QUESTIONS:

Audit of Educational Institution

1. PCNC certification is used by the ___________________ as a basis in granting “Donee
Institution Status” to qualified non-stock, non-profit organizations.
a) Securities and Exchange Commission
b) Commission on Higher Education
c) Bureau of Internal Revenue
d) Department of Trade and Industry
ANSWER: C
(Self-Constructed Question)
EXPLANATION:
Philippine Council for NGO Certification is a private, voluntary, non-stock, non-profit
corporation that will serve as a service organization whose main function is to certify non-profit
organizations that meet established minimum criteria for financial management and
accountability in the service to underprivileged Filipinos. Letter C is the correct answer because
based on the Philippine Council for NGO Certification, PCNC certification is used by the
Bureau of Internal Revenue as a basis in granting “Donee Institution Status” to qualified non-
stock, non-profit organizations, upon recommendation of PCNC.
Source: Philippine Council for NGO Certification. Retrieved May 13, 2021 from
https://www.pcnc.com.ph/

2. A university does not have a centralized receiving function for departmental purchases of

books, supplies, and equipment. Which of the following controls would most effectively prevent
payment for goods not received, if performed prior to invoice payment?

a) Vendor invoices should be approved by a departmental supervisor other than the

employee ordering the goods.
b) Invoices over a specified amount should be approved by the vice president of finance.
c) Names and addresses on vendor invoices should be compared to a list of department-
authorized vendors.
d) Vendor invoices should be matched with department purchase orders.

ANSWER: A

Source: Roque, G. (2018). Auditing Theory (2018-2019 ed.,). Manila: GIC Enterprises & Co.,
Inc.
EXPLANATION:

Answer A is correct because the departmental supervisors would most likely be aware
 of all goods received by their departments. Thus, approval of vendor invoices by departmental
supervisors would most effectively prevent payment for goods not received. However, Answer B
is incorrect because the vice president of finance does not receive incoming goods. Answers C
and D are incorrect because comparing invoices with lists of authorized vendors and matching
invoices with purchase orders do not provide evidence that goods were actually received.

3. A large university has relatively ineffective internal control. To obtain assurance that all
tuition revenue has been recorded, the auditor should

a) Confirm a sample of tuition payments with the students.

b) Prepare a year-end bank reconciliation.
c) Compare business office revenue records with registrar's office records of students
enrolled.
d) Observe tuition payment procedures on a surprise basis.

ANSWER: C

Source: Roque, G. (2018). Auditing Theory (2018-2019 ed.,). Manila: GIC Enterprises & Co.,
Inc.

EXPLANATION:

Letter C is the correct answer because an auditor who seeks assurance that all tuition
revenue has been recorded should perform substantive procedures such as tests of details and
substantive analytical procedures. For example, the auditor may obtain analytical evidence by
comparing business office revenue records with registrar’s office records of students enrolled.
On the other hand, Answers A and B are incorrect because confirming tuition payments with the
students and preparing year-end bank reconciliation will not detect unrecorded stolen cash
receipts. Answer D is also incorrect because observing tuition payment procedures is a test of
controls and does not provide evidence about the completeness of the revenue account.

4. I: Donations to certified non-governmental organizations (NGOs) shall not be deductible in

full.
II: Donations to all other certified private nonstock, non-profit organizations are entitled to
the 6% limited deduction.

a) Only I is true

b) Only II is true

c) Both are true

 d) Both are false

ANSWER: D
(Self-Constructed Question)
EXPLANATION:
The first statement is false because donations to certified non-governmental organizations
(NGOs) shall be deductible in full. In the case of an accredited NGO, donations are deductible
in full, subject to additional restrictions (Revenue Regulation No. 13-98 Section 3(b)), for
example, to qualify to receive fully deductible donations, an accredited NGO cannot devote more
than 30 percent of its total expenses for the taxable year to administrative expenses (Revenue
Regulation No. 13-98 Section 1(b)(ii)). On the other hand, the second statement is also false
because donations to all other certified private nonstock, non-profit organizations are entitled to
the 5% limited deduction not 6% limited deduction (Sec. 34 (H), Tax Reform Act of 1997).
Source: Frequently Asked Questions on PCNC. Retrieved May 13, 2021 from
https://www.ombudsman.gov.ph/UNDP4/wp-content/uploads/2012/12/Frequently-Asked-
Questions.pdf
Legal framework governing nonprofit organizations in the Philippines. Retrieved May 13, 2021
from https://www.cof.org/country-notes/nonprofit-law-philippines

5. All certified non-stock, non-profit corporations/NGOs are required to issue a ______________

on every donation or gift they receive.

ANSWER: Certificate of Donation (BIR Form 2322)

EXPLANATION
All certified non-stock non-profit corporations/NGOs are required to issue a certificate
of donation (BIR Form 2322) on every donation or gift they receive. Such certificate shall be
accomplished by the said certified nonstock non-profit organization/NGO in triplicate and
distributed within 30 days after the receipt of the donation. (Sec. 3, Rev. Regulation 13-98)
Refusal to issue the Certificate of Donation can be a ground for revocation by the donor of the
donation. Furthermore, such refusal being a violation of the provisions of the law warrants
PCNC’s canceling the organization’s certification and revocation of the BIR’s Certificate of
Registration.
Source: Frequently Asked Questions on PCNC. Retrieved May 13, 2021 from
https://www.ombudsman.gov.ph/UNDP4/wp-content/uploads/2012/12/Frequently-Asked-
Questions.pdf
3. Donations are one of the main source of collections of educational institutions. Donations that
are contained in a testamentary will and made effective at the time of the testator’s death are
subject to the laws on succession (testamentary) and are accordingly, subject to
a) Donors Tax
b) Percentage Tax
c) Estate Tax
d) Property Tax
ANSWER: C
EXPLANATION:
Letter C is the correct answer because donations that are contained in a testamentary will
and made effective at the time of the testator’s death are subject to the laws on succession
(testamentary) and are accordingly subject to estate taxes. Testamentary succession is that which
results from the designation of an heir, made in a will executed in the form prescribed by law
(Art. 779, Civil Code). Estate Tax is a tax on the right of the deceased person to transmit his/her
estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which
are made by law as equivalent to testamentary disposition. It is not a tax on property. It is a tax
imposed on the privilege of transmitting property upon the death of the owner. The Estate Tax is
based on the laws in force at the time of death notwithstanding the postponement of the actual
possession or enjoyment of the estate by the beneficiary.
Source: Frequently Asked Questions on PCNC. Retrieved May 13, 2021 from
https://www.ombudsman.gov.ph/UNDP4/wp-content/uploads/2012/12/Frequently-Asked-
Questions.pdf
Bureau of Internal Revenue. Retrieved May 13, 2021 from
https://www.bir.gov.ph/index.php/tax-information/estate-tax.html

5.