Professional Documents
Culture Documents
Answer: A: 20 Regional Mid Year Convention Auditing Cup
Answer: A: 20 Regional Mid Year Convention Auditing Cup
AUDITING CUP
Quiz Master’s Copy
ELIMINITATION ROUND
EASY ROUND
EASY # 1
Which of the following sets of information does an auditor usually confirm using one form?
a. Cash in bank and collateral for loans.
b. Accounts payable and purchase commitments.
c. Accounts receivable and accrued interest receivable.
d. Inventory on consignment and contingent liabilities.
Answer: A
EASY # 2
c. There were 108,500 units on hand on June 1 with a total cost of P1,450,000.
d. COW, Inc. uses a periodic FIFO costing system. The company’s gross profit for June was
P2,058,750.
What is the FIFO cost of the company’s inventory on June 30?
Answer: 988,000
EASY # 3
Which of the following is not a factor that might affect the likelihood that a control deficiency could result in a
misstatement in an account balance?
Answer: C
EASY # 4
For what primary purpose does the auditor obtain an understanding of the entity and its environment?
a. To determine the audit fee.
b. To decide which facts about the entity to include in the audit report.
EASY # 5
Cash P1,500
Miscellaneous general expenses 8,120
Petty cash accounted 9, 620
Petty cash per ledger (10,000
)
Petty cash shortage (P380)
EASY # 6
By the audit process, the auditor enhances the usefulness and the value of the financial statements, and also:
Answer: C
EASY # 7
Roses, Inc. offers sales discount to customers who will pay their accounts in full within 10 days from the date of
sale. On October 1, it sold goods on account for P420,000. Payment of P411,600 in satisfaction of this account
was received on October 9.
What is the sales discount rate?
Answer: 2%
Gross receivable P420,000
Less: Amount Received 411,600
Sales Discount 8,400
Divide by Gross Receivable 420,000
Sales discount Rate 2%
EASY # 8
The terms of the engagement include consideration of what is to be done (the objective, scope and report of the
audit) by who (the staff) and:
Answer: A
An audit is a systematic process of objectively obtaining and evaluating evidence regarding assertions ______
to ascertain the degree of correspondence between these assertions and established criteria and communicating
the results to interested users.
EASY # 10
In an audit of EDWARD COMPANY for the year ended December 31, 2016, the entity took its annual physical
inventory count on November 30, 2016. The entity’s inventory which includes raw materials and work in
progress is on a perpetual basis and FIFO pricing is used. There are no finished goods.
Answer: 3,063,500
AVERAGE ROUND
AVERAGE # 1
Entity-level controls can have a pervasive effect on the entity's ability to meet the control criteria. Which one of
the following is not an entity-level control?
AVERAGE # 2
Which of the following are not common internal control documentation techniques used by auditors?
a. Company internal control manuals
b. Narrative descriptions
Answer: A
AVERAGE # 3
On December 31, 2015, Hercules Company has a note payable to the bank of P8,400,000. The following are the
transactions during 2016 and other information relating to the Company’s liabilities:
a. The note payable to the bank bears a 12% interest. It is dated April 1, 2015 and is payable in four
equal annual installments beginning April 1, 2016. Hercules Company made the first principal
and interest payment on April 1, 2016.
b. On July 1, 2016, Hercules Company issued P5,322,000 at P 6,000,000 face value note to a
wealthy shareholder. The note, dated July 1, 2016, will mature on July 1, 2017. No explicit
interest rate is stated in the note and the entire face amount is due on maturity date.
AVERAGE # 4
Answer: P1,081,670
AVERAGE # 5
AVERAGE # 6
On July 7, 2016, ABC Company received its bank statement for the month ending June 30. The statement
showed a P209,500 balance while the cash account balance on June 30 was P35,000. In reconciling the
balances, the auditor discovered the following:
The June 30 collections amounting to P176,000 were recorded on the books but were not
deposited until July.
The bank charged the company for a DAUD (Drawn Against Uncollected Deposit) check of
a customer, P21,900.
A paid check for P24,300 was entered incorrectly in the cash disbursement journal as
P42,300.
Outstanding checks as of June 30 totaled P354,400.
AVERAGE # 7
Which of the following statements best describes the role of materiality in a financial statement audit?
a. Materiality refers to the "material" from which audit evidence is developed.
b. The higher the level at which the auditor assesses materiality, the greater the amount of evidence
the auditor must gather.
c. The lower the level at which the auditor assesses materiality, the greater the amount of evidence
the auditor must gather.
d. The level of materiality has no bearing on the amount of evidence the auditor must gather.
Answer: C
AVERAGE # 8
In an audit of ISABELA COMPANY for the year ended December 31, 2016, the entity took its annual physical
inventory count on November 30, 2016. The entity’s inventory which includes raw materials and work in
progress is on a perpetual basis and FIFO pricing is used. There are no finished goods.
ii. A special order started and completed December has excessive scrap loss of
P40,000 which was charged to manufacturing overhead expense.
iii. Cost of Sales for the year ended December 31, 2016 amounted to P3,417,500 where in
Direct Labor Cost amounted to P690,000.
AVERAGE # 9
AVERAGE # 10
The following amounts are shown on the 2016 and 2015 financial statements of San Francisco Co.:
2016 2015
Accounts Receivable P? P 470,000
Allowance for bad debts 20,000 10,000
Net Sales 2,600,000 2,400,000
Cost of Goods Sold 1,900,000 1,752,000
San Francisco Co.’s accounts receivable turnover for 2016 is 6.5 times. All sales are on credit.
Answer: 340,000
DIFFICULT #1
. Which of the following procedures would an auditor most likely perform in planning a financial statement
audit?
a. Performing analytical procedures to identify areas that may represent specific risks.
b. Reviewing investment transactions of the audit period to determine whether related parties were
credited.
c. Reading the minutes of stockholder and director meetings to discover whether any unusual
transactions have occurred.
d. Obtaining a written representation letter from the client to emphasize management’s
responsibilities.
Answer: A
DIFFICULT #2
The following are the cash balances of ABC Company at December 31, 2016:
Undeposited collections (in currency and coins) P40,200
Current account – unrestricted 620,000
Disbursement checks written and recorded in December
31, 2016 but are to be released to the payees in January 130,000
2017
Restricted time deposits (expected use in January 2018) 2,000,000
ABC Company has agreed to maintain a P200,000 balance in unrestricted current account in accordance with
the loan covenant. How much should ABC Company report as cash on its December 31, 2016 statement of
financial position?
Answer: P790,200
DIFFICULT #3
During 2016, Pen Corporation acquired common stock of Rap Company as follows:
Rap Company issued a 20% stock dividend on February 14, 2016. Common stock rights were issued on
October 30, 2016 entitling holders to purchase one new common share at P450 for each ten shares held. On this
date, the rights were being traded at P20 each and the stock ex-rights were being traded at P620 per share.
On November 8, 2016, Pen sold 500 rights that pertained to Lot A. Sales price was P25 per right. The
corporation paid a brokerage fee of P500 on the sale of the stock rights. Pen exercised the remaining rights on
November 11, 2016.
DIFFICULT #4
a. Foreign investors are more likely to channel funds into a developing country
b. Financial statement disclosure is more consistent
c. Encourage and assist developing nations to adopt national standards
d. Investors can more readily comprehend a set of financial statements drawn up in another country
Answer: B
DIFFICULT #5
The Notes Receivable account of Bunsoy Co. has a debit balance of P239,200 on
December 31, 2016. There was no balance at the beginning of the year. Your analysis of the account
reveals the following:
• Notes amounting to P845,000 were received from customer during the year.
• Notes of P416,000 were collected on due dates and notes amounting to P221,000 were
discounted at the Aggressive Bank. The Notes Receivable account was credited for the notes
discounted.
• Of the P221,000 notes discounted, P104,000 was paid on maturity date while a note for
P31,200 was dishonored and was charged back to Notes Receivable account.
• Cash of P33,000 was received as partial payment on notes not yet due. The amount received was
credited to Liability on Partial Payments account.
• A note for P50,000 was pledged as collateral for a bank loan.
• Included in the company’s cash account balance is a three-month note from an officer amounting
to P8,000 which is over a month past due.
Assuming that Bunsoy Co. will use a Notes Receivable Discounted account, the adjusted balance of the Notes
Receivable account on December 31, 2016 is?
Answer: P260,800
DIFFICULT # 6
ABC Company’s annual net income for the period 2012 to 2016 are as follows: 2012 P150,000; 2013 P340,000;
2014 P645,000; 2015 (P100,000); and 2016 P250,000.
The review of the company’s records reveals the following inventory errors at yearend: overstatement of P3,000
in 2013; understatement of P6,000 in 2014; understatement of P4,500 in 2015 and understatement of P11,000 in
2016.
DIFFICULT #7
Which of the following forms of evidence represents the most competent evidence that a receivable actually
exists?
a. A positive confirmation
b. A sales invoice
c. A receiving report
d. A bill of lading
Answer: A
DIFFICULT #8
The ABC Company had weak internal controls over cash transactions. Facts about its cash position at
November 30, 2016 were as follows:
The cash book showed a balance of P94,508 which included undeposited receipts. A credit of P500 on the
bank’s records did not appear on the books of the company. The balance per bank statement was P77,750.
Outstanding checks were no. 8420 for P581, no. 8422 for P750, no. 8430 for P1,266, no.8621 for P954, no.
8623 for P1,034 and no. 8632 for P726.
The cashier stole all undeposited receipts in excess of P18,972 and prepared the following reconciliation:
P94,508
Balance per books, November 30, 2016
Add: Outstanding checks
8621 P954
8623 1,034
8632 726 2,214
Total 96,722
Less: Undeposited receipts 18,972
Balance per bank, November 30, 2016 77,750
Less: Unrecorded credit 500
True cash, November 30, 2016 P77,250
DIFFICULT #9
Which of the following procedures would least likely lead the auditor to detect unrecorded fixed asset
additions?
a. Examine insurance policies.
b. Review property tax files.
c. Scan invoices for fixed asset additions.
d. Review repairs and maintenance expense.
Answer: A
DIFFICULT #10
ABC Company reported the following amounts in the shareholders’ equity section of its December 31, 2015,
statement of financial position:
Based on the information above, determine the correct amount of December 31, 2016 unappropriated retained
earnings.
FINAL ROUND
FINAL # 1 (EASY T)
Which of the following AASC (Auditing and Assurance Standards Council) Engagement Standard applies on
engagements to apply agreed-upon procedures to information?
a. PSAs
b. PSREs
c. PSAEs
d. PSRSs
Answer: D
PSAs, PSREs, PSAEs and PSRSs are collectively referred to as the AASC’s Engagement Standards.
Philippines Standards on Auditing (PSAs) applies to the audit of historical financial
information.
Philippine Standards on Review Engagements (PSREs) applies to review of historical financial
information.
Philippine Standards on Assurance Engagements (PSAEs) applies to assurance engagements
dealing with subject matters other than historical financial information.
Philippine Standards on Related Services (PSRSs) applies to compilation engagements,
engagements to apply agreed-upon procedures to information and other related service
engagements as specified by the AASC.
FINAL # 2 (AVE T)
FINAL # 3 (DIFF T)
FINAL # 4 (AVE P)
ABC Company has the following loans payable scheduled to be repaid in February of the next year. The
company’s accounting year ends on December 31.
The company intends to repay Loan1 for P100,000 when it comes due in February. In the following
October, the company intends to get a new loan for P80,000 from the same bank.
The company intends to refinance Loan 2 for P150,000 when it comes due in February. The
refinancing agreement of P180,000 will be signed in April, after the financial statements for this year
have been authorize for release.
The company intends to refinance Loan 3 for P200,000 before it comes due in February. The actual
refinancing for P175,000 took place in January before the financial statements for this year have
been authorize for issue.
As of December 31 of this year, the total noncurrent liabilities to be reported on the company’s
statement of financial position should be:
Answer: P0
Current liabilities
Loan 1 P100,000
Loan 2 150,000
Loan 3 200,000
Total P450,000
Noncurrent liabilities P0
Cedie Company uses its sales invoices for posting perpetual inventory records. Inadequate internal control over
the invoicing function allows goods to be shipped but not invoiced. The inadequate controls could cause what
type of misstatement in each of the following accounts?
Revenues Receivables Inventories
a. Understatement Understatement Understatement
b. Overstatement Overstatement Understatement
c. Understatement Understatement Overstatement
d. Overstatement Overstatement Overstatement
Answer: C
Since sales are shipped but not invoiced, no proper recording of revenue is done, this would cause
revenue and receivables to be understated. Meanwhile since the company uses perpetual inventory
records overstatement of inventory is to be expected.
FINAL # 6 (DIFF P)
Dolo Company leased office premises to Dole Company for a 8-year term starting January 2, 2014 Under the
terms of the lease, rent for the first year is P300,000 and rent for years 2 through 8 is P500,000 annually. As an
inducement to enter the lease, Dolo Company waives the first six months of rental payments. Dole Company
likewise paid a P70,000 security deposit of which 80% is refundable at the end of the lease term. Furthermore,
contingent rent equal to 3% of sales in excess of P13,000,000 shall be paid by Dole Company. Dolo Company
incurred initial direct cost of P40,000 while Dole Company paid P80,000 in costs in relation to the lease. In
2015, Dole Company reported sales of P15,000,000.
Abe Chan has been employed as an accountant by ABC Company for a number of years. She handles all
accounting duties, including the preparation of financial statements. The following is the earned surplus
prepared by Abe Chan for 2016:
ABC Company
Statement of Earned Surplus for 2016
Answer: P87,500
FINAL # 8 (EASY T)
In conducting an audit in accordance with PSAs the auditor shall (choose one that doesn’t apply)
a. Obtain sufficient appropriate audit evidence to reduce inherent risk to an acceptably low level.
b. Comply with all PSAs relevant to the audit.
c. Exercise professional judgment in planning and performing an audit of financial statement.
d. Comply with relevant ethical requirements.
Answer: A
Remember that inherent risk is the susceptibility of an account balance or class of transactions to a
material misstatement assuming that there were no related internal controls. As auditors we are
trying to reduce the audit risk by assessing the level of inherent and control risk and determining the
acceptable level of detection risk.
FINAL # 9 (DIFF T)
Which of the following test of controls most likely would help assure auditors that goods shipped are properly
billed?
a. Scan the sales journal for sequential and unusual entries.
b. Examine shipping documents for matching sales invoice.
c. Compare the accounts receivable ledger to daily sales summaries.
d. Inspect unused sales invoices for consecutive prenumbering.
Answer: B
Examining shipping documents ensures that goods are shipped and comparing such documents to its
sales invoices assure auditors that goods are properly billed.
FINAL # 10 (AVE T)
The auditor shall obtain written representations from management regarding to the following except:
a. It has disclosed to the auditor the results of its assessment of the risk that the financial statements
may be materially misstated as a result of fraud.
FINAL # 11 (DIFF P)
AGAPE Corporation must determine the December 31, 20X5 year-end accruals for advertising and rent
expenses. A P50,000 advertising bill was received on January 10, 20X6 comprising costs of P37,500 for
advertisements in December 20X5 issues, and P12,500 for advertisements in January 20X6 issues of
newspaper.
A store lease, effective December 16, 20X5, calls for fixed rent of P120,000 per month, payable one month
from the effective date and monthly thereafter. In addition, rent equal to 5% of net sales over P6,000,000 per
calendar year is payable on January 31 of the following year. Net sales of 20X5 amounted to P7,500,000.
What is the total accrued liability that should be reported by ABC Corporation on its statement of financial
position as at December 31, 20X5?
Answer: P172,500
FINAL # 12 (AVE T)
According to PSA240 - The Auditor’s Responsibility to Consider Fraud in an Audit of Financial Statements,
which of the following concepts related to the risk of fraud is true?
a. Material misstatement due to fraudulent financial reporting relating to revenue recognition often
results from an understatement of revenues.
b. The presumption that there are risks of fraud in revenue recognition cannot be rebutted.
c. Management may make judgments on the nature and extent of the controls it chooses to
implement, and the nature and extent of the risks it chooses to assume.
d. In determining which controls to implement to prevent and detect fraud, management cannot
consider the risk that the financial statements may be materially misstated as a result of fraud.
Answer: C
The rest are false since:
•Material misstatement due to fraudulent financial reporting relating to revenue recognition often
results from an overstatement of revenues.
•The presumption that there are risks of fraud in revenue recognition can be rebutted. (ref Paragraph
26 of PSA240)
•In determining which controls to implement to prevent and detect fraud, management consider the risk
that the financial statements may be materially misstated as a result of fraud. (ref para 27, PSA240)
FINAL # 13 (DIFF P)
Yan Company acquires 7,200 shares of common stock of Tay Corp. on Feb. 12, 2015. The P100 par stock,
costing P819,000, is included in the company’s available-for-sale securities portfolio. The following
transactions related to this investment occurred during 2015:
On June 15, Tay Corp. announces that rights are to be issued. One right is to be received for each
share owned.
What is the total cost of the stock acquired by Yan Company on August 08?
Answer: P278,250
(819,000x20/140)/7,200 x 4,200 + 4,200/2 x 100 = 278,250
FINAL # 14 (EASY P)
FINAL # 15 (EASY P)
As of January 1, 2016, Seniors decided to change the method of computing depreciation on its sole piece of
equipment from the sum-of-the-years' digits method to the straight-line method. The equipment, acquired in
January 2013 for P520,000, had an estimated life of five years and a salvage value of P20,000. The amount of
the depreciation expense for 2016 is
Answer: P50,000
Corp. uses Machine A in its manufacturing process. It acquired this machine from manufacturers. The following
information relates to Machine A that it has recorded in 20X2.
Machine A, purchased
Cost paid for equipment P250,000
Cost of transporting machine – insurance and transport 9,000
Labor cost of installation by expert filter 15,000
Labor cost of testing equipment 12,000
Insurance cost of 20X2 4,500
Answer: P350,500
Machine A
Cost paid for equipment P250,00
0
Cost of transporting machine – insurance and transport 9,000
Labor cost of installation by expert filter 15,000
Labor cost of testing equipment 12,000
Cost of safety rails and platforms surrounding machine 18,000
Cost of water devices to keep machine cool 24,000
Cost of adjustments to machine during 20X2 to make it operate more 22,500
efficiently
Total costs P350,50
0
FINAL # 17 (EASY T)
FINAL # 18 (DIFF T)
The auditor shall identify and assess the risks of material misstatement at the financial statement and the
assertion level for classes of transactions, account balances and disclosures. For this purpose, the auditor shall
consider the following except:
a. Identify risks throughout the process of obtaining an understanding of the entity and its
environment, including relevant controls that relate to the risks, and by considering the classes of
transactions, account balances, and disclosures in the financial statements.
b. Assess the identified risks, and evaluate whether they relate more pervasively to the financial
statements as a whole and potentially affect many assertions.
c. Relate the identified risks to what can go wrong at the financial statement level, taking account
of relevant controls that the auditor intends to test.
d. Consider the likelihood of misstatement, including the possibility of multiple misstatements, and
whether the potential misstatement is of a magnitude that could result in a material misstatement.
Answer: C
Relate the identified risks to what can go wrong at the assertion level, taking account of relevant
controls that the auditor intends to test. (Ref: Para. A109-A111 of PSA 315)
FINAL # 19 (AVE T)
FINAL # 20 (AVE P)
The following selected transactions occurred during the year ended December 31, 2016:
Gross sales (cash and credit) P750,000
Collections from credit customers, net of 2% cash discount 245,000
Cash sales 150,000
Uncollectible accounts written off 16,000
Credit memos issued to credit customers for sales returns and 8,400
allowances
Cash refunds given to cash customers for sales returns and 12,640
allowances
Recoveries on accounts receivable written off in prior years (not
included in cash received stated above) 5.421
At year-end, the company provides for estimated bad debt losses by crediting the Allowance for Bad
Debts account for 2% of its net credit sales for the year.
Answer: P11,732
FINAL # 21 (EASY T)
Which of the following is true about assurance:
a. For agreed-upon procedures, the auditor provides a report of the factual findings, moderate
assurance is expressed.
b. In a review engagement, the auditor provides a moderate level of assurance that the information
subject to review is free of material misstatement. This is expressed in the form of positive
assurance.
c. In a compilation engagement, although the users of the compiled information derive some
benefit from the accountant's involvement, no assurance is expressed in the report
d. In an audit engagement, the auditor provides a low reasonable level of assurance that the
information subject to audit is free of material misstatement.
Answer: C
FINAL # 22 (DIFF T)
Answer: B
The auditor should consider the factors that, the auditor’s professional judgment, are significant in
directing the engagement team’s efforts. (Ref: Para. A9-A12 of PSA 300)
FINAL # 23 (AVE P)
1. The following information was taken from the records of ABC Company for the month of December:
Sales P198,000
Sales returns 4,000
Sales discount 2,000
Additional markups 20,000
Markup cancellations 3,000
Markdowns 18,600
Markdown cancellations 5,600
Freight in 4,800
Purchases at cost 96,000
Purchases at retail 176,000
Purchases returns at cost 4,000
Purchases returns at retail 6,000
Beginning inventory at cost 60,000
Beginning inventory at retail 93,000
What is the cost of ABC Company’s ending inventory under the retail inventory (average cost) method?
Answer: P43,070
Cost Retail
Beginning inventory P60,000 P93,000
Purchases 96,000 176,000
Freight in 4,800
Purchases returns (4,000) (6,000)
Additional mark-ups 20,000
Mark-up cancellations (3,000)
Markdowns (18,600)
Markdown cancellations 5,600
Goods available for sale P156,800 P267,000
Less: Net sales (P198,000 – P4,000) 194,000
Ending inventory at retail P73,000
Cost ratio (P156,800 / P267,000) 59%
Ending inventory at cost (P73,000 x 59%) P43,070
8. On December 31, VSG Company noted the following transactions that occurred during 2014, some or
all of which might require adjustment to the books.
I. Payment of P2,900 to suppliers was made for purchases on account during the year and was
not recorded.
II. Building and land were purchased on January 2 for a basket price of P400,000. The
building’s fair market value was P180,000 while the land’s fair value is also P180,000 at the
time of purchase. The building is being depreciated over a 25-year life using the straight-line
method, assuming no salvage value.
III. Of the P45,800 in Accounts Receivable, 2.7% is estimated to be uncollectible. Currently,
Allowance for Bad Debts shows a debit balance of P780.
IV. On September 1, P45,000 was loaned to a customer on a 6-month note with interest at an
annual rate of 10%.
V. During 2008, VSG received P8,500 in advance for services, 85% of which will be performed
in 2009. The P8,500 was credited to sales revenue.
VI. The interest expense account was debited for all interest charges incurred during the year and
shows a balance of P1,100. However, of this amount, P600 represents a discount on a 60-day
note payable, due January 30, 2015.
The net reduction in reported net income as a result of the required adjustments is
Answer : P15,441.60
Effect to Income
+/(-)
FINAL # 25 (EASY P)
Company uses the direct method to prepare its statement of cash flows. The company had the following cash
flows during the current year
Answer: P30,000