspondence with the audit client’s attorney will reveal all legal action by vendor for nonpayment.
d. There is likely to be other reliable external evidence to support the balances.
When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate populations most likely is
a. Vendors with whom the entity has previously done business.
b. Amounts recorded in the accounts payable subsidiary ledger.
c. Payees of checks drawn in the mount after year-end.
d. Invoices filed in the entity’s open invoice file.
When auditing a public warehouse, which of the ff is the most important audit procedure with respect to disclosing unrecorded liabilities?
a. Confirmation of negotiable receipts with holders.
b. Review of outstanding receipts.
c. Inspection of receiving and issuing procedures.
d. Observation of inventory.
During an examination, the auditor learns that the client was granted a 3-month waiver of the repayment of principal on the installment loan with the bank without an extension of the maturity date. With respect to this loan, the audit program used by the auditor would be least likely to include a verification of the
a. Balloon payment
b. Interest expense for the year
c. Total liability at year-end
d. Installment loan payments
When an auditor selects a sample of items from the vouchers payable register for the last month of the period under audit and traces these items to underlying documents, the auditor is gathering evidence primarily in support of the assertion that
a. Recorded obligations were paid.
b. Incurred obligations were recorded in the correct period.
c. Recorded obligations were valid.
d. Cash disbursements were recorded incurred obligations.
Which of the ff is a substantive test that an auditor most likely would perform to verify the existence and valuation of recorded accounts payable?
a. Investigating the open purchase order file to ascertain that prenumbered purchase orders are used and accounted for.
b. Receiving the client’s mail, unopened, for a reasonable period of time after the year end to search for unrecorded vendor’s invoices.
c. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports.
d. Confirming accounts payable balances with known suppliers who have zero balances.
An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal and the cash disbursements journal. The purpose of this substantive audit procedure most likely was to:
a. Identify unusually large purchases that should be investigated further.
b. Verify that cash disbursements were for goods actually received.
c. Determine that purchases were properly recorded.
d. Test whether payments were for goods actually ordered.
An auditor’s purpose in reviewing the renewal of a note payable shortly after the reporting date most likely is to obtain evidence concerning management’s assertions about
When there is a credit balance of an account payable, how is this item presented in the SFP?
a. Adjusting entry recorded in the client’s general journal.
b. Adjusting entry recorded in the auditor’s working paper.
c. Reclassification entry recorded in the client’s general journal.
d. Reclassification entry recorded in the auditor’s working paper.
An auditor’s program for the examination of long-term debt should include steps that require the
a. Inspection of the accounts payable subsidiary ledger.
b. Investigation of credits to the bond interest income account.
c. Verification of the existence of the bondholders.
d. Examination of any bond trust indenture.
To test the audit objective for validity for long-term debt, the auditor could complete which of the ff procedures?
a. Recompute accrued interest payable.
b. Obtain an analysis of notes payable and reconcile to the general ledger.
c. Review interest expense for payments to debt holders not listed on the debt analysis schedule.
d. Examine copies of new note agreements.
Several years ago RFB, Inc. secured a real estate mortgage loan. Which of the ff audit procedures would be least likely to be performed by an auditor examining the mortgage balance?
a. Examine the current year’s canceled checks.
b. Review the mortgage amortization table.
c. Inspect public records of lien balances.
d. Recompute mortgage interest expense.
The auditor can best verify a client’s bond sinking fund transactions and year-end balance by
a. Confirmation with the bond trustee.
b. Confirmation with individual holders of retired bonds.
c. Recomputation of interest expense, interest payable, and amortization of bond discount or premium.
d. Examination and count of the bonds retired during the year.
ABC Co. has a 10%, P2,000,000 loan payable as of December 31, 2021 that is maturing on July 1, 2022. Interest on the loan is due every July 1 and December 31. On March 20, 2022, 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 March 15, 2022.
What should be the most appropriate action by ABC Co. for their December 31, 2021 FS?
a. Present the loan as current liability, and do not disclose the refinancing agreement.
b. Present the loan as non-current liability and disclose the refinancing agreement.
c. Present the loan and accrued interest, if any, as non-current liability and do not disclose the refinancing agreement.
d. Present the loan as current liability and disclose the refinancing agreement.
*LIABILITIES (by Ngina et al)
ABC Co., a manufacturer of a memory enhancing pill, had been subject of a lawsuit filed against it by another manufacturer. The suit alleges patent right infringement by ABC Co and asks for compensatory damages. What should ABC do in each of the ff scenarios?
*ABC Co.’s lawyers are convinced that the likelihood of losing the suit is remote, but the potential amount of loss is reliably estimated to be between P1,000,000 to 2,000,000.
a. Accrue and disclose
b. Disclose only
c. Accrue only
d. Neither accrue nor disclose
*d. Neither accrue nor disclose
*ABC Co.’s lawyers are convinced that the likelihood of losing the suit is probable, but the potential amount if loss cannot be reliably estimated. Management supposes that the bearable loss would be around 1,500,000 to 3,000,000.
SHE (by Ngina et al)
In the audit of a medium sized manufacturing concern, which one of the ff areas would be expected to require the least amount of audit time?
a. Owners’ equity
b. Revenue
c. Assets
d. Liabilities
Which of the ff assertions is least likely considered by the auditor in an audit of SHE?
b. Existence
c. Presentation and disclosure
d. Rights and obligations
Because of the limited number of transactions involved in SHE items, the auditor normally assess control risk at the maximum level and performs
a. Detailed test of balances.
b. Detailed test of transactions.
c. Detailed analytical procedures.
d. Detailed test of controls.
A registrar/transfer agent system relating to capital stock is most likely used by:
a. a small, nonpublic company
b. a large, publicly traded company
c. all companies
d. not even one company
An auditor obtains evidence of SHE transactions for a publicly traded company by reviewing the entity’s:
a. minutes of BOD meetings.
b. registrar’s record of interbank transfers.
c. canceled stock certificates.
d. treasury stock certificate book.
Changes in capital stock accounts should normally be approved by:
a. the BOD
b. the audit committee.
c. the stockholders.
d. the president.
Which of the ff is correct in confirming SHE items to independent registrar and stock transfer agent?
a. The confirmation request should be written under the client’s letterhead and mailed by the BOD.
b. Replies to confirmation request should be sent to the BOD.
c. The confirmation request should be written under the client’s letterhead and mailed by the auditor.
d. The control of the dispatch and receipt of confirmation request should be under the control of the appropriate client personnel.
When the client of a CPA firm does not maintain its own shareholder records, the auditor should obtain written confirmation from the transfer agent and registrar concerning
a. Guarantees of preferred stock liquidation value.
b. The number of shares subject to repurchase agreements (treasury).
c. Any restrictions on dividend payments.
d. The type and number of shares issued and outstanding.
Choose the most correct answer for this statement. When an entity does not maintain its own stock records, the auditor should obtain written confirmation from the stock transfer agent and registrar concerning the
a. Restrictions on the payment of dividends.
b. Guarantees of preference share liquidation value.
c. Number of shares subject to agreements to repurchase.
d. Number of shares issued and outstanding.
e. None of the choices
Company A does not employ an independent stock transfer agent, but rather issues its own stock and maintains its stock records. When outstanding shares are transferred from one holder to another, the certificate of the selling shareholder should be:
a. Canceled (generally by perforations) and attached to the certificate book.
b. Destroyed to prevent fraudulent reissuance.
c. Retained by the selling shareholder.
d. Sent to the state’s registrar of investment securities.
In auditing retained earnings, the ff item does not concern the auditor even if it was not approved by the BOD?
a. Issuance of convertible debt securities.
b. Declaration of 20% share dividends.
c. Issuance of redeemable preferred shares.
d. Changes in RE due to closing of net income.
Which of the ff transactions is an auditor most likely to examine when auditing the RE account?
a. Changing from one method of depreciation to another.
b. Correcting an error in depreciation in a prior year.
c. Adjusting the percentage used to estimate the allowance for doubtful accounts.
d. Changing from the FIFO to LIFO method of inventory valuation.
The audit approach for acquired treasury stock will normally include:
a. Confirmation with shareholders.
b. Inspection of certificates.
c. Inspection of cash receipts entries.
d. Recomputation of all gains and losses.
An auditor should trace corporate stock issuance and treasury stock transactions to the:
a. Numbered stock certificates.
b. Articles of incorporation.
c. Transfer agent’s records.
d. Minutes of the BOD.
Footing the shares outstanding in the stock register and comparing the total to shares outstanding in the general ledger stock account addresses the audit objective of
b. Validity
c. Ownership
SHE (from Quiz 5 last yr)
Which of the ff is an auditor most likely to confirm from transfer agent and registrar?
a. Gains from sale of treasury stock.
b. Total shares of stock issued.
c. Restrictions on the payment of dividends.
d. Total market value of outstanding shares of stock.
When conducting the audit of SHE, it is normal practice to verify all capital stock transactions:
a. only when the client is small.
b. that are in excess of a material amount.
c. if there aren’t very many during the year.
d. regardless of the controls in existence, because of their materiality and permanence in the records.
SBP (random)
Which of the ff is least likely to be considered a substantive prcedure relating to payroll?
a. Investigate fluctuations in salaries, wages and commissions.
b. Test computations of compensation under profit sharing for bonus plans.
c. Test commission earnings.
d. Test whether employee time reports are approved by supervisors.
IS ACCOUNTS (by Ngina et al)
The primary concern of the auditor when auditing revenue accounts is to address management assertions of
c. Occurrence
d. Classification
The primary concern of the auditor when auditing cost and expense accounts is to address management assertions of
Ensuring that income statement accounts are properly recorded in the appropriate accounting period satisfies the assertion of
a. Appropriateness
b. Cut-off
c. Time Period
d. Periodicity
Cutoff tests designed to detect credit sales made before the end of the year that have been recorded in the subsequent year provide assurance about management’s assertion of
a. Presentation
b. Classification
d. Occurrence
Cutoff tests designed to detect credit sales made after the end of the year that have been recorded in the current year provide assurance about management’s assertion of
Which of the ff pairs of income statement and balance sheet accounts typically would NOT be audited in conjunction with each other?
a. Premium on bonds payable and interest income.
b. Accounts receivable and bad debt expense.
c. Prepaid insurance and insurance expense.
d. Long-term debt and interest expense.
Which of the ff comparisons will be most useful to an auditor in auditing an entity’s income and expense accounts?
a. Prior year accounts payable to current year accounts payable.
b. Prior year payroll expenses to budgeted current year payroll expense.
c. Current year revenue to budgeted current year revenue.
d. Current year warranty expense to current year contingent liabilities
Which of the ff analytical procedures should be applied to the income statement
a. Select sales and expense items and trace amounts to related supporting documents.
b. Ascertain that the net income amount in the statement of cash flows agrees with the net income amount in the income statement.
c. Obtain from the proper client representatives the beginning and ending inventory amounts that were used to determine costs of sales.
d. Compare the actual revenues and expenses with the corresponding figures of the previous year and investigate significant differences.
Analytical procedure used as a substantive procedure is
a. A test of balances
b. A test of transactions
c. Either a or b
d. Neither a nor b
Further detailed examination of accounts such as travel and entertainment expense can occur for all of the ff except:
a. These accounts typically are not affected by a business process.
b. These accounts often contain sensitive information.
c. Controls usually do not exist for these accounts.
d. These accounts include information required for tax return preparation.
AUDIT REPORTING (by Ngina et al)
User’s confidence in the FS is enhanced
a. when the auditor expresses an opinion on those statements.
b. when they contain all business transactions.
c. when an unmodified opinion is expressed.
d. when they are prepared by a CPA.
The expression “FS, taken as a whole” applies:
a. equally to a complete set of FS and to an individual FS.
b. only to a complete set of FS.
c. equally to each item in each FS.
d. equally to each material item in each FS.
The term “reasonable assurance” in the auditor’s responsibility paragraph indicate that
a. no misstatements exist in the FS.
b. no material misstatements exist in the FS.
c. there is a possibility that material misstatements still exist in the FS.
d. there is a possibility that immaterial misstatements still exist in the FS.
If a company’s external auditor expresses an unmodified opinion as a result of the audit of the company’s FS, readers of the audit report can assume that:
a. the external auditor found no fraud.
b. the company is financial sound and the FS are accurate.
c. internal control is effective.
d. all material disagreements between the company and external auditor, the application of accounting were resolved in the satisfaction of the external auditor.
The first section in the new auditor’s report
a. Introductory paragraph
b. Opinion section
c. Addressee
d. Title
To distinguish it from report that might be issued by others, such as by officers of the entity, the BOD, or from the reports of other auditors who may not have to abide by the same ethical requirements as the independent auditor, the auditor’s report should have an appropriate
a. Addresses
b. Title
c. Signature
d. Opinion
Which of the ff is included in the opinion section of the auditor’s report?
a. Identification of the FS audited, including the date of and period covered by the FS.
b. A statement that the FS are the responsibility of the entity’s management.
c. A statement that the audit was conducted in accordance with Philippine Standard on Auditing.
d. A statement that the responsibility of the auditor is to express an opinion on the FS based on the audit.
The auditor’s report should be addressed
a. only to the shareholders of the entity whose FS are being audited.
b. only to the BOD of the entity whose FS are being audited.
c. either to the shareholders or the BOD of the entity whose FS are being audited.
d. either to the shareholders or the BOD, or both, of the entity whose statements are being audited.
The opinion section of the auditor’s report
I. identifies the applicable financial reporting framework on which the FS are based.
II. express an opinion on the FS.
a. I only
b. Both I and II
c. II only
d. Neither I nor II
The independent auditor refers to both PFRS and PSA when writing the standard audit report. These terms are mentioned in which section?
Auditor’s responsibility Management’s Opinion
a. PFRS PFRS PSA
b. PSA PSA PFRS
c. PFRS PFRS PFRS
d. PSA PFRS PFRS
The ff statements relate to the date of the auditor’s report. Which is false?
a. The auditor should date the report as of the completion date of the audit.
b. The date of the auditor’s report should not be earlier than the date on which he FS are signed and approved by management.
c. The date of the auditor’s report should not be later than the date on which FS are signed or approved by management.
d. The date of auditor’s report always be later than the date of the FS (i.e., statement of financial position).
An explanatory paragraph ff an opinion section describes an uncertainty as follows:
“As discussed in Note X to the FS, the company is a defendant in a lawsuit alleging infringement of certain patent rights and claiming damages. Discovery proceedings are in progress. The ultimate outcome of the litigation cannot presently be determines. Accordingly, no provision for any liability that may result upon adjudication has been made in the accompanying FS.”
What type of opinion should the auditor express in these circumstances?
a. Unmodified
b. Qualified
c. Disclaimer
d. Adverse
An auditor’s responsibility to express an opinion on the FS is
a. implicitly represented in the auditor’s report.
b. explicitly represented in the opinion paragraph of the auditor’s report.
c. explicitly represented in the “Auditor’s Responsibility” paragraph of the auditor’s report.
d. explicitly represented in the “Management’s Responsibility” paragraph of the auditor’s report.
Which of the ff statements indicates a disclaimer of opinion?
a. The FS do not present fairly in all material respects the financial position, results of operations, and cash flows in conformity with PFRS.
b. The auditor does not express an opinion on the FS.
c. The FS present fairly in all material respects the financial position, results of operations, and cash flows in conformity with PFRS.
d. Except for the effects of a matter, the FS present fairly in all material respects the financial position, results of operations, and cash flows in conformity with PFRS.
A note to the FS of the Prudent Bank indicates that all of the records relating to the bank’s business operations are stored on magnetic disks, and that no emergency backup systems or duplicate disks are stored because the bank and its auditors consider the occurrence of a catastrophe to be remote. Based upon this note, the auditor should express
a. a qualified opinion
b. an adverse opinion
c. an unmodified opinion
d. scope qualification
A modified opinion on the FS is necessary when
I. The auditors concludes, based on the audit evidence obtained, that the FS as a whole are not free from material misstatement.
II. The auditor is unable to obtain sufficient appropriate audit evidence to conclude that the FS as a whole are free from material misstatement.
b. II only
c. Either I or II
Which of the ff terms is used in the standard to describe the effects on the FS of misstatements or the possible effects on the FS, if any, that are undetected due to an inability to obtain sufficient appropriate audit evidence?
a. Persuasive
b. Pervasive
c. Material
d. Extensive
A limitation on the scope of audit may arise from
I. Circumstances beyond the control of the entity.
II. Circumstances relating to the nature and timing of the auditor’s work.
III. Limitations imposed by management.
a. I and II
b. I and III
c. II and III
d. I, II and III
In which of the ff situations would an auditor ordinarily choose between expressing a qualified opinion or adverse opinion?
a. The auditor wishes to emphasize an unusually important subsequent event.
b. The FS fail to disclose information that is required by Philippine Financial Reporting Standards.
c. Events disclosed in the FS cause the auditor to have substantial doubt about the entity’s ability to continue as a going concern.
d. The auditor did not observe the entity’s physical inventory and is unable to become satisfied as to its balance by other auditing procedures.
Which of the ff phrases would an auditor most likely include in the auditor’s report when expressing qualified opinion because of inadequate disclosure?
a. Do not present fairly in all material respects
b. Except for the omission of the information included in the Basis for Opinion section
c. With the foregoing explanation of these omitted procedures
d. Subject to the departure from GAAP, as described above.
An auditor’s report includes the ff statement:
“In our opinion, because of the effects of the matters discussed in the subsequent paragraph, the FS do not present fairly, in all material respects, the financial position of ABC Company as of Dec 31 and of its financial performance and its cash flows for the year then ended in accordance with PFRS.”
This auditor’s report contains a/an
a. Qualified opinion
b. Disclaimer of opinion
c. Unmodified opinion
d. Adverse opinion
It refers to those matters that, in the auditor’s professional judgment, were of most significance in the audit of FS of the current period.
a. Emphasis of a matter
b. Other matter
c. Key audit matters
d. What’s the matter
Key audit matters are required to be included in the new audit report for
a. listed entities only
b. listed and non-listed entities
c. listed entities and SMEs
d. SMEs only
S1: Material inconsistency exists when other info contradicts info contained in FS.
S2: Material misstatement of fact exists when other info, not related to matters appearing in the audited FS, is incorrectly stated or presented.
a. True, false
b. False, true
c. False, false
d. True, true
S1: Emphasis of a matter paragraph is a paragraph included in the auditor’s report that refers to a matter appropriately presented or disclosed in the FS that, in the auditor’s judgment, is of such importance that is fundamental to users’ understanding of the FS.
S2: Other matter paragraph is a paragraph included in the auditor’s report that refers to a matter other than those presented or disclosed in the FS that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities or the auditor’s report.
Per Glossary of Terms, it is a difference between the amount, classification, presentation, or disclosure of a reported FS item and the amount, classification, presentation, or disclosure that is required for the item to be in accordance with the applicable financial reporting framework.
a. Fraud
b. Error
c. Departure
d. Misstatement
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