AACAP1 2021-2022 1SEM MIDTERM

WEEK 1

1. The auditor should conduct an audit in accordance with 

Generally accepted accounting principles
National Internal Revenue Code
Philippine Standards on Auditing
Labor Code of the Philippines

2. Objectives of an audit DOES NOT include

To obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or error.
To determine whether a client complies with government policies and
regulations.
For the auditor to express an opinion on whether the financial statements are
prepared, in all material respects, in accordance with an applicable financial
reporting framework.
To report on the financial statements, and communicate as required by the
PSAs, in accordance with the auditor's findings.
3. The purpose of an audit are the following EXCEPT
To enhance the degree of confidence of intended users in the financial
statements.
An audit conducted with PSAs and relevant ethical requirements enables the
auditor to form an opinion.
To apply the Framework in the context of an audit of financial statements.
This is achieved by  the expression of an opinion by the auditor on  whether the
financial statements are prepared, in all material respects, in accordance with an
applicable financial reporting framework.
4. Refers to the audit procedures deemed necessary in the circumstances to
achieve the objectives of the audit.
Generally accepted accounting principles
Scope of an audit
Code of ethics
Quality control
5. A concept relating to the accumulation of the audit evidence necessary for the
auditor to conclude that there are no material misstatements in the financial
statements taken as a whole and relates to the whole audit process.
No assurance
Absolute assurance
Moderate assurance
Reasonable assurance
6. Inherent limitations in an audit affect the auditor’s ability to detect material
misstatements. These limitations result from factors such as the following BUT
DOES NOT include
The use of testing
 The inherent limitations of internal control (for example, the possibility of
management override or collusion).
Performance of 100% audit of supporting documents.
The fact that most audit evidence is persuasive rather than conclusive.
7. The risk that the auditor expresses an inappropriate audit opinion when the
financial statements are materially misstated is known as
Audit risk
Business risk
Inherent risk
Detection risk
8. _________________ is an audit approach that begins with an assessment of the
types and likelihood of misstatements in account balance and then adjusts the
amount and type of audit work, to the likelihood of material misstatements
occurring in account balances.
Risk reporting
Risk response
Risk assessment
Risk-based audit approach 
9. In risk assessment, the following are performed EXCEPT
Evaluating the audit evidence obtained to determine what additional audit
work (if any) is required.
Performance of preliminary engagement activities to decide whether to
accept/continue an audit engagement.
Planning the audit to develop an overall audit strategy and audit plan.
Performance of risk assessment procedures to identify/assess risk of material
misstatement through understanding the entity.
10. _______________ is a business or fraud risk factor that, if actually occurred,
would adversely affect the entity’s ability to achieve its objective of preparing
financial statements that do not contain material misstatements resulting from
error or fraud.
An event
A circumstance
A transaction
A risk

WEEK 2
11. The components of audit risk are the following EXCEPT
Engagement risk
Financial reporting risk
Business risk
Control risk
12. The economic risk that a CPA Firm is exposed to simply because it is associated
with a particular client including loss of reputation, inability of the client to pay the
auditor, or financial loss because management is not honest and inhibits the
audit process and is controlled by careful selection and retention of clients.
Engagement risk
 Financial reporting risk
Business risk
Audit risk
13. There are considerations important in integrating the concepts of materiality and
risk in the conduct of a risk-based audit which include.
Auditors need not develop approaches and methodologies to allocate
assessments of materiality to individual account balances because some account
balances may be more important to users.
Audits involve 100% assurance that the financial statements are free of material
misstatements without inordinately driving up the cost of audits.
All clients are worth accepting. Since audits rely on testing and to some extent on
the integrity of management, there are some clients that an audit firm should not
accept because the engagement risk is too high.
Auditors should understand society’s expectations of financial reporting to
reduce audit risk to an acceptably low level and therefore minimize
lawsuits that the users may possibly bring forth.
14. “Did the events identified occur and result in a material misstatement in the
financial statements?” refers to what stage of the risk-based audit process?
Risk identification
Risk assessment
Risk response
Reporting
15. It is the initial susceptibility of a transaction or accounting adjustment to be
recorded in error, or for the transaction not to be recorded in the absence of
internal controls.
Control risk
Detection risk
Inherent risk
Engagement risk
16. Effective internal control and a low likelihood of misstatement would lead to
extensive audit work to maintain audit risk at an acceptable level.
True
False
17. A factor to consider in implementing the audit risk model include
Low-risk activities
Existence of large routine transactions
Matters requiring opinion or management risk
Potential for fraud
18. _________ is the intentional and deliberately concealment of material
misstatement 
Error
Fraud
Intervention
Assessment
19. Identified significant related party transactions outside the entity’s normal course
of business are to be treated as giving rise to significant risks. This includes
infrequent and large transactions. Examples DOES NOT include:
Unusual volume of routine transactions with a related party.
A major sales or supply contract;
The purchase or sale of major business assets or business segments.
Purchase of the business to a third party.
20. A limitation of the audit-risk model is that
Inherent risk is easy to formally assess. 
Some transactions because of their complexity are not susceptible to error but it
is quite difficult to assess that level of risk independent of the client’s accounting
system.
It is not difficult to separate a client’s material controls and inherent risk.
Auditing is based on testing and precise estimates of the model’s
components are not possible. 
Auditors can make objective assessments and use the audit risk model as a
guide.
21.  A concept used to express uncertainty about events and/or their outcomes that
could have a material effect on the organization.
A risk
An event
A transaction
A circumstance
22. Those risks that relate directly to the recording of transactions and the
presentation of financial data in an organization’s financial statements.
Financial Reporting Risk
Business Risk
Audit Engagement Risk
Significant Risk
23. Operations or events where a material misstatement could easily occur.
Potential for fraud
Matters requiring judgment or management intervention
Existence of large non-routine transactions
High risk activities
24. Which of the following statements is INCORRECT?
Competition for clients among audit firms is high.
All clients are worth accepting.
Risky areas of a business must be identified by the auditors.
Audits involve testing or sampling and thus cannot provide absolute (100%)
assurance.
25. Matters requiring judgment or management intervention DOES NOT
INCLUDE
The assumption and calculation used by management in developing major
estimates.
Unusual volume of routine transactions with a related party.
Complex calculations or accounting principles.
 Where management intervention is required to specify the accounting treatment
to be used.
26. Which of the following business characteristics is not indicative of high inherent
risk?
Operating results that are highly sensitive to economic factors.
Large likely misstatements detected in prior audits.
Substantial turnover of management.
A large amount of assets.
27. Analytical procedures are most likely to detect:
Weaknesses of a material nature in internal control.
Unusual transactions.
Noncompliance with prescribed control activities.
Improper separation of accounting and other financial duties.

28. Routine non-complex transactions that are subject to systematic processing are
less likely to give rise to
significant risks
fraud
error
control risk
29. Audit risk refers to the possibility that the auditors may unknowingly fail to
appropriately modify their opinion on financial statements that are materially or
immaterially misstated
False
30. Absent any other changes, an increase in the risk of material misstatement
results in an increase in audit risk.
True

WEEK 3
31. Before accepting a new client, most CPA firms investigate the company to determine its
acceptability in the following aspects EXCEPT
financial stability 
the design of its internal control
relations with its previous CPA firm
the prospective client’s standing in the business community
32. A more extensive investigation about a prospective client is appropriate when 
there has been no previous auditor
when a predecessor auditor provide the desired information
if there is no indication of a problem arises from the communication.
All of the choices necessitates an extensive investigation about a prospective client.
33. Some CPA firms normally accept clients in certain high-risk industries e.g. savings and
loans, health and casualty insurance companies and continue auditing existing clients in
those industries.
False
34. Which of the following statements is CORRECT?
If the client files a lawsuit against a CPA firm or vice versa, the firm can do the audit.
An external audit firm should not undertake an engagement that is not qualified to
handle.
 The firm does not obtain the agreement of management that it acknowledges and
understand its responsibility
For prospective clients that have been audited by another CPA firm, the predecessor
auditor should make an effort to communicate with the new/successor auditor.
35. If the auditor obtains information that would have caused the firm to decline the audit
engagement had that information been available earlier, the engagement partner shall 
Write a letter to the client informing them of the discontinuation of the engagement.
Reprimand the auditor who performed the audit because he was not able to gather
sufficient appropriate information about the client.
Communicate that information promptly to the firm, so that the firm and the
engagement partner can take the necessary actions.
Disregard the agreement and never communicate to the client anymore.
36. Strict client acceptance/continuance guidelines should be established to screen out the
following clients but does NOT include
Clients that are in financial and/or organisational difficulty 
Clients that constitute a disproportionate percentage of the firm’s total practice
Disreputable clients 
Clients that offer a reasonably low fee for the auditor’s services.
37. Which of the following statements is CORRECT?
Investigation of new clients and reevaluation of existing ones is an essential part of
deciding acceptable audit risk.
Even if the engagement is profitable, the risk may exceed the short-term benefits of
doing the audit.
Even when a prospective client has been audited by another CPA firm, other
investigations are often made.
For prospective clients that have previously been audited by another CPA firm,
the predecessor auditor should endeavor to communicate with the successor
auditor. 
38. More extensive investigation is appropriate when there has been a previous auditor,
when a predecessor auditor will not provide the desired information, or if any indication
of a problem arises from the communication.
False
39. Knowing if the management have a poor attitude toward internal control and an
aggressive attitude toward interpretation of accounting standards should answer the
question 
Can the client be trusted?
Is the firm/staff independent and free from conflict?
Are the engagement risks acceptable to the firm?
Does the firm have the competence, resources and time required?
40. As required by PSA, the auditor shall decline the engagement in the following cases
EXCEPT
Client impose a scope limitation e.g. unrealistic deadlines
Where management does not acknowledge its responsibilities or agree to provide
written representations.
Where the client has agreed to sell one of its underperforming business units.
Where the financial reporting framework is not acceptable unless required by laws or
regulation in the following circumstances.
41. The purpose of why an incoming auditor should endeavor to communicate with the
predecessor auditor who previously audited the financial statements of the prospective
client is to 
Help the successful auditor evaluate whether to accept the engagement.
 Know if the prospective client has paid the audit fees of the predecessor auditor.
Seek help in case the successful auditor encounters difficulties in the incoming audit.
Learn the business of the prospective client.
42. Which circumstances do NOT violate the Code of Ethics for professional Conduct rules
on independence?
If the client files a lawsuit against a CPA
If the CPA files a lawsuit against the client
The successor auditor was permitted to communicate with the predecessor
auditor by the prospective client.
If there are unpaid fees for services performed more than one year previously, and the
CPA firm audited the current year audit.
43. Factors that an auditor should NOT be considered prior to accepting an engagement
Client’s integrity
Capability of client to pay the audit fees
Can comply with relevant ethical requirements
Competence and capabilities of the engagement team
44. As required by PSA, the auditor shall decline the engagement EXCEPT
 Where management does not acknowledge its responsibilities or agree to provide
written representations because the auditor will not be able to obtain sufficient
appropriate audit evidence
Where the client did not permit the predecessor auditor to communicate with the
successor auditor with just cause.
Where the financial reporting framework is not acceptable unless required by laws or
regulation in the following circumstances.
Client impose a scope limitation e.g. Denial of access to a facility, key personnel, or
relevant documents
45. Which of the following statements is INCORRECT?
Before accepting a new client, most CPA firms investigate the company to
determine its acceptability.
Audit risk set at 5% implies that the auditor is not willing to take a 5% chance of
issuing an unqualified opinion on materially misstated financial statements. 
Inherent risk is the possibility of material misstatement before considering the
client’s internal control.
The better the company’s internal control, the lower the likelihood of material
misstatement.

WEEK 4
46. This involves developing an overall strategy for the expected conduct and scope
of the examination; the nature, extent and timing of which vary with the size,
complexity and experience with and knowledge of the entity.
Audit program
Audit planning
Audit procedure
Audit working paper
47. The concept of materiality will be least important to the CPA in determining
Scope of the audit of specific accounts.
Specific transactions that should be reviewed.
Effects of audit exceptions upon the opinion.
 Effects of the CPA’s direct financial interest in a client upon his or her
independence.
48. Which of the following is not normally performed in the planning stage of the
audit?
Develop an overall audit strategy.
Request that bank balances be confirmed.
Schedule engagement audit staff and audit specialists.
Identify the client’s reason for the audit.
49. Which of the following procedures would a CPA ordinarily perform during audit
planning?
Obtain understanding of the client's business and industry.
Review the client’s bank reconciliation.
Obtain client’s representation letter.
Review and evaluate client’s internal control.
50. In planning the audit engagement, the auditor should consider each of the
following except
The entity’s financial reporting framework
Anticipated levels of control risk and materiality
The kind of opinion that is likely to be expressed.
Matters relating to the entity’s business and the industries in which it operates.
51. Which of the following statements is CORRECT?
Audit planning involves the establishment of the overall audit strategy for the
engagement.
Planning involves the engagement partner and managers only.
The nature and extent of planning activities is always the same regardless of the
size and complexity of the entity.
Planning is a continuous and iterative process.
52. The nature and extent of planning activities will vary according to the following
but does not include
size and complexity of the entity
previous year’s working papers 
the auditor’s previous experience with the entity,  
changes in circumstances that occur during the audit engagement.
53. In developing the overall audit plan for a new client, factor not to be considered is
Materiality levels.
The amount of estimated audit fee.
The audit risks and procedures to be performed to achieve audit objectives.
The client’s business, including the structure of the organization and accounting system
used.
54. Edison Corporation has a few large accounts receivable that total P1,400,000. Victor
Corporation has a great number of small accounts receivable that total P1,400,000. The
importance of a misstatement in any one account is therefore greater for Edison than for
Victor.  This is an example of the auditor’s concept of
Materiality
Comparative analysis
Reasonable assurance
Relative risk
55. A CPA is conducting the first examination of a client’s financial statements.  The
CPA hopes to reduce the audit work by consulting with the predecessor auditor
and reviewing the predecessor auditor’s working papers.  This procedure is
Acceptable if the client and the predecessor auditor agree to it.
Acceptable if the CPA refers in the audit report to reliance upon the predecessor
auditor’s work.
Required if the CPA is to render an unmodified opinion.
Unacceptable because the CPA should bring an independent viewpoint to a new
engagement.
56. Which of the following should the auditors obtain from the predecessor auditors before
accepting an audit engagement?
Analysis of balance sheet accounts.
Analysis of income statement accounts.
All matters of continuing accounting significance.
Facts that might bear in the integrity of management.
57. Benefits of audit planning does NOT include
It aids in identifying potential problems and resolving them on a timely basis.
It helps ensure that the audit is properly organized, managed and performed in
an effective and efficient manner.
It assists in the proper assignment and review of the work of the
engagement partners.
It helps coordinate the work to be done by auditors of components and other
parties involved such as experts, specialists, etc.
58. Prior to beginning the field work on a new audit engagement in which a CPA does not
possess expertise in the industry in which the client operates, the CPA should 
Reduce audit risk by lowering the preliminary levels of materiality.
Design special substantive tests to compensate for the lack of industry expertise.
Engage financial experts  familiar with the nature of the industry.
Obtain a knowledge of matters that relate to the nature of the entity’s business.
59. Performance materiality is the term used to indicate materiality at the
Balance sheet level
Account balance level
Income statement level
Company wide level
60. In planning the audit, the auditor should assess materiality at two levels
The preliminary level and the final level
The company level and the divisional level
The account balance level and the detailed item level.
The financial statement level and the account balance level.
61. Jem Corporation has a few large accounts receivable that total one million pesos
whereas Moshe Corporation has many small accounts receivable that total one
million pesos. Misstatement in any one account is more significant for Jem
Corporation because of the concept of
Materiality
Audit risk
Reasonable assurance
Comparative analysis
 62. The auditor should read all contracts having an impact on the current year and
also review information relating to prior years.  This is to have an information on
the
Client’s legal obligations
Preparation of a time budget
Assessment of going concern assumption
Establishment of an engagement or audit team
63. The relationship between materiality and `risk is ordinarily 
Direct
Parallel
Inverse
None
64. The concept of materiality
Applies only to publicly held firms
Has greater application to the standards of reporting than the other generally
accepted auditing standards.
Requires that relatively more effort be directed to those assertions that are more
susceptible to misstatement.
Provides a quantitative threshold or cut-off point which information must
have to be useful.
65. Which of the following elements ultimately determines the specific auditing
procedures that are necessary in the circumstances to afford a reasonable basis
for an opinion?
Auditor judgment
Materiality
Inherent risk
Reasonable assurance

WEEK 5

66. The objective of the risk assessment phase of the audit DOES NOT include
To identify sources of risk
To obtain understanding of the business and its environment.
To assess whether they could possibly result in a material misstatement in the financial
statements.
To identify information needed to direct audit effort to areas where the risk of material
misstatement is the highest and away from less risky areas is identified.
67. A risk phase that determines the significance of each risk identified
Risk identification
Risk assessment 
Control design
Risk management
68. Sources of risk are as follows EXCEPT
Accounting policies
External control
Performance indicators
Entity objectives and strategies
69. The steps in identifying inherent risk factors are
 Gather Basic Information about the Entity; Relate or Map the Risks Identified to Material
Financial Statement Areas; Design, Perform and Document Risk Assessment
Procedures
Gather Basic Information about the Entity; Design, Perform and Document Risk
Assessment Procedures; Relate or Map the Risks Identified to Material Financial
Statement Areas
Relate or Map the Risks Identified to Material Financial Statement Areas; Design; Gather
Basic Information about the Entity; Perform and Document Risk Assessment Procedures
Gather Basic Information about the Entity; Redesign, Reperform and Document Risk
Assessment Procedures; Relate or Map the Risks Identified to Material Financial
Statement Areas
70. When gathering basic information about the entity external sources of non
financial information will NOT include
Trade association data
Industry forecasts
Government agencies
Job descriptions
71. Relates to events or conditions that indicate an incentive or pressure to commit fraud or
provide an opportunity to commit fraud.
Fraud
Fraud risk factors
Rationalization
Incentives or Pressures
72. The fraud triangle includes the following conditions
Incentives, assessment, design
rationalization, pressure, opportunity
control, assessment, rationalization
Expectations, rationalization, performance
73. Failure to use measures to improve operations or take corrective action may lead to
fraud risk in
Entity objectives and strategies
Accounting policies
Performance indicators
External factors
74. When the management has a known history of violations of laws and regulations, or
allegations of fraud there will be a risk on
Attitudes
Opportunities
Rationalization
Incentives  or pressures
75. When risk are brought about by deliberate sabotage of an entity’s products or services
the risk’s source is from
Internal factors
Performance indicators
External factors
Internal control
76. Examples of significant risks are the following EXCEPT
Potential for fraud
High-risks activities
Large routine transactions
Matters requiring judgment or management intervention
 77. Responding to significant risks include
Evaluate internal control design and implementation over existence of significant risk.
Design an audit assessment to the identified significant risks.
No reliance can be placed on evidence obtained in the previous period.
Substantive analytical procedures and tests of control be done.
78. When estimating the significance of the risks the auditor is concerned with
Risk assessment
Information Technology
Control Activities
Control environment
79. When there is inadequate management oversight of day-to-day operations, there will be
a risk on
Internal control
External factors
Accounting policies
Entity objectives and strategies
80. The question “Do the controls exist and is the entity using them?” addresses the step on
Control Implementation
Control Documentation  
Control Design
Risk Identification

Stephanie Santos, CPA, is considering audit risk at the financial statement level in planning the
audit of X Lhuiller Jewelry Shop’s financial statements for the year ended December 31, 20X1.
Audit risk at the financial statement level is influenced by the risks of material misstatements
(including fraud risks), which may be indicated by a combination of factors related to
management, the environment, and the entity.  For each of the following factors, indicate
whether it increases or decreases the risk of material misstatement and (2) whether it creates a
risk of fraud. Each factor is independent of each other.

a. Management has established procedures to prevent unauthorized access to entity’s

vault where the jewelries are kept. D/N
b. Due to frequent lockdowns, sales declined and there is an anticipated future employee
layoffs to prevent more losses is to be implemented very soon. I/Y
c. To improve the inventory system of X Lhuiller Jewelry Shop’s, a new complex
accounting system has been installed where custodian are to take extensive training to cope up
with the new system. I/N
d. President of X Lhuiller Jewelry Shop removes the incentives usually given to sales
personnel. At present staff are compensated and rewarded for good performance. D/N
e. Employees are always disciplined for improper behavior. D/N

Increase
Decrease
Yes
No
WEEK 10-11

71. The expenditure cycle in major classes of transaction in a manufacturing firm

include

Acquisition of goods and services

Cash disbursements

Inventory warehousing transactions

Purchase returns and allowances and purchase discounts

72. In acquisition, the accounts includes all of the following except

Property, plant & equip.

Leasehold improvements

Manufacturing expenses

Accounts receivable
73. A Vendor’s statement is significant because it

provides evidence about a purchase of goods or services.

provides documentation or the recording of a transaction.

provides evidence that goods were received.

is used to determine that all transactions recorded on the statements have

been recorded in the books.
74. A possible misstatement in the purchase of an inventory

Overcount inventory

Not record purchases or recording it at a later date

Not write-off or write down obsolete inventory

Recording at too low an amount

75. Examples of fraud in the acquisition and payment cycle doe not include

Employee schemes involving fictitious vendors as means to transfer payments to

themselves.

Executives using travel and entertainment accounts and charging them as

company expenses.
 Large manual adjustments to inventory accounts

Schemes to classify expenses as assets.

76. The expenditure cycle in major classes of transaction in a trading concern does
NOT include

Acquisition of goods and services

Production cycle transactions

Cash disbursements

Purchase returns and allowances and purchase discounts

77. The accounts affected by the expenditure cycle does not include

Accounts and notes payable - trade

Cash in bank

Inventories

Sales
78. A business function for the acquisition and payment cycle are all of the following
EXCEPT

Recognizing the liability

Processing purchase orders

Processing and recording cash receipts

Receiving goods and services

79. A document that indicates the description and quantity of goods and services
received, price, including freight, cash discount terms, and date of the billing.

Purchase requisitions

Vendor’s statement

Vendor’s invoice

Debit Memo
80. A voucher’s significance is that it
provides evidence about a purchase of goods or services.
provides documentation or the recording of a transaction.
provides evidence that goods were received.
is used to determine that all transactions recorded on the statements have been
recorded in the books.
81. A prenumbered document recording the description, quantity, and related information for
goods and services the company intends to purchase. This document is frequently used to
indicate authorization to procure goods and services.
Receiving report
Vendor’s invoice
Purchase order
Purchase requisition

82. For high risk, the auditor will want to obtain a great deal of evidence directly from
tests of details. In contrast, suppose the auditor has assessed a client that the risk of
material misstatement related to the existence of inventory is low because he believes
that the client has implemented effective controls in this area.

True

83. In relation to #___, for this client, the auditor will likely perform tests of controls,
gain a high level of assurance from substantive analytical procedures such as
reasonableness tests, and then complete the substantive procedures by tests of details
on an extensive level.

False

84. Inventory approach based on calculating an optimal order size to minimize the sum
of ordering, carrying, and stockout costs.
Reorder level point
Economic order quantity
Just-in-time
Ordering costs
85. If the retailer believes the goods sent from the vendor are UNacceptable, the retailer
will return the goods to the vendor. What form will the vendor issue for the returned
goods?
Vendor’s statement
Debit memo
Vendor’s invoice
Receiving report

Items A through O represents possible errors and fraud that you suspect may be
present at Rex Company.The accompanying List Of Audit Procedures represents
procedures that the auditor would consider performing to gather evidence concerning
possible errors and fraud. For each item, select only ONE that the auditor most likely
would perform to gather evidence in support of them.The procedures on the list may be
selected once, more than once, or not at all.

LIST OF AUDIT PROCEDURES

 A. Compare the details of the cash
receipt journal entries with the
details of the corresponding
deposit slips.
B. Scan the debits to the fixed asset
accounts and vouch selected
amounts to the vendor's invoice
and management authorization.
C. Perform analytical procedures that
compare documented authorized
pay rates to the entity's budget and
forecast.
D. Obtain the cutoff bank statement
and compare the cleared checks to
the year end bank reconciliation.
E. Prepare a bank transfer schedule.
F. Inspect the entity's deeds to the
real estate.
G. Make inquiries of the entity's
lawyer concerning the details of
real estate transactions.
H. Confirm the terms of borrowing
arrangements with the vendor.
I. Examine selected equipment
repair orders and supporting
documentation to determine the
propriety of the charges.
J. Send requests to confirm the
entity’s accounts receivable on a
surprise basis at an interim date.
K. Send a second request for
confirmation of the receivable to
the customer and make inquiries of
a reputable credit agency
concerning the customer's
creditworthiness.
Possible Misstatements Due to Fraud
a. The entity borrowed funds from financial institutions. Although the transaction
was properly recorded,the auditor suspects that the loan created a lien on the
entity's real estate that is not disclosed in its financial statement. (Select only 1
procedure.) H
L. Examine the entity’s shipping
documents to verify that the
merchandise that produced the
receivable was actually sent to the
customer.
M. Inspect the entity's
correspondence files for indication
of customer disputes for evidence
that certain shipments were on
consignment.
N. Perform edit checks of data on the
payroll transaction tapes.
O. Inspect payroll check
endorsements for similar
handwriting.
P. Observe payroll check distribution
on a surprise basis.
Q. Vouch the data in the payroll
register to documented authorized
pay rates in human resources
department’s files.
R. Reconcile the payroll checking
account and determine if there
were unusual time lags between
the issuance and payment of
payroll checks.
S. Inspect the file of prenumbered
vouchers for consecutive
numbering and proper approval by
appropriate employees.
T. Determine that the details of
selected pre numbered vouchers
match the related vendors
invoices.
U. Examine the supporting purchase
orders and receiving reports for
selected paid vouchers.
b. It is the entity’s policy to deposit collections immediately or during the day.
Collections that reach the company after 1pm are deposited the following day. A
c. The auditor suspects that fictitious employees have been placed on the payroll
by the entity's payroll supervisor, who has access to payroll records and to the
paychecks. (Select only 1 procedure.) P
d. The auditor suspects that selected employees of the entity received unauthorized
raises from the entity’s payroll supervisor, who has access to payroll records.
(Select only 1 procedure.) Q
e. The entity’s cash receipts of the first few days of the subsequent year were
properly deposited in its general operating account after the year-end. However,
the auditor suspects that the entity recorded the cash receipts in its books during
the last week of the year under audit. (Select only 1 procedure.) A
f. The auditor suspects that vouchers were prepared and processed by an
accounting department employee for merchandise that was neither ordered nor
received by the entity. (Select only 1 procedure.) U
g. The auditor wants to know if all real estate acquisitions are in the name of the entity. F
h. The details of invoices for equipment repairs were not clearly identified or
explained to the accounting department employees.The auditor suspects that the
bookkeeper incorrectly recorded the repairs as fixed assets. (Select only 1
procedure.) B
i. The auditor noted that the company is paying suppliers even though the vendor’s
invoices are just photocopies which the company may pay for deliveries that do
not match the receiving report. T
j. The auditor is interested to know how the current salaries of the company’s employees
increased/decreased with what company has budgeted. C
k. The auditor suspects that vouchers are not completely recorded because
management wants to declare high income by understating their expenses which
in some does not bear proper approval. S
l. The auditor noticed that repairs for the year seemed to increase significantly. I
m. The auditor suspects that a kiting scheme exists because an accounting
department employee who can issue and record checks seems to be leading an
unusually luxurious lifestyle. (Select only 1 procedure.) E
n. The auditor suspects that gifts are given by suppliers to purchasing agents for
the purpose of influencing their choice of suppliers. T
o. The auditor noted a certain customer with an unpaid account for more than 3
years which was confirmed but did not reply. The client prepared a write-off for
this client. K