Theories Cash - Ppe

PHILIPPINE CHRISTIAN UNIVERSITY
College of Business Administration and Accountancy
FUNDAMENTALS OF AUDITING AND ASSURANCE SERVICES
1. The framework for assurance engagements identifies engagement to which the following
standards apply, except,
a. Philippine Standards on Auditing (PSAs)
b. Philippine Standards on Review Engagements (PSREs)
c. Philippine Standards on Assurance Engagements (PSAEs)
d. Philippine Standards on Related Services (PSRSs)
2. Which is correct concerning the framework for assurance engagements?
a. It provides a frame of reference against which audit engagements are evaluated
b. It establishes specific guidelines and procedural requirements for the performance
of assurance engagements
c. It provides a frame of reference for accountants in public practice when performing
assurance engagements
d. It is intended for reference of public accountants only
3. Which is an engagement in which a practitioner expresses a conclusion designed to

enhance the degree of confidence of the intended users other than the responsible party
about the outcome of the evaluation or measurement of a subject matter against criteria?
a. Assurance engagement
b. Audit engagement
c. Attestation engagement
d. Management consulting engagement
4. A criterion that is relevant

a. Contributes to conclusions that assist decision-making by the intended users.
b. Is sufficiently complete when relevant factors that could affect the conclusions in
the context of the engagement circumstances are not omitted. Complete criteria
include, where relevant, benchmarks for presentation and disclosure
c. Allows reasonably consistent evaluation or measurement of the subject matter
including, where relevant, presentation and disclosure, when used in similar
circumstances by similarly qualified practitioners
d. Contributes to conclusions that are clear, comprehensive, and not subject to
significantly different interpretations
5. Evaluate the following reasons why a perfect level of assurance is not possible:
• The use of selective testing
• Much of the evidence available to the practitioner is conclusive rather than persuasive.
a. Both are true
b. True, false
c. Both are false
d. False, true
6. Which of the following procedures ordinarily performed during an audit are also
performed in a review engagement?
a. Assessment of accounting and internal control systems.
b. As if doing something (AIDS)
c. Tests of records and responses to inquiries.
d. Inquiry and analytical procedures.
7. This is the risk that the practitioner expresses an inappropriate conclusion when the
subject matter information is materially misstated.
a. Audit risk
b. Detection risk
c. Assurance engagement risk
d. Practitioner’s risk
8. Which of the following is true about non-assurance services?

a. Audit engagements are non-assurance services
b. Review engagements are non-assurance services
c. Non-assurance services lack one or more element(s) of an assurance engagement
d. All of the above are true about non-assurance services
9. In an engagement to perform agreed-upon procedures, an auditor is engaged to

a. Use accounting expertise as opposed to auditing expertise to collect, classify, and
summarize financial information.
b. Provide a moderate level of assurance that the information is free of material
misstatement.
c. Carry out those procedures of an audit to which the auditor and the entity and any
appropriate third parties have agreed and to report on factual findings.
d. Provide a high, but not absolute level of assurance that the information is free of
material misstatement.
10. Which of the following statements is true?

a. Having accepted an assurance engagement, a practitioner may not change that
engagement to a non-assurance engagement anytime the client requests for such
change.
b. Under no circumstance can a practitioner who has accepted an assurance
engagement may change that engagement to a non-assurance engagement, or
from a reasonable assurance engagement to a limited assurance engagement even
with reasonable justification.
c. Having accepted an assurance engagement, a practitioner may not change that
engagement to a non-assurance engagement without reasonable justification.
d. Having accepted an assurance engagement, a practitioner may change that
engagement to a non-assurance engagement without reasonable justification and
disregards evidence obtained prior to the change.
INTRODUCTION TO AUDITING
11. Which of the following statements refers to the definition of auditing?

a. A service activity which function is to provide quantitative information primarily
financial in nature about economic entities that is intended to be useful in making
economic decisions.
b. The art of recording, classifying and summarizing in a significant manner and in
terms of money, transactions and events which are in part at least of a financial
character and interpreting the results thereof.
c. The process of identifying, measuring and communicating economic information
to permit informed judgment and decisions by users of the information.
d. A systematic process of objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to ascertain the degree of
correspondence between these assertions and established criteria and
communicating the results thereof.
12. Which best describes the representations by management, explicit or otherwise, that are
embodied in the financial statements, as used by the auditor to consider the different types
of potential misstatements that may occur.
a. Financial statement assertions
b. Notes to the financial statements
c. Audit evidence
d. Disclosure requirements
13. Which is a type of audit is performed to determine whether an entity’s financial statements
are fairly presented in accordance with an identified financial reporting framework.
a. Financial statement audit
b. Compliance audit
c. Operational audit
d. Internal audit
e.
14. The results the auditor’s is communicated work through the medium of the:
a. Audit engagement letter.
b. Management letter.
c. Audit report.
d. Notes to the financial statements.
15. Financial statements need to be prepared in accordance with one, or a combination of:
a. PFRS
b. Other authoritative basis
c. IFRS
d. All of the answers.
16. To provide for the greatest degree of independence in performing internal auditing
functions, an internal auditor most likely should report to
a. Board of Directors.
b. Vice-President for Finance.
c. Corporate Controller
d. Corporate Stockholders.
17. An operating committee of a company's board of directors that is in-charge of overseeing

financial reporting and disclosure.
a. Governance
b. Audit committee
c. Control environment
d. Management
18. This type of activity is a subset of internal audit that attempts to measure the effectiveness
with which an organizational unit is administered.
a. Economy and efficiency audit
b. Management audit
c. Financial audit
d. Compliance audit
19. In government auditing, the three elements of expanded scope auditing are:
a. Goal analysis, audit of operations, audit of systems.
b. Financial and compliance, economy and efficiency, program results.
c. Pre-audit, post-audit, internal audit.
d. National government audit, local government audit, corporation audit.
20. An audit designed to determine the extent to which the desired results of an activity
established by the legislative or other authorizing body are being achieved.
a. Economy audit
b. Program results audit
c. Efficiency audit
d. Financial-related audit
FINANCIAL AUDIT OVERVIEW
21. The general principles for conducting financial statement audits include the following,
except:
a. Compliance with the Code of Ethics for CPAs.
b. Compliance with Philippine Standards on Auditing.
c. Planning and performing the audit with an attitude of professional skepticism.
d. Reporting on internal control weaknesses noted in the course of performing the
audit.
22. Philippine Standards on Auditing (PSAs) should be looked upon practitioners as:
a. Ideals to strive for, but which are not achievable.
b. Maximum standards which denote excellent work.
c. Benchmark to be used on all audits, reviews, and compilations.
d. Minimum standards of performance which must be achieved on each audit
engagement.
23. Because an examination in accordance with PSAs is influenced by the possibility of material
errors, the auditor should conduct the examination with an attitude of:
a. Professional responsiveness.
b. Conservative advocacy.
c. Objective judgment.
d. Professional skepticism.
24. Identify the concept: “A client’s financial statements may be materially false and/or
misleading.”
a. Business risk.
b. Information risk.
c. Client risk.
d. Risk assessment.
25. An audit has inherent limitations that affect the auditor’s ability to detect material
misstatements. Which of the following is among the factors that result to these inherent
limitations?
a. Use of testing.
b. Inherent limitations of accounting and internal control system.
c. Evidence that is basically persuasive rather than conclusive.
d. All of the choices properly describe factors that result to inherent limitations of
audits.
FINANCIAL AUDIT PROCESS – AUDIT PLANNING
26. Which of the following procedures would an Auditor least likely perform during the
planning stage of the audit?
a. Determine the timing of testing
b. Take a tour of the client’s facilities

c. Perform inquiries of outside legal counsel regarding pending litigation
d. Determine the effect of information technology on the audit
27. A person or firm possessing special skill, knowledge and experience in a particular field
excluding accounting and auditing.
a. Expert.
b. Quality control reviewer
c. Multiskilled personnel
d. Taxation specialist
28. The relationship between materiality and audit risk is:

a. Direct.
b. Inverse.
c. Indeterminable.
d. None of these.
e.
29. Analytical procedures used in planning an audit should focus on:
a. Reducing the scope of tests of controls and substantive tests
b. Providing assurance that potential material misstatements will be identified
c. Enhancing the auditor’s understanding of the client’s business
d. Assessing the adequacy of the available audit evidence
30. Which of the following is not typically included in initial audit planning?
a. Client acceptance/continuation decisions.
b. Determination of the purpose of the audit.
c. Obtain an understanding with the client.
d. Perform analytical procedures as substantive tests.
Substantive Test Cash and Cash Equivalents
1. Which of the following is the focus of an audit of cash for most companies?
a. General cash account
b. Payroll cash account
c. Petty cash account
d. Money market account
2. The test of details of balances procedure that requires the auditor to foot the outstanding
check list and deposits in transit is an attempt to satisfy which audit objective?
a. Cut-off
b. Presentation and disclosure
c. Detail tie-in
d. Completeness
3. Which of the following cycles does not affect cash in bank?

a. Capital acquisitions cycle
b. Inventory and warehousing
c. Payroll and personnel cycle
d. Acquisitions and disbursements
4. The audit objective of determining that cash in bank, as stated on the reconciliation, foots
correctly and agrees with the general ledger can be tested by which of the following
procedures?
a. Performing tests for kiting
b. Receiving and testing a cut-off bank statement
c. Footing the outstanding checks list and the list of deposits in transit
d. Examining the minutes of the board of directors for restrictions on the use of cash
5. Which of the following statements is correct?

a. Auditors must obtain bank confirmations at their discretion
b. Auditing standards do not address specific requirements regarding bank
confirmations
c. Auditing standards do not address specific requirements regarding bank
confirmations
d. Auditing standards do not require bank confirmations except when there are an
unusually large number of inactive bank accounts
6. Which of the following statements is correct?
a. Bank personnel are responsible for providing reasonable assurance that a response
to a bank confirmation is accurate
b. Bank personnel are responsible for providing complete assurance that a bank
confirmation is complete
c. Bank personnel are not responsible for searching their records for bank balances
or loans beyond
d. Bank personnel are nor responsible for providing information related to interest on
the bank confirmation
7. The general cash account is considered significant in almost all audits:

a. Where the ending balance is material
b. Even when the ending balance is immaterial
c. Except those of not-for-profit organizations
d. Where either the beginning or ending balance is material
8. Which of the following errors would be least likely to be discovered during the audit of the
acquisitions and payments cycle?
a. Duplicate payment of a vendor’s invoice
b. Improper payments of officers’ personal expenditures
c. Payment of interest to a related party for an amount in excess of the going rate
d. Payment for raw materials that were not received
9. Which of the following misstatements is most likely to be uncovered during an audit of a

client's bank reconciliation?
a. Duplicate payment of a vendor’s invoice
b. Billing a customer at a lower price than indicated by company policy
c. Failure to record a collection of a note receivable by the bank on the client’s behalf
d. Payment to an employee for more than the hours actually worked
10. Which of the following cycles does not affect cash in bank?
a. Capital acquisitions cycle
b. Inventory and warehousing
c. Payroll and personnel cycle
d. Acquisitions and disbursements
Basic Concepts of Financial Statement Audit
11. In financial statement audits , the audit process should conform with
a. The audit program
b. The auditor’s judgment
c. Philippine Standards on Auditing
d. Philippine Financial Reporting Standards
12. Which of the following quality control objectives would be least important to the auditor?
a. Determination of audit fee
b. Hiring personnel
c. Professional advancement
d. Review and supervision
13. While performing services for their clients, professionals have a duty to provide a level of
care which is
a. Free from judgment errors
b. Greater than average
c. Reasonable
d. Superior
14. The purpose of an engagement letter is to

a. Document the terms of engagement to writing in order to minimize understandings
b. Document the CPA firm S responsibility to external users of the audited financial
statements
c. Notify the audit staff of an upcoming engagement so that personnel scheduling can
be facilitated
d. None of the above
15. An extensive understanding of the client’s business and industry and knowledge about the
company’s operations are essential for doing an adequate audit. For a new client, most of
this information is obtained.
a. At the client’s premises
b. From the permanent file
c. From the predecessor auditors
d. From the Securities and Exchange Commission
16. Absence of reasonable care that can be expected of a person in a set of circumstances” is
the definition of
a. Constructive fraud
b. Fraud
c. Gross negligence
d. Ordinary negligence
17. The main purpose of implementing quality control policies and procedures is
a. To have a favorable peer review
b. To comply with regulatory agency
c. To standardize the policies and procedures of the audit firms
d. To provide reasonable assurance that audit will be conducted in accordance with
PSA
18. An audit of financial statements is conducted to determine whether the

a. Organization is operating efficiently and effectively
b. Entity is following specific procedures or rules set down by some higher authority
c. Members of the management team are fulfilling their fiduciary responsibilities to
shareholders
d. None of the above
19. The objective of an audit of financial statement is

a. To enable auditor to express an assurance that there is unassailed credibility of
financial statements
b. To enable the auditor to express an opinion whether the financial statements are
prepared, in all materials respects, in accordance with generally accepted auditing
standards
c. To enable the auditor to express an opinion whether the financial statements are
prepared, in all material respects, in accordance with an identified financial
reporting framework
d. To enable the auditor to state whether on the basis of procedures, anything has
come to the auditor’s attention that causes the auditor to believe that the financial
statements are not prepared in all material respects, in accordance with an
identified financial reporting framework
20. Which of the following is not one of the principal contents of an engagement letter?
a. Limitations of the engagement
b. Objectives of the financial statements
c. Unrestricted access to records and documents
d. Management’s responsibility for the financial statements
Corrections of Error
21. Failure to record the expired amount of prepaid rent expense would not
a. Understate expense
b. Overstate net income
c. Overstate owner’s equity
d. Understate liability
22. Failure to record accrued salaries at the end of an accounting period results in
a. Overstated retained earnings
b. Overstated assets
c. Overstated liabilities
d. Understated retained earnings
23. Failure to record depreciation expense at the end of an accounting period results in
a. Understated income
b. Understated assets
c. Overstated expenses
d. Overstated assets
24. Which of the following would cause income of the current period to be understated?
a. Capitalizing research and development cost
b. Failure to recognize unearned rent revenue
c. Changing from weighted average to FIFO for merchandise inventory
d. Understating estimate of residual value
25. Which of the following is a counterbalancing error?

a. Understated depletion expense
b. Bond premium under-amortized
c. Prepaid expense adjusted incorrectly
d. Overstated depreciation expense
26. Which of the following would cause oncome to be overstated in the period of occurrence?
a. Overestimating bad debt expense
b. Understating beginning inventory
c. Overstated purchases
d. Understated ending inventory
27. The responsibility for the detection and prevention of errors, fraud and noncompliance
with laws and regulations rests with
a. Auditor
b. Client’s legal counsel
c. Client management
d. Illegal acts
28. The term “error” refers to unintentional misrepresentation of financial information.

Examples are errors when
I. Assets have been misappropriated
II. Transactions without substance have been recorded
III. Records and documents have been manipulated and falsified
IV. The effects of the transaction have been omitted from the records
a. All of the above statements are true

b. Only statements I and III are true
c. All of the above statements are false
d. Only statement II and IV are true
29. Which of the following if discovered in the accounting period subsequent to the period of
occurrence, should be reported as correction of an error?
a. The estimate of useful life of a depreciable asset should have been revised
b. A change from double declining to straight line depreciation
c. Capitalization of an expense
d. Change in percentage of sales
30. What primarily differentiates fraud from an error

a. Materiality
b. Effect on misstatements
c. Intent
d. Frequency of occurrence
AUDITING
PROBLEM I
Mila Lim is the cashier of the Plaridel Glass Company. As representative of the Reyes,
Tan and Associates, CPA, you were assigned to verify her cash on hand in the morning
January 4, 20x7. You began to count at 9:00 A.M in the presence of Miss Lim. In the
course of your counting, you found currencies in paper bills and coins together with
checks, vouchers and other items, which are mentioned below:
Bills
2 fifties, 9 twenties, 13 tens
Coins
P 5.00 5 loose
1.00 74 loose
0.25 - 5 rolls and 32 loose (50 pieces to a roll)
Maker Date Payee Amount

Jose Cruz, Asst. Manager 12/23/X6 Plaridel Glass Co. P 60.00
Mila Lim, Cashier 12/26/X6 Plaridel Glass Co. 40.00
I.O.Us
A. David, Janitor 12/20/X6 P 35.00
R. Tirao, Clerk 12/22/X6 25.00
Pedro Munar, Bookkeeper 12/24/X6 15.00
Petty Cash Vouchers for Replenishment

Payee Date Account Charged Amount
L. Bilbao, Messenger 12/16/X6 Advances to Employees P10.00
Rosario & Co. 12/17/X6 Supplies 14.50
Victor Liner 12/18/X6 Freight-in 18.25
Bureau of Posts (stamps) 12/18/X6 Supplies 30.00
A. Vallo, Carpenter 12/20/X6 Repairs 45.00
B. Tello 12/21/X6 Miscellaneous Expense 15.40
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Your Investigation also disclosed the following:

1. The balance of petty cash fund per books is P900.
2. Cash sales of January 2, 20x7 amounted to P865 per sales records, while Cash
Receipts Book and Deposit slip showed that only P765 was deposited in the bank
on January 3, 20X7.
3. The following employees’ pay had been opened and the money removed. Each
envelope was marked “unclaimed”.
N. Roy P33.25
G. Gloria 24.75
Required:
1. Prepare working papers showing your cash count.
2. Prepare necessary adjusting journal entries without explanation in the books of
the company.
PROBLEM II
On your examination of the financial statements of Heroes Group Company for the year
ended December 31, 20X7 you obtained the following information on the checking
account of the company:
The bank statement on November 30,20X7 showed a balance of P15,300. Among the
bank credits in November was customer’s note for P5,000 collected for the account of the
company which the company recognized in December among its receipts. Including in
the bank debits were cost of checkbooks amounting to P60 and a P2,000 check which
was charged by the bank in error against Heroes Group Co. account. Also, In November
you ascertained that there were deposits in transit amounting to P4,000 and outstanding
checks totaling P8,500.
The bank statement for the month of December showed total credits of P20,800 and total
charges of P10,200. Company books for December showed total receipts of P36,780 and
disbursements of P20,360. Bank debit memos for December were: No. 4418 for service
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charges, P80 and No.4 on a customer’s returned check marked “Refer to Drawer” to
P1,200.
The bank error of P2,000 in November was corrected by the bank in December.
On December 29, 20X7 the company placed with the bank a customer’s promissory note
with a face value of P6,000 for collection. The company treated this note as part of its
receipts although the bank was able to collect on the note only in January,20X8.
A check for P198 was recorded in the company cash payments book in December as
P1,980.
Required:
1. Prepare a four (4) column bank reconciliation statement for the month of
December,20X7 for Heroes Group Co. Develop your reconciliation statement by
starting with bank balances and providing these balances per book balances.
2. Present a computation:
a. Deposit in transit, December 31,20x7.
b. Outstanding checks, December 31, 20x7.
PROBLEM III
The following information pertains to the cash of Rosal Company:
1.
July 31 August 31
Balance shown on a bank statement P 2,738 P 2,696
Balance shown in general ledger before
reconciling in the bank accounts 2,578 2,500
Outstanding Checks 863 1,015
Deposit in Transit 685 1,245
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2.
For August
Deposit shown on a bank statement P 5,588
Charges shown on a bank statement 5,630
Cash Receipts shown on company’s books 5,398
Cash payments shown on company’s books 5,476
3. The bank service charge was P18 in July (recorded by the company
during august) and P24 in August (not yet recorded by the company).
4. Included with the August bank statement was a check for P500 that had been
received on August 25 from a customer on account. The returned check, marked
“NSF” by the bank, has not yet been recorded on the company’s book.
5. During the August bank collected P750 of bonds interest for Rosal Company sand
credited the proceeds to the company’s account. The company earned the interest
during the current accounting period but has not yet recorded it.
6. During August, the company issued a check for P696 for equipment. The check,
which cleared the bank during August, was incorrectly recorded by the company
for P896.
Requirement: Prepare a proof of cash for August.
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AUDITING THEORIES
AUDIT OF RECEIVABLES
1. Which of the following statements would an auditor most likely add

to the negative form of confirmation of accounts receivable to
encourage timely consideration by the recipients?
a. “This is not a request for payment; remittances should not be
sent to our auditors in the enclosed envelope.”
b. “Report any differences on the enclosed statement directly to
our auditors; no reply is necessary if this amount agrees
with your records.”
c. “If you do not report any differences within fifteen days, it
will be assumed that this statement is correct.”
d. “The following invoices gave been selected for confirmation
and represent amount that are overdue.”
2. All of the following are examples of substantive test to verify

the valuation of net accounts receivable except the
a. Recomputation of the allowance for bad debts
b. Inspection of accounts for current versus noncurrent status
in the statement of financial position
c. Inspection of the aging schedule and credit records of past
due accounts
d. Comparison of the allowance for bad debts with past records
3. To reduce the risks associated with accepting fax responses to

request for confirmation of accounts receivable, an auditor most
likely would
a. Examine the shipping documents that provide evidence for the
existence assertion
b. Verify the sources and contents of the faxes in telephone
calls to the senders
c. Consider the faxes to be nonresponses and evaluate them as
unadjusted differences
d. Inspect the faxes for forgeries or alterations and consider
them to be acceptable if none are noted
4. Which of the following procedures concerning accounts receivable

would an auditor most likely perform to obtain evidential matter
in support of an assessed level of control risk below the maximum
level?
a. Observing an entity’s employee prepare the schedule of past
due accounts receivable
b. Sending confirmation requests to an entity’s principal
customers to verify the existence of accounts receivable
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c. Inspecting an entity’s analysis of accounts receivable for

unusual balances
d. Comparing an entity’s uncollectible accounts payable to
actual uncollectible accounts receivable
5. Which of the following procedures most likely would not be an

internal control designed to reduce the risk of errors in the
billing process?
a. Comparing control totals for shipping documents with
corresponding totals for sales invoices
b. Using computer programmed controls on the pricing and
mathematical accuracy of sales invoices
c. Matching shipping documents with approved sales orders before
invoice preparation
d. Reconciling the control totals for sales invoices with the
accounts receivable subsidiary ledger
6. Which of the following statements about receivables confirmation

is correct?
a. Under positive confirmation, the customer is request to
confirm the accuracy of the balance stated or state in what
respect he disagrees
b. The receivables’ confirmation has to take place immediately
after the year-end
c. Receivables’ confirmation letters are sent by the auditor on
the audit firm’s headed notepaper
d. The receivables’ confirmation provides assurance as to the
valuation of year-end receivable balances
7. An auditor tests an entity’s control of obtaining credit approval

before shipping goods to customers in support of management’s
financial statement assertion of
a. Valuation or allocation
b. Completeness
c. Existence or occurrence
d. Rights and obligations
8. Which of the following most likely would give the most assurance
concerning the valuation assertion of accounts receivable?
a. Vouching amounts in the subsidiary ledger to details on
shipping documents
b. Comparing receivable turnover ratios with industry statistics
for reasonableness
c. Inquiring about receivables pledged under loan agreements
d. Assessing the allowance for uncollectible accounts for
reasonableness
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9. The most likely result of ineffective internal controls in the

sales cycle is that
a. Fictitious transactions could be recorded, causing an
understatement of revenues and an overstatement of
receivables
b. Irregularities in recording transactions in the subsidiary
accounts could delay the shipment of goods
c. Omission of shipping documents could go undetected, causing
an understatement of inventory
d. Final authorization of credit memos by personnel in the sales
department could permit an employee defalcation scheme
10. Which of the following strategies should give an auditor the

strongest assurance as to existence of trade receivables year-end
balances, in a company with weak internal controls, over sales and
trade receivable functions?
a. Carrying out a positive circularization of receivable
balances in respect of the year-end balances
b. Carrying out a negative circularization of receivables in
respect of year-end balances
c. Confirming receivable balances by agreeing to sales invoices,
authorized delivery receipts and customer orders
d. Confirming receivables balances by verifying subsequent
payments after year-end
11. Which of the following is the greatest drawback of using

subsequent collections evidenced only by a deposit slip as an
alternative procedure when responses to positive accounts
receivable confirmations are not received?
a. Checking subsequent collections can never be used as an
alternative auditing procedure
b. By examining a deposit slip only, the auditor does not know
whether the payment is for the receivable at the balance sheet
date or a subsequent transaction
c. A deposit slip is not received directly by the auditor
d. A customer may not have made a payment on a timely basis
12. The auditors’ analysis of the clients aged accounts

receivable schedule is consistent with the auditor’s objective of
validating client’s receivable assertion on:
a. Existence
b. Completeness
c. Rights and obligation
d. Valuation
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13. An auditor most likely would review an entity’s periodic

accounting for the numerical sequence of shipping documents and
invoices to support management’s financial statement assertion of:
a. Existence
b. Rights and obligations
c. Valuation and allocation
d. Completeness
14. Negative confirmation of accounts receivable is less

effective than positive confirmation of accounts receivable because
a. A majority of recipients usually lack the willingness to
respond objectively
b. Some recipients may report incorrect balances that require
extensive follow-up
c. The auditor cannot infer that all non-respondents have
verified their account information
d. Negative confirmations do not produce evidence that is
statistically quantifiable
15. In confirming accounts receivable, an auditor decided to

confirm customers’ account balances rather than individual
invoices. Which of the following most likely would be included with
the client’s confirmation letter?
a. An auditor-prepared letter explaining that a non-response may
cause inference that the account balance is correct
b. A client-prepared letter reminding the customer that a non-
response will cause a second request to be sent
c. An auditor-prepared letter requesting the customer to supply
missing and incorrect information directly to the auditor
d. A client-prepared statement of account showing the details of
the customer’s account balance
16. An auditor who has confirmed accounts receivable may discover

that the sales journal was held open past year-end if
a. Positive confirmations sent to debtors are not returned
b. Negative confirmation sent to debtors are not returned
c. Most of the returned negative confirmations indicate that he
debtor owes a larger balance than the amount being confirmed
d. Most of the returned positive confirmations indicate that the
debtor owes a smaller balance than the amount being confirmed
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17. To achieve good internal control, which department should

perform the activities of matching shipping documents with sales
orders and preparing daily sales summaries?
a. Billing
b. Shipping
c. Credit
d. Sales order
18. Which of the following internal controls most likely would

assure that all billed sales are correctly posted to the accounts
receivable ledger?
a. Daily sales summaries are compared to daily postings to the
accounts receivable ledger
b. Each sales invoice is supported by a pre-numbered shipping
document
c. The accounts receivable ledger is reconciled daily to the
control account in the general ledger
d. Each shipment on credit is supported by a pre-numbered sales
invoice
19. What actions should the auditor take if a reply to a positive

confirmation request letter for a material amount is not received
from the customer within two or three weeks of being sent out?
a. Qualify the audit opinion due to lack of sufficient and
appropriate evidence
b. Send out a second request to the customer
c. Inform the entity’s internal audit department
d. Qualify the audit opinion due to material misstatement in the
financial statement
20. In the confirmation of accounts receivable, the auditor would

most likely
a. Request confirmation of a sample of the inactive accounts
b. Seek to obtain positive confirmation for at least 50% of the
total peso amount of the receivables
c. Require confirmation of all receivables from agencies of the
government
d. Require that confirmation request be sent within 1 month of
the fiscal year-end
5|Page
AUDITING PROBLEMS
AUDIT OF RECEIVABLES
PROBLEM 1
The following information pertains to Bituin Inc.
1. Sales made during 20x7:
Cash P 100,000
Credit 320,000
Total P 420,000
2. Account receivable classified by age on December 31, 20x7:
Account receivable
Age of Accounts
balance
Under 30 days P 40,000
30 - 60 days 20,000
61 -120 days 10,000
Over 120 days 5,000
Total P 75,000
3. The allowance for Doubtful Accounts had a P400 credit balance

before adjustment in December 31, 20x7
Instructions:
Prepare the adjusting entry on December 31, 20x7, to record

estimated bad debts under each of the following:
a. The balance sheet approach, assuming that the uncollectible
rate is 5% of gross account receivable.
6|Page
b. The balance sheet approach, assuming that the following

uncollectible percentages are appropriate: under 30 days, 1%;
30 – 60 days, 3%; 61- 120 days, 10%; over 120, 30%.
PROBLEM 2
The following T - account summarizes the transactions affecting the

accounts receivable of Charry Company for 20x7
Accounts Receivable
Jan. 1 balance after deducting Collection from customers,
credit balance of P 3,000 P 53,000 including overpayment of P5,000 P 620,000
Charge sales 625,000 Write offs 3,500
Charge for goods out on Merchandise returns 2,500
consignment 5,000 Allowance to customers for
Shareholders subscriptions 30,000 shipping damages 1,500
Accounts written off but recovered 1,000 Collections on carrier claims 1,000
Cash paid on customer for Collection on subscription 15,000
Jan. 1 credit balance 2,500
Deposit on contract 15,000
Claim against common carrier
for shipping damages 1,500
IOU's from employees 500
Cash advance to affiliate 10,000
Advance to supplier 5,000
Requirement:
Prepare adjusting journal entries and determine the correct accounts
receivable balance.
7|Page
PROBLEM 3
Harding Corporation operated in an industry that has a high rate of bad

debts. On December 31, 20x7, before any year-end adjustments, Hiding’s
account receivable balance was P25,000. The year-end balance was reported
in the statement of financial position for the Allowance for Doubtful
Accounts will be based on the aging schedule shown as follows:
Time Amount of Accounts Probability of

Outstanding Receivable Collection
Under 15 days P 300,000 0.98
16 - 30 days 200,000 0.90
31 - 45 days 50,000 0.80
46 - 60 days 30,000 0.70
61 - 75 days 10,000 0.65
Over 75 days 10,000 0.00
Instructions:
a. What is the appropriate balance for the Allowance for Doubtful

accounts on December 31,20x7?
b. Show how accounts Receivable would be presented in the balance sheet
on December 31,20x7.
c. What is the peso effect on the year-end bad-debt adjustment on the
pretax income for 20x7?
8|Page
AUDIT OF INVENTORIES THEORIES
1. An auditor has accounted for a sequence of inventory tags and will now trace
information on a representative number of tags to the physical inventory sheets.
The purpose of this procedure is to obtain assurance that
a. The final inventory is valued at cost.
b. All inventory represented by an inventory tag is listed on the inventory sheets.
c. All inventory represented by an inventory tag is bona fide.
d. Inventory sheets do not include untagged inventory items.
2. The audit of year-end physical inventories should include steps to verify that the
client's purchases and sales cutoffs were adequate. The audit steps should be
designed to detect whether merchandise included in the physical count at year-
end was not recorded as a
a. Sales in the subsequent period.
b. Purchase in the current period.
c. Sales in the current period.
d. Purchase return in the subsequent period.
3. Which of the following procedures would least likely lead the auditor to detect
unrecorded fixed asset disposals?
a. Examine insurance policies.
b. Review repairs and maintenance expenses.
c. Review property tax files.
d. Scan invoices for fixed asset additions.
4. Sanbor Corporation's parts inventory consists of thousands of different items that

are small in value individually, but quite significant in total. Sanbor could establish
effective control over the parts by requiring
a. An officer's approval of requisitions for inventory parts.
b. Maintaining inventory records for all parts included in the inventory.
c. Physical counts on a cycle basis rather than at year-end.
d. Separation of the storekeeping function from the production and inventory
record-keeping functions
5. Assets may suffer an impairment in value for a variety of reasons, but not likely as
a result of:
a. A corporate restructuring.
b. Slumping demand for uncompetitive products.
c. Significant increases in market share.
d. Obsolescence.
6. The auditor may conclude that depreciation charges are insufficient by noting
a. Insured values greatly in excess of book values.
b. Large amounts of fully depreciated assets.
c. Continuous trade-ins of relatively new assets.
d. Excessive recurring losses on assets retired.
7. Which of the following activities is not common to the conversion cycle?

a. Maintaining perpetual inventory records.
b. Accounting for fixed asset disposals and retirements.
c. Implementing a just-in-time order entry system.
d. Recording depreciation allocations.
8. Purchase cutoff procedures should be designed to test whether or not all inventory
a. Purchased and received before the year-end was recorded.
b. Was carried at the lower of cost or market on the year-end balance sheet.
c. Was paid for by the company on the year-end balance sheet.
d. Owned by the company is in the possession of the company.
9. To improve accountability for fixed asset retirements, management most likely

would implement an internal control structure that includes
a. Continuous analysis of the repairs and maintenance account.
b. Periodic inquiry of plant executives by internal auditors as to whether any plant
assets have been retired.
c. Continuous utilization of serially numbered retirement work orders.
d. Periodic inspection of insurance policies by internal auditors
10. The controller of Excello Manufacturing, Inc., wants to use ratio analysis to
identify the possible existence of idle equipment or the possibility that equipment
has been disposed of without having been written off. Which of the following
ratios would best accomplish this objective?
a. Depreciation expense divided by book value of manufacturing equipment.
b. Accumulated depreciation divided by book value of manufacturing equipment.
c. Repairs and maintenance costs divided by direct labor costs.
d. Gross manufacturing equipment cost divided by units produced.
11. Which of the following explanations might satisfy an auditor who discovers
significant debits to an accumulated depreciation account?
a. Extraordinary repairs have lengthened the life of an asset.
b. Prior years' depreciation charges were erroneously understated.
c. A reserve for possible loss on retirement has been recorded.
d. An asset has been recorded at its fair value.
12. To strengthen control procedures over the custody of heavy mobile equipment,
the client would most likely institute a policy requiring a periodic
a. Increase in insurance coverage.
b. Inspection of equipment and reconciliation with accounting records.
c. Verification of liens, pledges, and collateralizations.
d. Accounting for work orders.
13. An auditor would be most likely to learn of slow-moving inventory through

a. Inquiry of sales personnel.
b. Inquiry of stores personnel.
c. Physical observation of inventory.
d. Review of perpetual inventory records.
14. A client's physical count of inventories was higher than the inventory quantities
per the perpetual records. This situation could be the result of the failure to record
a. Sales. c. Purchases.
b. Sales discounts. d. Purchase returns.
15. For several years, a client's physical inventory count has been lower than what was
shown on the books at the time of the count so that downward adjustments to the
inventory account were required. Contributing to the inventory problem could be
deficiencies in internal control that led to the failure to record some
a. Purchases returned to vendors. c. Sales discounts allowed.

b. Sales returns received. d. Cash purchases.
16. In tests of property, plant, and equipment, the auditor tries to determine all of the
following except the
a. Adequacy of the internal control.
b. Extent of property abandoned during the year.
c. Adequacy of replacement funds.
d. Reasonableness of depreciation.
17. When an outside specialist has assumed full responsibility for taking the client's
physical inventory, reliance on the specialist's report is acceptable if
a. The auditor is satisfied with the specialist's reputation and competence.
b. Circumstances make it impracticable or impossible for the auditor either to do
the work personally or to observe the specialist's work.
c. The auditor performs the same tests and procedures as would have been
applicable if the client's employees took the physical inventory.
d. The auditor's report assumes full responsibility.
18. Apex Manufacturing Corporation mass produces eight different products. The
controller who is interested in strengthening control procedures over the
accounting for materials used in production would be most likely to implement
a. An economic order quantity (EOQ) system.
b. A job order cost accounting system
c. A perpetual inventory system.
d. A separation of duties among production personnel.
19. The accuracy of perpetual inventory records may be established, in part, by

comparing inventory records with
a. Purchase requisitions. c. Purchase orders.
b. Receiving reports. d. Vendor payments.
20. When verifying debits to a manufacturing company's perpetual inventory records,

an auditor would be most interested in testing a sample of purchase
a. Approvals. c. Invoices.
b. Requisitions. d. Orders.
ANSWER KEY:
1. B 6. C 11. A 16. C
2. C 7. C 12. B 17. D
3. B 8. A 13. D 18. C
4. D 9. C 14. C 19. B
5. C 10. D 15. A 20. C
AUDIT OF INVESTMENT THEORIES
1. During the audit of a publicly held company, the auditor could obtain written
confirmation regarding long-term bond transactions from the
a. Bond holders. c. Internal auditors.
b. Client's attorney. d. Trustee.
2. A company has temporarily excess funds to invest. The board of directors decided
to purchase marketable securities and assigned the future purchase and sale
decisions to a responsible financial executive. The best person(s) to make periodic
reviews of the investment activity would be
a. The investment committee of the board of directors.
b. The treasurer.
c. The corporate controller.
d. The chief operating officer of the company.
3. Which of the following is not one of the auditor's concerns in an examination of

marketable securities?
a. To determine whether securities are authentic.
b. To determine whether securities are the property of the client.
c. To determine whether securities actually exist.
d. To determine whether securities are properly classified on the balance sheet
4. In the audit of a medium-sized manufacturing concern, which of the following

areas would be expected to require the least amount of audit time?
a. Revenue. c. Liabilities.
b. Assets. d. Owner's equity.
5. The auditor's program for testing long-term debt should include steps that require
a. Verifying the existence of the bondholders.
b. Examining any bond trust indenture.
c. Inspecting the accounts payable subsidiary ledger.
d. Investigating credits to bond interest income.
6. Which of the following information is most important when auditing

shareholders’ equity?
a. Changes in the capital stock account are verified by an independent stock
transfer agent.
b. Stock dividends and/or stock splits during the year were approved by the
shareholders.
c. Stock dividends are capitalized at par or stated value on the dividend
declaration date.
d. Entries in the capital stock account can be traced to a resolution in the minutes
of the board of directors' meetings.
7. Of the following, which is the most efficient audit procedure for testing accrued
interest earned on bond investments?
a. Tracing interest declarations to an independent record book.
b. Recomputing interest earned.
c. Confirming interest rate with the issuer of the bonds.
d. Vouching the receipt and deposit of interest checks.
8. The auditor's program for examining long-term debt should include

a. Verification of the existence of the bondholders.
b. Examination of any bond trust agreement.
c. Inspection of the accounts payable subsidiary ledger.
d. Investigation of credits to the bond interest income account.
9. When no independent stock transfer agents are employed and the corporation
issues its own stocks and maintains stock records, canceled stock certificates
should
a. Be defaced to prevent reissuance and attached to their corresponding stubs.
b. Not be defaced but segregated from other stock certificates and retained in a
canceled certificates file.
c. Be destroyed to prevent fraudulent reissuance.
d. Be defaced and sent to the secretary of state.
10. When negotiable securities are of considerable volume, planning by the auditor is
necessary to guard against
a. Unauthorized negotiation of the securities before they are counted.
b. Unrecorded sales of securities after they are counted.
c. Substitution of securities already counted for other securities which should be
on hand but are not.
d. Substitution of authentic securities with counterfeit securities.
11. If a company employs a capital stock registrar and/or a transfer agent, the registrar
or agents should be requested to confirm directly to the auditor the number of
shares of each class of stock
a. Surrendered and canceled during the year.
b. Authorized at the balance sheet date.
c. Issued and outstanding at the balance sheet date.
d. Authorized, issued, and outstanding during the year.
12. During the year under audit, a company has completed a private placement of a
substantial amount of bonds. Which of the following steps is the most important
in the auditor's tests of existence?
a. Confirm the amount issued with the bond trustee.
b. Trace cash received from the issue to the accounting records.
c. Examine bond records maintained by the transfer agent.
d. Recompute annual interest cost and the effective yield.
13. A company holds bearer bonds as a short-term investment. Responsibility for

custody of these bonds and submission of coupons for periodic interest collections
probably should be delegated to the
a. Chief accountant. c. Cashier.
b. Internal auditor. d. Treasurer.
14. Jones was engaged to audit the financial statements of Gamma Corporation, a June
30 year-end client. Having completed testing of the investment securities, which
of the following is the best method of verifying the accuracy of recorded dividend
income?
a. Tracing recorded dividend income to cash receipts records and validated
deposit slips.
b. Utilizing analytical review techniques and statistical sampling.
c. Comparing recorded dividends with amounts appearing on Federal
Information Form 1099.
d. Comparing recorded dividends with a standard financial reporting service's
record of dividends
15. During its fiscal year, a company issued, at a discount, a substantial amount of
first-mortgage bonds. When performing audit work, the independent auditor
a. Confirms the existence of the bondholders.
b. Reviews the minutes for authorization.
c. Traces the net cash received from the issuance to the bonds payable account.
d. Inspects the records maintained by the bond trustee.
16. Which of the following is a responsibility that should not be assigned to only one
employee?
a. Access to securities in the company's safe deposit box.
b. Custodianship of the cash working fund.
c. Reconciliation of bank statements.
d. Custodianship of tools and small equipment.
17. All corporate capital stock transactions should ultimately be traced to the
a. Minutes of the board of directors.
b. Cash receipts journal.
c. Cash disbursements journal.
d. Numbered stock certificates.
18. During the course of an audit, an auditor observes that the recorded interest
expense seems excessive in relation to the balance in long-term debt. This
observation could lead the auditor to suspect that
a. Long-term debt is understated.
b. Discount on bonds payable is overstated.
c. Long-term debt is overstated.
d. Premium on bonds payable is understated.
ANSWER KEY:
1. D 5. B 9. A 13. D 17. A
2. A 6. D 10. C 14. D 18. A
3. A 7. B 11. C 15. B
4. D 8. B 12. B 16. A
AUDIT OF PROPERTY, PLANT, AND EQUIPMENT THEORIES
1. Debits to manufacturing equipment arise from which cycle (s)?

a. Sales and collection
b. Payroll
c. Acquisition and disposal
d. Inventory and warehousing
2. It should ordinarily be unnecessary to examine supporting documentation for

each addition to property, plant, and equipment, but it is customary to verify:
a. All large transactions.
b. All unusual transactions.
c. A representative sample of typical additions.
d. All three of the above.
3. To be capitalized as part of property, plant, and equipment, assets must:

a. Have expected useful lives of more than one year.
b. Not be acquired for resale.
c. Be useful in multiple productive capacities within the organization.
d. a and b, but not c.
4. The primary accounting record for manufacturing equipment and other fixed
assets is the:
a. Depreciation ledger.
b. Fixed asset master file.
c. Asset inventory.
d. Equipment roster.
5. Which of the following statements about the audit of fixed assets is not correct?
a. The primary accounting record for manufacturing equipment and other
property, plant, and equipment is generally a fixed asset master file.
b. Manufacturing equipment and current assets are normally audited in the
same fashion regardless of the activity within a particular account.
c. The emphasis on auditing fixed assets is on verification of current period
acquisitions.
d. Failure to record the acquisition of a fixed asset affects the income statement
until the asserts are fully depreciated.
6. Which of the following is not a category of tests commonly associated with the
audit of manufacturing equipment?
a. Verification of depreciation expense.
b. Analytical procedures.
c. Verification of current-period disposals.
d. Verification of the beginning balance in accumulated depreciation.
7. The extent to which auditors verify current period acquisitions of property, plant,
and equipment normally depends upon:
a. Assessed control risk for acquisitions.
b. Tolerable misstatement.
c. Both a and b.
d. Neither a nor b.
8. Failure to capitalize a fixed asset at the correct amount affects ____________until

the company disposes of the asset.
a. The balance sheet only
b. The income statement only
c. The cash flow statement only
d. Both the income statement and the balance sheet
9. Which of the following is not likely to be a test related to the audit of

manufacturing equipment?
a. Verify current year additions.
b. Observe current year disposals.
c. Verify depreciation expense.
d. Perform analytical procedures.
10. The auditor’s starting point for verifying disposals of property, plant, and
equipment is the:
a. Equipment account in the general ledger.
b. File of shipping documents.
c. Client’s schedule of recorded disposals.
d. Equipment subsidiary ledger.
11. Because the failure to record disposals of property, plant, and equipment can
significantly affect the financial statements, the search for unrecorded disposals is
essential. Which of the following is not a procedure used to verify disposals?
a. Make inquiries of management and production personnel about the
possibility of the disposal of assets.
b. Review whether newly acquired assets replace existing assets.
c. Test the valuation of fixed assets recorded in prior periods.
d. Review plant modifications and changes in product line, taxes, or insurance
coverage.
12. When auditing depreciation expense, the two major concerns related to the
accuracy audit objective are:
a. Consistent application of depreciation methods and useful lives.
b. Consistent application of depreciation method and classification of assets.
c. Correctness of calculations and consistent application of depreciation
method.
d. Cost of the fixed asset and useful lives.
13. Changing circumstances may require a change in the useful life of an asset. When
this occurs, it involves a change in:
a. Accounting estimate rather than a change in accounting principle.
b. Accounting principle rather than a change in accounting estimate.
c. Both accounting principle and accounting estimate.
d. neither accounting principle nor accounting estimate.
14. The auditor normally does not need to test the accuracy or classification of fixed
assets recorded in prior periods because:
a. They are rarely material to the audit.
b. They rarely contain misstatements.
c. They are verified in previous audits.
d. They don’t affect the balance sheet.
15. Which of the following audit procedures would be least likely to lead the auditor
to find an unrecorded fixed asset disposal?
a. Examination of insurance policies.
b. Review of repairs and maintenance expenses.
c. Review of property tax files.
d. Scanning of invoices for fixed asset additions.
16. To achieve effective internal accounting control over fixed asset additions, a
company should establish procedures that require:
a. Authorization and approval of major fixed asset additions.
b. Capitalization of the cost of fixed asset additions in excess of a specific
dollar amount.
c. Classification, as investments, of those fixed asset additions that are not
used in the business.
d. Performance of recurring fixed asset maintenance work solely by
maintenance department employees.
17. Which of the following is a customary audit procedure for the verification of the
legal ownership of real property?
a. Examination of correspondence with the corporate counsel concerning
acquisition matters.
b. Examination of ownership documents registered and on file at a public hall
or records.
c. Examination of corporate minutes and resolutions concerning the approval
to acquire property, plant, and equipment.
d. Examination of deeds and title guaranty policies on hand.
18. Once the initial audit of a newly constructed industrial plant has been performed,
with respect to consistency, which of the following is of least concern to the
continuing auditor in the following year?
a. Prior years’ capitalization policy methods.
b. Prior years capitalization costs.
c. Prior years’ depreciation
d. Prior years’ depreciable life
19. The failure to capitalize a permanent asset, or the recording of an asset acquisition
at the improper amount, affects the income statement:
a. For the current period.
b. For the depreciable life of the asset
c. Until the firm disposes of the asset
d. Forever.
20. If the client fails to record disposals of property, plant, and equipment, both the
original cost of the asset account and the net book value will be incorrect.
a. Both will be overstated indefinitely.
b. The original cost will be overstated indefinitely, and the net book value will
be overstated until the asset is fully depreciated.
c. The original cost will be overstated indefinitely, and the net book value will
be understated indefinitely.
d. The original cost will be overstated indefinitely, and the net book value will
be understated until the asset is fully depreciated.
ANSWER KEY:
1. C 6. D 11. C 16. A
2. D 7. C 12. C 17. D
3. D 8. D 13. A 18. B
4. B 9. B 14. C 19. B
5. B 10. C 15. B 20. B
Problem 1:
Item X
Merchandise Inventory 280
Cost of Sales 280
Entered twice in the books.
Item Y
No adjustments
Correct entry was made
Item Z
Sakes 475
Merchandise Inventory 250
Accounts Receivable 475
Cost of Sales 250
Item Z still part of inventory as 12-31-x7
Problem 2:
Requirement 1:
Sales ₱150,000.00
Less: Gross Profit (150,000 x 32.5%) 48,750
Cost of Good Sold 101,250
Add: Finished Goods Inventory, 5-31-
x7 60,000
Total Goods Available for sale 161,250
Less; finished Goods Inventory, 1-1-x7 70,000
Good Manufactured and completed ₱91,250.00

Requirement 2
Raw Materials Inventory,1-1-x7 ₱ 15,000.00
Add: Purchases ₱ 50,000.00
Freight In 5,000 55,000
Total Raw materials available for use 70,000
Less: Raw Materials Inventory, 5-31-x7 30,000
Raw Materials Used ₱40,000.00
Requirement 3:
Raw Materials Used ₱40,000.00
Direct Labor 40,000
Manufacturing Overhead (P40,000 x
45%) 18,000
Total Manufacturing Cost ₱98,000.00
Add: Work in Processing Inventory, 1-1-
x7 50,000
Total Goods put in Process ₱148,000.00
Requirement 4:
Total Goods Put in Process ₱148,000.00
Less; Cost of Goods Manufactured and
Completed 91,250
Work in Process Inventory Destroyed ₱ 56,750.00
Problem 3:
Requirement 1:
Merchandise Inventory, 12-31-x6 ₱ 210,789.80
Add: Purchase 658,710.51
Total Goods Available for sale ₱ 869,500.31
Less: Cost of Sale
Accounts Receivable,6-15-x7 ₱ 107,145.25
Add: Collections 876,195.50
Total ₱ 983,340.75
Less: Accounts Receivable,12-31-x6 135,009.18
Sales, 12-31-x6 to 6-15-x7 ₱ 848,331.57
Percentage of Sales to Cost 130% ₱ 652,562.75
Amount of Inventory (At Cost) as at 6-15-x7 ₱ 216,937.56
Requirement 2;
Merchandise Inventory, 6-15-x7 before the fire ₱ 216,937.56
Merchandise Inventory salvaged from fire 144,882.33
Amount Inventory Loss ₱ 72,055.23
Face of Policy
X Fire Loss
Co- Insurance requirement
P155,000
X 72,055.23
P216,937.56 x 80%
= P64,353.54 Recoverable from the insurance company

Payments to vendors ₱ 641,871.56
Accounts Payable 6-15-x7 126,945.37
₱ 768,816.93
Accounts Payable, 12-31-x7 110,106.41
Purchase ₱ 658,710.52
Note: Since the share of the insurance company is lower than the face amount of
the policy, the former is the amount recoverable by the San Jose Trading
Corporation from the insurance company.
Requirement 3:
Cost od Inventory destroyed by fire ₱ 72,055.23
Add: Unexpired premium (P1,4400 x 9.5/12) 1,140.00
Total ₱ 73,195.23
Less: Amount recoverable from insurance company 64,353.54
Amount of loss incurred by San Jose Trading Corporation
as a result of fire ₱ 8,841.69
Theories:
1. B 11. A
2. C 12. B
3. B 13. D
4. D 14. C
5. C 15. A
6. C 16. C
7. C 17. D
8. A 18. C
9. C 19. B
10. D 20. C

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PHILIPPINE CHRISTIAN UNIVERSITY

College of Business Administration and Accountancy

FUNDAMENTALS OF AUDITING AND ASSURANCE SERVICES

3. Which is an engagement in which a practitioner expresses a conclusion designed to

4. A criterion that is relevant

8. Which of the following is true about non-assurance services?

9. In an engagement to perform agreed-upon procedures, an auditor is engaged to

10. Which of the following statements is true?

11. Which of the following statements refers to the definition of auditing?

17. An operating committee of a company's board of directors that is in-charge of overseeing

FINANCIAL AUDIT OVERVIEW

FINANCIAL AUDIT PROCESS – AUDIT PLANNING

b. Take a tour of the client’s facilities

28. The relationship between materiality and audit risk is:

3. Which of the following cycles does not affect cash in bank?

5. Which of the following statements is correct?

7. The general cash account is considered significant in almost all audits:

9. Which of the following misstatements is most likely to be uncovered during an audit of a

14. The purpose of an engagement letter is to

18. An audit of financial statements is conducted to determine whether the

19. The objective of an audit of financial statement is

25. Which of the following is a counterbalancing error?

28. The term “error” refers to unintentional misrepresentation of financial information.

a. All of the above statements are true

30. What primarily differentiates fraud from an error

Maker Date Payee Amount

Petty Cash Vouchers for Replenishment

Your Investigation also disclosed the following:

The following information pertains to the cash of Rosal Company:

Requirement: Prepare a proof of cash for August.

1. Which of the following statements would an auditor most likely add

2. All of the following are examples of substantive test to verify

3. To reduce the risks associated with accepting fax responses to

4. Which of the following procedures concerning accounts receivable

c. Inspecting an entity’s analysis of accounts receivable for

5. Which of the following procedures most likely would not be an

6. Which of the following statements about receivables confirmation

7. An auditor tests an entity’s control of obtaining credit approval

9. The most likely result of ineffective internal controls in the

10. Which of the following strategies should give an auditor the

11. Which of the following is the greatest drawback of using

12. The auditors’ analysis of the clients aged accounts

13. An auditor most likely would review an entity’s periodic

14. Negative confirmation of accounts receivable is less

15. In confirming accounts receivable, an auditor decided to

16. An auditor who has confirmed accounts receivable may discover

17. To achieve good internal control, which department should

18. Which of the following internal controls most likely would

19. What actions should the auditor take if a reply to a positive

20. In the confirmation of accounts receivable, the auditor would

The following information pertains to Bituin Inc.

1. Sales made during 20x7:

2. Account receivable classified by age on December 31, 20x7:

3. The allowance for Doubtful Accounts had a P400 credit balance

Prepare the adjusting entry on December 31, 20x7, to record

b. The balance sheet approach, assuming that the following

The following T - account summarizes the transactions affecting the

Harding Corporation operated in an industry that has a high rate of bad

Time Amount of Accounts Probability of

a. What is the appropriate balance for the Allowance for Doubtful

4. Sanbor Corporation's parts inventory consists of thousands of different items that

7. Which of the following activities is not common to the conversion cycle?

9. To improve accountability for fixed asset retirements, management most likely

13. An auditor would be most likely to learn of slow-moving inventory through