Global Reciprocal Colleges

,GRC Bldg, Rizal Ave. cor 9th Ave. Grace Park 454
Caloocan City

Directions: Please print the following questionnaires and encircle the letter of your choice

1. Effective internal control over unclaimed payroll checks that are kept by the Treasury
Department would include Accounting Department procedures that require
A. Accounting for all unclaimed wages in a current liability account
B. Effective cancellation and stop payment orders for the related checks
C. Preparation of a list of unclaimed wages on a periodic basis
D. Periodic accounting for the actual checks representing unclaimed wages

2. Which one of the following procedures would not be appropriate for an auditor in
discharging his or her responsibilities concerning the client’s physical inventories?
A. Carrying-out physical inventory procedures at an interim date
B. Confirmation of goods in the hands of public warehouses
C. Obtaining written representation from the client as to the existence, quality, and
peso amount of the inventory
D. Supervising the taking of the annual physical inventory

3. A company issued bonds for cash during the year under audit. To ascertain that this
transaction was properly recorded, the auditor’s best course of action is to
A. Confirm the results of the issuance with the underwriter or investment banker
B. Trace the cash received from the issuance to the accounting records
C. Request a statement from the bond trustee as to the amount of the bonds issued
and outstanding
D. Verify that the net cash received is credited to the Bonds Payable account

4. An audit program for the examination of retained earnings account should include a step
that requires verification of the
A. Approval of the adjustment to the beginning balance as a result of a write-down of
account receivable
B. Authorization for both cash and stock dividends
C. Market value used to charge retained earnings to account for a 2-for-1 stock split
D. Gain or loss from disposition of treasury shares

5. An audit of stockholder’s equity should include

A. Confirming shares outstanding with stockholders
B. Determining that dividend declarations comply with debt agreements
C. Reviewing minutes of board meetings to determine the number of shares
outstanding
D. Tracing individual dividend payments to the capital stock records

6. As one of the year-end audit procedures, the auditor instructed the client’s personnel to
prepare a standard bank confirmation request for a bank account that had been closed
 during the year. After the client’s treasurer had signed the request, it was mailed by the
assistant treasurer. What is the major flaw in this procedure?
A. Sending the request was meaningless because the account was closed before the
year ends.
B. The confirmation request was signed by the treasurer
C. The CPA did not signed the confirmation request before it was mailed
D. The request was mailed by the assistant treasurer

7. In order to efficiently establish the correctness of the Accounts Payable cutoff, an auditor
would be most likely to
A. Compare cutoff reports with purchase orders
B. Compare vendor’s invoices with vendor’s statements
C. Coordinate cutoff tests with physical inventory observation
D. Coordinate mailing of confirmations with cutoff tests

8. In which of the following situations is it least likely that the auditors would have been
negligent in failing to detect a material misstatement of stocks?
A. The auditors relied on a certificate provided by an independent expert
B. The audit program is drawn up by an experienced auditor and was fully signed by
the junior staff member assigned to audit the stocks
C. The senior partner called for further investigation of discrepancies after receiving
personal assurance from the chairman of the company that stocks were properly
valued
D. As in previous years, the auditor relied on the investigation of internal audit rather
than increase audit costs by duplicating the audit work
9. In which of the following situations might a claim arise under privity of contract?
a. A bank makes a loan to a company on the strength of a report commissioned by
the bank
b. A bank makes a loan to a company on the strength of a report commissioned by
the company for that specific purpose
c. The holder of 100% of the shares increases investment in the company on the
strength of the audited accounts
d. The engagement letter calls for the preparation of accounts of a partnership
without an audit, but one of the partner tells the public accountant that another
partner is suspected of fiddling expenses

10. Which of the following audit procedures is primarily intended to provide evidence as to
completeness?
a. Adding the debtor’s aged trial balance
b. Searching for unmatched goods received with notes
c. Confirming debtor’s balances with customers
d. Reviewing the outstanding check listings

11. In verifying the valuation of work completed, by a construction company, on a long-term

building contract, which source of evidence would you consider as most reliable?
 a. An independent architect called in to supply a valuation but who has not
otherwise been involved with the contract
b. An architect employed by the other party to the contract who has been involved
throughout n liaising with the company
c. An architect employed by the company who has direct responsibility for building
work on the contract
d. An independent but unqualified building surveyor

12. In the tour of the client’s operations, the auditor noted two machines were not operating
in the client’s factory. This meant that production was 25% lower than normal. The
factory manager informed the auditor that this was because the machines were being
serviced. However, the auditor saw no evidence of this. How would this affect the audit
plan?
a. It would have no effect. The factory manager’s explanation should be accepted
b. It would increase the amount of the audit work on plant and machinery
c. It would be necessary to perform a more thorough review of sales for the year and
the sales forecasts
d. It would be necessary to perform more work to check for obsolescence

13. The auditor’s permanent working paper file should not normally include
a. Copies of the memorandum of association
b. Extracts from the client’s bank statements
c. Details of mortgages
d. Past year’s financial statements

14. Statement 1 – In an entity with few, but large accounts receivable, the accounts
individually are more important and the possibility of material errors is greater than in
another entity that has greater number of small accounts aggregating the same total.
Statement 2 – In industrial and merchandising enterprises, inventories are usually of great
importance to both financial position and results of operations and accordingly may
require relatively more attention by an auditor than would inventories of a public utility
company.

a. Both statements are true.

b. Both statements are false.
c. Statement 1 is true, statement 2 is false.
d. Statement 1 is false, statement 2 is true.

15. Which of the following controls would most likely ensure that all deliveries are invoiced?
a. The invoicing department supervisor matches pre-numbered shipping documents
with entries in the sales journal
b. The accounting department supervisor controls the mailing of monthly statements
to customers, and investigates any differences reported by customers
c. Customers are required to acknowledge receipt of the goods by signing a copy of
the delivery note
 d. All orders are required to be approved by the credit controller before the goods
are delivered

16. For which of the following reasons mish inherent risk over the occurrence of sales
transactions be assessed as high?
a. There is large volume of such transactions during the year
b. Sales department staff earn a bonus if he achieve annual sales targets
c. Cash from sales transactions is easily misappropriated
d. There are poor controls over the year-end cut-off sales transactions

17. Which of the following would give the most assurance concerning the existence of
debtors?
a. Tracing amounts in the subsidiary ledger to details on shipping documents
b. Comparing debtor’s turnover ratios with industry statistics for reasonableness
c. Sending a debtor’s confirmation letter
d. Ensuring the sales subsidiary ledger has been correctly added

18. On receipt of supplier’s invoices the purchase clerk should

a. Prepare a check in payment of an invoice
b. Match the invoice with goods received note and purchase order
c. Send it to the purchasing officer for approval
d. Ignore it as payments are based on statement amount

19. The principal reason for the auditor to examine supplier’s statements at balance sheet
date is to obtain evidence that
a. The supplier exists
b. Recorded purchases actually occurred
c. There are no unrecorded liabilities
d. Payment transactions were properly made

20. Which of the following procedures would not be appropriate for an auditor in discharging
his or her responsibilities concerning the existence of the entity’s stocks?
a. Obtaining written representation from the entity as to the existence, quality and
value of the stocks
b. Carrying-out stock-taking procedures at an interim date
c. Supervising the annual stock-take
d. Confirming the goods in the hands of public warehouses

21. What audit procedures would be most likely detect the incorrect capitalization of an
expense to fixed assets?
a. Checking a sample of repairs and maintenance expenses to supporting documents
b. Selecting a sample of additions to fixed assets, and ensuring that they have
adequate supporting documentation
c. Discussing the capitalization policy with the manager
d. Selecting a sample of large assets, and sighting them
22. When counting cash on hand, the auditor should
a. Obtain a receipt from the custodian as to its return
b. Have two audit staff present to minimize the risk of its being stolen
c. Note the details of cash and checks and other items making up the balance
d. Perform the count on the same date as the receivables’ confirmation to ensure a
reliable cut-off

23. Which of the following is least likely to require special attention when auditing
consolidated financial statements?
a. Subsidiaries audited by other auditors
b. Fair values of assets of subsidiaries acquired during the year
c. 100% owned subsidiaries
d. Subsidiaries located and operating in foreign countries

24. In the auditor’s completion of the audit, which of the following is not a subsequent event
procedure?
a. Read available minutes of meetings of directors
b. Make inquiries with respect to the previously audited f/s to establish whether
information has become available that might affect that report
c. Read available interim financial statements
d. Discuss with officers the current status of items in the f/s that were accounted for
on the basis of inconclusive data

25. Which of the following is ordinarily included among the written management
representations obtained by the auditors?
a. Sufficient audit evidence has been made available to permit the issue of an
unqualified opinion
b. All books of accounts supporting documentation have been made available
c. Management acknowledges that there are no material weaknesses in internal
control
d. Management acknowledges responsibility for illegal actions committed by
employees