Midterm Exam (this yr - Inventories) (random)
To gain assurance that all inventory items in a client’s inventory listing schedule are valid, an auditor most likely would trace
a. Inventory tags noted during the auditor’s observation to items listed in receiving reports and vendors’ invoices.
b. Items listed in the inventory listing schedule to inventory tags and the auditor’s recorded count sheets.
c. Inventory tags noted during the auditor’s observation to items listed in the inventory listing schedule.
d. Items listed in receiving reports and vendors’ invoices to the inventory listing schedule.
Quiz 4 & Midterm Exam (this yr - PPE) (book)
In testing for unrecorded retirements of equipment, an auditor most likely would:
a. Compare depreciation journal entries with similar prior year entries in search of fully depreciated equipment.
b. Inspect items of equipment observed during the plant tour and then trace them to the equipment subsidiary ledger.
c. Select items of equipment from the accounting records and then locate them during the plant tour.
d. Scan the general journal for unusual equipment additions and excessive debits to repairs and maintenance expense.
Midterm Exam (this yr - Investments) (book)
Which of the ff is the most effective audit procedure for verification of dividends earned on the investment in equity securities?
a. Comparing the amounts received with preceding year dividends received.
b. Tracing deposit of dividend checks to the cash receipts book.
c. Recomputing selected extensions and footing of dividend schedules and comparing totals to the general ledger.
d. Reconciling amounts received with published dividends records.
An auditor testing long-term investments would ordinarily use analytical procedures to ascertain the reasonableness of the:
a. Valuation of marketable equity securities.
b. Classification between current and non-current portfolios.
c. Completeness of recorded investment income.
d. Existence of unrealized gains and losses in the portfolio.
An auditor most likely would inspect loan agreements under which an entity's inventories are pledged to support management's financial statement assertion of:
a. Completeness
b. Rights and obligation
c. Existence
d. Presentation and disclosure and valuation
Final Exam (this yr - Liabilities) (book)
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.
e. None of the choices.
Quiz 8 & Final Exam (this yr - SHE) (book)
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
Final Exam (this yr - SHE) (book)
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
Final Exam (this yr - Audit Report) (book)
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.
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.
Final Exam (this yr - SBP) (random)
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.
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
Which of the ff 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.
Final Exam (this yr - IS Accounts) (book)
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.
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.
Removal Exam (Inventories from ME last yr)
The most reliable procedure for an auditor to use to test the existence of a client’s inventory at an outside location would be to:
a. Trace a total on the inventory listing to the general ledger inventory account.
b. Observe physical counts of the inventory items.
c. Obtain a confirmation from the client indicating inventory ownership.
d. Analytically compare the current-year inventory balance to the prior-year balance.
Removal Exam (Investments from ME last yr)
In establishing the existence and ownership of long-term investments in the form of publicly-traded stock, an auditor most likely would inspect the securities or:
a. Confirm the number of shares owned that are held by an independent custodian.
b. Correspond with the investee company to verify the number of shares owned.
c. Apply analytical procedures to the dividend income and investments accounts.
d. Inspect the cash receipts journal for amounts that could represent the sale of securities.
Quiz 4 & Midterm & Removal Exam (PPE from ME last yr)
An auditor analyzes repairs and maintenance accounts primarily to obtain evidence in support of the audit assertion that all
a. Noncapitalizable expenditures for repairs and maintenance have been recorded in the proper period.
b. Expenditures for property and equipment have not been charged to expense.
c. Expenditures for property and equipment have been recorded in the proper period.
d. Noncapitalizable expenditures for repairs and maintenance have been properly charged to expense.
Midterm & Removal Exam (PPE from ME last yr)
In testing plant and equipment balances, an auditor examines new additions listed on an analysis of plant and equipment. This procedure most likely obtains evidence concerning management’s assertion of:
a. Completeness.
b. Understandability and classification.
c. Valuation and allocation.
d. Existence.
Which of the ff best describes the independent auditors’ approach to obtaining satisfaction concerning depreciation expense in the income statement?
a. Verify the mathematical accuracy of the amounts charged to income as a result of depreciation expense.
b. Determine the method for computing depreciation expense and ascertain that it is in accordance with generally accepted accounting principles.
c. Reconcile the amount of depreciation expense to those amounts credited to accumulated depreciation accounts.
d. Establish the basis for depreciable assets and verify the depreciation expense.
Quiz 6 & Removal Exam (Liabilities from FE last yr)
Which of the ff would detect an understatement of a purchase discount?
a. Verify footings and crossfootings of purchase and disbursement records.
b. Compare purchase invoice terms with disbursement records and checks.
c. Compare approved purchase orders to receiving reports.
d. Verify the receipts of items ordered and invoiced.
Removal Exam (SHE from FE last yr)
Which of the ff statements is most correct? When a company has treasury share certificates on hand, a year-end count of the certificates by the auditor is:
a. Always required
b. Required when the company classifies treasury shares with other assets.
c. Not required if the treasury shares are a deduction from shareholders’ equity.
d. Required when the company has treasury share transactions during the year.
Which of the ff statements is most correct?
a. An independent auditor should determine that the company officers authorized the issuance of stock dividend.
b. An independent auditor should determine that the stock dividend was properly recorded by a memorandum entry.
c. An independent auditor should determine that the stock dividend was recorded by transferring appropriate amounts from RE to share capital and share premium.
d. When a company declared and paid stock dividends, an independent auditor should determine that shareholders received their additional shares by confirming year-end holdings with them.
An auditor’s analytical procedure most likely would be facilitated if the entity:
a. Segregates obsolete inventory before the physical inventory count.
b. Corrects material weaknesses in internal control before the beginning of the audit.
c. Uses a standard cost system that produces variance reports.
d. Develops its data from sources solely within the entity.
Midterm Exam & Removal Exam (Inventories from the book)
Which of the ff auditing procedures most likely would provide assurance about a manufacturing entity’s inventory valuation?
a. Obtaining confirmation of inventories pledged under loan agreements.
b. Reviewing shipping and receiving cutoff procedures for inventories.
c. Testing the entity’s computation of standard overhead rates.
d. Tracing test counts to the entity’s inventory listing.
An auditor would most likely verify the interest earned on bond investments by:
a. Recomputing the interest earned on the basis of face amount, interest rate, and period held.
b. Vouching the receipt and deposit of interest checks.
c. Confirming the bond interest rate with the issuer of the bonds.
d. Testing the internal controls over cash receipts.
To satisfy the valuation assertion when auditing an investment accounted for by the equity method, an auditor most likely would
a. Inspect the stock certificates evidencing the investment.
b. Review the broker’s advice or canceled checks for the investment’s acquisition.
c. Examine the audited financial statements of the investee company.
d. Obtain market quotation from financial newspaper or periodicals.
When the entity has not employed independent stock transfer agents and the corporation issues its own stocks and maintains stock records.
a. Not be defaced, but segregated from other stock certificates and retained in canceled certificates file.
b. Be destroyed to prevent fraudulent reissuance.
c. Be defaced and sent to the Securities and Exchange Commission.
d. Be defaced to prevent issuance and attached to their corresponding stubs.
Quiz 6 (Liabilities from FE last yr)
Two months before the year-end, the bookkeeper erroneously recorded the receipt of a long-term bank loan by a debit to cash and a credit to sales. Which of the ff is the most effective procedure for detecting this type of error?
a. Analyze the notes payable journal.
b. Analyze bank confirmation information.
c. Prepare a year-end bank transfer schedule.
d. Prepare a year-end bank reconciliation.
Vouching creditor balances to supporting invoices, receiving reports, and purchase orders provides evidence of the
c. Rights and obligation
d. Existence
Which of the ff audit procedures is least likely to detect an unrecorded liability?
a. Analysis and recomputation of interest expense.
b. Analysis and recomputation of depreciation expense.
c. Mailing of standard bank confirmation form.
d. Reading of the minutes of meetings of the board of direction.
An examination of the balance in the accounts payable account is ordinarily NOT designed to
a. Detect accounts payable which are substantially past due.
b. Verify that accounts payable were properly authorized.
c. Ascertain the reasonableness of recorded liabilities.
d. Determine that all existing liabilities at the reporting date have been recorded.
Quiz 1 (Inventories from book)
An auditor selected items for test counts while observing the client's physical inventory. The auditor then traced the test counts to the client's inventory listing. This procedure most likely obtained evidence concerning management’s assertion of:
b. Valuation
d. Existence or occurrence
An auditor performs a test to determine whether all merchandise for which the client was billed was received. The population for this test consists of all:
a. Merchandise received
b. Canceled checks
c. Vendor’s invoices
d. Receiving reports
To best ascertain that a company has properly included merchandise that it owns in its ending inventory, the auditors should review and test the:
a. Terms of the open purchase orders.
b. Purchase cutoff procedures.
c. Contractual commitments made by the purchasing department.
d. Purchase invoices received on or around year end.
The client’s physical count of inventories is lower than the inventory quantities in the perpetual records. This could be the result of a failure to record:
a. Purchase returns
b. Sales returns
c. Purchase discounts
d. Sales discounts
From the auditor’s point of view, inventory counts are more acceptable prior to the year-end when
a. Internal control is weak.
b. Accurate perpetual inventory records are maintained.
c. Inventory is slow-moving.
d. Significant amounts of inventory are held on a consignment basis.
Quiz 4 (PPE from book)
Which of the ff best describes the auditors’ typical observation of plant and equipment?
a. The auditors observe all major additions to plant and equipment made during the year.
b. The auditors observe all additions to plant and equipment made during the year.
c. The auditors observe all major plant and equipment items in the clients’ accounts each year.
d. The auditors observe a physical inventory of plant and equipment, annually.
ABC Co. acquired a building and arranged mortgage financing with a bank during the year. Verification of the related mortgage acquisition costs would be least likely to include an examination of the related
a. Interest expense
b. Bank statement
c. Deed
d. Cancelled checks
Which of the ff is the best evidence of continuous ownership of property?
a. Examination of the title policy.
b. Examination of rent receipts from lessees of the property.
c. Examination of canceled check in payment for the property.
d. Examination of deed.
Quiz 8 (SHE from book)
Which of the ff is the most important consideration of an auditor when examining the stockholders’ equity section of the client’s financial statements?
a. Stock dividends are capitalized at par or stated value on the dividend declaration date.
b. Changes in the capital stock account are verified by an independent stock transfer agent.
c. Entries in the capital stock account can be traded to resolution in the minutes if the BOD’s meeting.
d. Stock dividends and/or stock splits during the year under audit were approved by the stockholders.
Which of the ff procedures is least likely in the audit of capital stock?
a. Examine all outstanding stock certificates for completeness.
b. Evaluate compliance with stock option plans.
c. Account for the proceeds from stock issues.
d. Reconcile shares outstanding with the general ledger.
The audit approach for treasury shares includes an objective of the auditor which includes checking whether:
a. Retained earnings were restricted for the amount of issue price of the treasury shares.
b. Gain on reissuance of treasury shares is included in retained earnings.
c. Cash received from reacquisition is received by the BOD.
d. Loss on reissuance of treasury shares is included in profit or loss.
For a large publicly traded client, the auditors’ examination of capital stock account will NOT normally include:
a. Reconciliation of a stock certificate book with the general ledger.
b. Accounting for the proceeds of major stock issues.
c. Confirmation of shares issued with the independent registrar.
d. Analysis of capital stock accounts.
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