Professional Documents
Culture Documents
Since 1977
AUD OCAMPO/OCAMPO/SOLIMAN/UY
FINAL PRE-BOARD EXAMINATION APRIL 25, 2021
Multiple Choice. Select the letter that corresponds to the best answer. This examination consists of 70
items (ignore the extra answer options in the answer sheet after number 70) and the exam is good for
three (3) hours. Good luck!
2. An audit which is undertaken in order to determine whether the auditee is following specific
procedures or rules laid down by some higher authority is classified as a(n)
a. audit of financial statements.
b. compliance audit.
c. operational audit.
d. production audit.
3. In performing a financial statement audit, which of the following would an auditor least likely
consider?
a. Internal control.
b. Compliance with GAAP.
c. Quality of managements' business decisions.
d. Fairness of the financial statement amounts.
4. The term professional accountant in public practice includes the following, except:
a. A sole proprietor providing professional services to a client.
b. Each partner or person occupying a position similar to that of a partner staff in a practice
providing professional services to a client.
c. Professional accountants employed in the public sector having managerial responsibilities.
d. A firm of professional accountants in public practice.
7. In determining the items that the auditor shall consider as key audit matters, the auditor takes into
account (choose the incorrect one):
a. Areas which were considered to be susceptible to higher risks of material misstatement or which
where deemed to be ‘significant risks’ in accordance with PSA 315.
b. Significant auditor judgments in relation to areas of the financial statements that involved
significant management judgment.
c. The effect on the audit of significant events or transactions that have taken place during the
period.
d. Those that refers to a matter other than those presented or disclosed in the financial statements
that, in the auditor’s judgment, is relevant to user’s understanding of the audit, the auditor’s
responsibilities or the auditor’s report.
8. In extreme cases such as situations involving multiple uncertainties that are significant to the
financial statements, the auditor
a. may consider to express a disclaimer of opinion
b. may qualify his opinion instead of issuing an unqualified opinion with emphasis of matter
paragraph
c. may issue an adverse opinion because of their significance
d. may issue a “subject to” opinion because the situations related to uncertainties
9. An explanatory paragraph or modified wordings may be added to the audit report while at the same
time issuing an unqualified opinion in all cases except when:
a. the client has changed an accounting principle with the agreement of the auditor.
b. there is an immaterial departure from PFRS to ensure fair presentation with the agreement of the
auditor.
c. the audit opinion is partly based on the work of another auditor.
d. the audit work has been materially limited by management.
10. If an amendment is necessary in the other information and the entity refuses to make the
amendment, the auditor, depending on particular circumstance, may do any of the following,
except:
a. Describe the material inconsistency as an emphasis of matter in a paragraph following the
opinion paragraph.
b. The auditor may not issue the auditor’s report.
c. The auditor may withdraw from the engagement.
d. The auditor to issue either a qualified or adverse opinion.
11. Which of the following statements is incorrect regarding obtaining an understanding of the entity
and its environment?
a. Obtaining an understanding of the entity and its environment is an essential aspect of
performing an audit in accordance with PSAs.
b. Understanding of the entity and its environment establishes a frame of reference within which
the auditor plans the audit and exercises professional judgment about assessing risks of
material misstatement in the financial statements and responding to those risks throughout the
audit.
c. The auditor’s primary consideration is whether the understanding that has been obtained is
sufficient to assess the risks of material misstatement in the financial statements and to design
and perform further audit procedures.
d. The depth of the overall understanding that is required by the auditor in performing the audit is
at least equal to that possessed by management in managing the entity.
12. Why should the auditor plan more work on individual accounts as lower acceptable levels of both
audit risk and materiality are established?
a. To find smaller errors
b. To find larger errors
13. Analytical procedures performed in the planning stage of an audit suggest that several accounts
have unexpected relationships. The results of these procedures most likely would indicate that:
a. Irregularities exist among the relevant account balances.
b. Additional tests of details are required.
c. Internal control activities are not operating effectively.
d. The communication with the audit committee should be revised.
14. An effective internal control is not expected to provide a reasonable assurance regarding the
achievement of objectives concerning
a. reliability of financial reporting.
b. compliance to applicable laws and regulations.
c. elimination of material misstatements.
d. effectiveness and efficiency of operations.
15. Which of the following is the auditor’s purpose of further testing the internal control procedures?
a. Provide a basis for reducing the assessed level of control risk.
b. Reduce the risk that error or fraud that has not been prevented or detected by the internal
control system is not detected by the independent audit.
c. Provide assurance that transactions are executed in accordance with management's
authorization and access to assets is limited by a segregation of functions.
d. Provide assurance that transactions are recorded as necessary to permit the preparation of the
financial statements in conformity with PFRS.
16. Which of the following procedures most likely would be included as part of an auditor's tests of
control procedures?
a. Inspection
b. Reconciliation
c. Confirmation
d. Analytical procedures
17. Which of the following statements best describes a weakness often associated with computers?
a. Computer equipment is more subject to a systems error than manual processing is subject to
human error.
b. Computer equipment processes and records similar transactions in a similar manner.
c. Control activities for detecting invalid and unusual transactions are less effective than manual
control activities.
d. Functions that would normally be separated in a manual system are combined in a computer
system.
19. Which of the following characteristics is most important in assuring the achievement of the primary
purpose of working papers?
a. Working papers must be of standard format and standard content.
b. Working papers must be properly indexed and cross-referenced to the draft of audit report.
c. Working papers must provide sufficient, competent, and useful information to support the audit
report.
d. Working papers must be arranged in logical order following the audit program sequence.
20. Which of the following statements about the competence of evidence is not correct?
a. To be competent, an evidence must be both valid and relevant.
b. Competence can be improved by selecting a larger sample size.
c. Competence can be improved by selecting audit procedures that contain a higher quality of the
characteristics sought.
d. Competence cannot be improved by selecting different population items to include in the sample
size.
22. To quantify the risk that the sample evidence leads to erroneous conclusions about the sampled
population
a. Each item in the sampled population must have an equal chance of being selected.
b. Each item in the sampled population must have a chance of being selected proportional to its
book value.
c. Each item in the sampled population must have an equal or known probability of being selected.
d. The precise number of items in the population must be known.
23. Other factors remaining constant, the audit risk is increased by an increase in:
a. Materiality.
b. The effectiveness of analytical procedures.
c. The risk of incorrect rejection.
d. Detection risk.
24. Which of the following is a valid statement about the assessment of control risk?
a. There is a positive relationship between detection risk and the combined level of inherent and
control risk.
b. Misstatements discovered by conducting substantive procedures may cause the auditor to modify
the previous assessment of control risk.
c. The auditor should consider the assessed levels of inherent and control risks in determining the
nature, timing, and extent of substantive procedures required to eliminate audit risk.
d. The assessed level of inherent and control risks can be sufficiently low in order to eliminate the
auditor’s need to perform substantive tests on some assertions.
25. The mean-per-unit estimation method calculates the estimated total audited value of a population
of accounts receivable as:
a. A summation of the total individual accounts values in the population.
b. The sample mean audited value multiplied by the number of items in the population.
c. The estimated total audited value of the population multiplied by the number of items in the
sample.
d. The summation of the sample multiplied by the number of discrete samples in the population.
26. Which of the following control procedures will likely prevent the concealment of a cash shortage
that was perpetrated by improperly writing off a trade account receivable?
a. Write off must be approved by a responsible officer after reviewing the credit department’s
recommendations and supporting evidence.
b. Write off must be supported by an aging schedule showing that only receivables that are several
months overdue have been written off.
c. Write off must be approved by the cashier.
d. Write off must be authorized by field sales representatives.
27. Which of these assignments of duties would least likely lead to an embezzlement or theft?
a. Inventory warehouse manager has responsibility for making the physical inventory observation
and reconciling the discrepancies to the perpetual inventory records.
b. The cashier prepares the bank deposit, endorses the checks with a company stamp, takes the
cash and checks to the bank for deposit, and reconciles the bank statement.
c. Accounts receivable clerk opens customer payments so he could make entries in the customers'
accounts receivable subsidiary accounts.
d. Financial vice president receives the checks payable to suppliers and the supporting invoices,
signs the checks, and mails them to the payees.
28. A company has a policy of rotating employees’ assigned duties. This policy is most important for
employees who:
29. While performing an audit of cash, an auditor begins to suspect kiting. Which of the following is the
best evidence that the auditor could obtain concerning whether kiting is taking place?
a. Documentary evidence obtained by vouching entries in the cash account to supporting
documents.
b. Documentary evidence obtained by vouching credits on the latest bank statement to supporting
documents.
c. Evidence obtained by preparing a schedule of interbank transfers.
d. Oral evidence obtained through discussions with controller personnel.
30. Before applying principal substantive tests to the details of asset and liability accounts at an interim
date, the auditor should
a. assess the difficulty in controlling incremental audit risk.
b. investigate significant fluctuations that have occurred in the asset and liability accounts since the
previous balance sheet date.
c. select only those accounts which can effectively be sampled during year-end audit work.
d. consider the control tests that must be applied at balance sheet date to extend the audit
conclusions reached at the interim date.
31. Which of the following is a proper alternative audit procedure for no responses to positive accounts
receivable confirmation requests?
a. Examination of subsequent cash receipts in payment of the receivable.
b. Mailing of negative confirmation requests to non-respondents.
c. Expansion of the sample by the number of non-respondents.
d. Reduction of accounts receivable by the amount of the no responses.
32. Which of the following matters do auditors need not communicate to the audit committee of a
public company?
a. All critical accounting policies
b. Compensation arrangements related to the chief executive officer
c. Schedule of unadjusted differences
d. Management letter comments
33. Which of the following is not one of the primary approaches that the auditors may use when
evaluating the reasonableness of accounting estimates?
a. Review and test management's process of developing estimates.
b. Confirm estimates directly with outsiders.
c. Independently develop an estimate of the amount to be compared to management's estimate.
d. Review subsequent events or transactions that have bearing on the estimate.
34. The auditor's formal review of subsequent events normally should be extended through the date of
the
a. auditor's report.
b. next formal interim financial statements.
c. delivery of the audit report to the client.
d. mailing of the financial statements to the stockholders.
35. Performing inquiry and analytical procedures that provide the accountant with a reasonable basis
for expressing limited assurance that there are no material modifications that should be made to
the financial statements in order for them to be in conformity with PFRS or with other
comprehensive basis of accounting is the definition of
a. compilation.
b. audit.
c. review.
d. agreed-upon procedure.
PROBLEM NO. 1
During your audit of the records of the Gudani Corporation for the year ended December 31, 2021, the
following facts were disclosed:
Units
Explanation 1/1/21 12/31/21
Raw materials 35,000 ?
Work in process
(80% completed) - 25,000
Finished goods 15,000 40,000
Sales, 200,000
units
c) Raw materials are issued at the beginning of the manufacturing process. During the year, no
returns, spoilage, or wastage occurred. Each unit of finished goods contains one unit of raw
materials.
QUESTIONS:
Based on the given information and the result of your audit, answer the following:
39. The cost of goods sold for the year ended December 31, 2021 is
a. P13,911,400 c. P14,161,400
b. P14,077,000 d. P16,897,000
40. When inventory is material to the financial statements, the auditor should obtain sufficient
appropriate audit evidence regarding its existence and condition by attendance at physical inventory
counting unless impracticable. Where attendance is impracticable, due to factors such as the nature
and location of the inventory, the auditor should
a. Take or observe some physical counts on an alternative date and, when necessary, perform tests
of intervening transactions.
b. Consider whether alternative procedures provide sufficient appropriate audit evidence of
existence and condition to conclude that the auditor need not make reference to a scope
limitation.
c. Issue qualified or disclaimer of opinion.
d. Issue qualified or adverse opinion.
PROBLEM NO. 2
Naranjo Company’s property, plant and equipment and accumulated depreciation balances at December
31, 2020 are:
Accumulated
Cost Depreciation
Machinery and P1,380,000 P 367,500
equipment
Automobiles and trucks 210,000 114,326
Leasehold improvements 432,000 108,000
Depreciation policy:
c. Salvage values are immaterial except for automobiles and trucks which have estimated salvage
values equal to 15% of cost.
Additional information:
a. Naranjo entered into a 12-year operating lease starting January 1, 2018. The leasehold
improvements were completed on December 31, 2017 and the facility was occupied on January 1,
2018.
b. On July 1, 2021, machinery and equipment were purchased at a total invoice cost of P325,000.
Installation cost of P44,000 was incurred.
d. On September 30, 2021, a truck with a cost of P48,000 and a carrying amount of P30,000 on
December 31, 2020 was sold for P23,500.
e. On December 20, 2021, a machine with a cost of P17,000, a carrying amount of P2,975 on date of
disposition, was sold for P4,000.
QUESTIONS:
Based on the given information and the result of your audit, answer the following:
43. The adjusted balance of the property, plant and equipment as of December 31, 2021 is
a. P1,919,000 c. P2,388,500
b. P2,307,000 d. P2,351,000
44. The total depreciation expense for the year ended December 31, 2021 is
a. P138,000 c. P221,402
b. P185,402 d. P245,065
45. The carrying amount of the property, plant and equipment as of December 31, 2021 is
a. P1,290,547 c. P1,578,547
b. P1,567,497 d. P1,617,322
PROBLEM NO. 3
Your audit senior instructed you to prepare a four-column proof of cash receipts and disbursements for
the month of August, 2021.
The bank reconciliation prepared by Siapian Company at July 31 is reproduced below: (All book
adjustments were recorded in August).
Upon inquiry about the client’s August 31 bank reconciliation, you were informed that it has been lost
and that the client is too busy at this time to prepare another. Your senior told you to get the August
bank statement and paid checks and to prepare the August 31 reconciliation so that you may complete
the August proof of cash.
Alvin Bank
Account Name: Siapian Company
Date Debits Credits
July 31
August 1 1,800 900
August 6 1,400
August 9 600 10,000
August 12 140 DM 140
August 15 1,000
August 20 700 14,000
August 27 1,440
August 29 100 EC 100 EC
August 31 440 SV
August 31 300 DM
1,820
The paid checks accompanying this bank statement (all clearing in August) were (checks listed in order
of payment by bank).
The check register revealed that the last check issued in August was no. 460 for P1,000 and that check
no. 457 was for P2,400.
Cash received for the period August 21 through 31 of P9,400 was deposited in the bank on September
1.
The debit memo on August 12 and August 31 were customer NSF checks returned by the bank. The
check on August 12 was immediately redeposited without entry. The check returned on August 31 was
redeposited by the client in the bank on September 1 without entry.
QUESTIONS:
Based on the given information and the result of your audit, you are to provide the answers to the
following:
50. How much is the adjusted cash balance as of August 31, 2021?
a. P73,060 c. P73,400
b. P73,200 d. P73,940
PROBLEM NO. 4
You were able to obtain the following information from your audit of Villegas Corporation’s Accounts
Receivable and Allowance for Doubtful Accounts:
• From the general ledger you noted that the Accounts Receivable has a balance of P848,000 as of
December 31, 2021. Below is a transcript of the Allowance for Doubtful Accounts:
Debit Credit
Balance
1/1 – Balance P20,000
7/31 – Write-off P16,000 4,000
12/31- P48,000 P52,000
Provision
• The summary of the subsidiary ledger as of December 31, 2021 was totaled as follows:
Debit balances:
Credit balances:
The customers’ ledger is not in agreement with the accounts receivable control. The client
requested you to adjust the control account to the subsidiary ledger after corrections are made.
• It is agreed that 1 percent is adequate for accounts under one month. Accounts one to six months
are expected to require a reserve of 2 percent. Accounts over six months are analyzed as follows:
QUESTIONS:
Based on the given information and the result of your audit, answer the following:
51. How much is the adjusted balance of Accounts Receivable as of December 31, 2021?
a. P818,000 c. P832,000
b. P826,000 d. P846,000
52. How much is the adjusted balance of the Allowance for Doubtful Accounts as of December 31, 2021?
a. P30,680 c. P30,960
b. P30,760 d. P31,240
53. How much is the Doubtful Accounts expense for the year 2021?
a. P74,680 c. P74,960
b. P74,760 d. P75,240
54. Which of the following may be considered to be a primary objective of the auditor in the examination
of accounts receivable?
a. Determine approximate time of collectibility of receivables.
b. Determine the relationship of receivables to sales.
c. Determine the reasonableness of the sales figure.
d. Establish validity and collectibility of receivables.
55. Which of the following is not a procedure used by an auditor in the examination of accounts
receivable?
a. Confirmation
b. Reconciliation
c. Inquiry
d. Physical count and inspection
PROBLEM NO. 5
On April 1, 2019, Capuno Corporation purchased 5-year P10,000,000 10% bonds dated January 1,
2019. The bonds were purchased to yield 12%. Interest is payable annually every December 31. The
entity holds investment in bonds in order to collect contractual cash flows.
The entity monitors the change in credit quality of the investment since initial recognition and taking
into account historical information, current conditions and forward- looking information, the entity
computes the required expected credit losses (ECL) as follows:
Required
allowance
Date Credit risk assessment for ECL
On December 31, 2021, the issuer of the bonds is in financial difficulties and Capuno estimated that the
issuer will not be able to pay interest for 2021 and 2022 and will be able to collect only P10,000,000 on
December 31, 2023.
QUESTIONS:
Based on the above and the result of your audit, answer the following: (Round off present value factors
to four decimal places)
56. How much was the total amount paid to acquire the investment in bonds on April 1, 2019?
a. P9,278,800 c. P9,528,800
b. P9,307,164 d. P9,557,164
57. How much is the amortized cost of the investment in bonds on December 31, 2019?
a. P9,157,450 c. P9,345,256
b. P9,342,256 d. P9,392,256
PROBLEM NO. 6
The shareholders’ equity section of the Aguilar Corporation’s statement of financial position as of
December 31, 2020 is presented below:
The following shareholders’ equity transactions were recorded in 2020 and 2021:
2020
May 1 - Sold 9,000 ordinary shares for P24, par
value P20.
July 1 - Sold 700 preference shares for P124,
par value P100.
Jul. 31 - Issued an 8% share dividend on
ordinary shares. The market value of
ordinary share was P30 per share.
Aug. 30 - Declared cash dividends of 12% on
preference shares and P3 per share on
ordinary shares.
Dec. 31 - Profit for the year amounted to
P1,345,040.
2021
Feb. 1 - Sold 2,200 ordinary shares for P30.
May 1 - Sold 600 preference shares for P128.
May 31 - Issued a 2-for-1 split of ordinary
shares. The par value of the ordinary
share was reduced to P10 per share.
Sep. 1 - Purchased 1,000 ordinary shares for
P18 to be held as treasury shares.
Oct. 1 - Declared and paid cash dividends of
12% on preference shares and P4 per
share on ordinary shares.
Nov. 1 - Sold 1,000 shares of treasury shares
for P22.
Dec. 31 - Profit for the year amounted to
P991,520.
QUESTIONS:
PROBLEM NO. 7
You have been appointed as auditor of Uy Inc. Its bookkeeper reports the following balance sheet
amounts as of June 30, 2021.
Cash P 595,000
Investment securities – trading 400,000
Accounts receivable 683,000
Inventories, including
advertising supplies of 1,275,000
P35,000
P2,953,000
(d) Other liabilities include P2,000,000 10% mortgage on property, plant and equipment, payable in
semi-annual installments of P200,000 through June 30, 2026.
(f) Common shares were originally issued for P4,950,000 but the losses of the company for the past
years were charged against share premium.
QUESTIONS:
As of June 30, 2021, the audited balance of the following would be:
70. Which of the following audit procedures would most likely assist an auditor in identifying conditions and
events that may indicate there could be substantial doubt about an entity's ability to continue as a
going concern?
a. Review compliance with the terms of debt agreements.
b. Confirmation of accounts receivable from principal customers.
c. Reconciliation of interest expense with debt outstanding.
d. Confirmation of bank balances.
End of Examination
Thank you for participating in Team PRTC Nationwide Online Final Pre-Board Examination