ACCP307.
AC31Am Final Examination Questions
Instruction:
1. Look for your name in the three sections.
2. Input the question, answer, and short explanation accordingly.
Coverage of Questions:
1. Insurance Industry
2. Construction Industry
Identification
Name
ADAN, Danica May .
AGAPITO, Val Stephen V.
ALIPANTE, Aiza Marie C.
Question Answer
It is a third person who is procured by the main insurer to insure him against loss or C.Reinsurer
liability by reason of such original insurance.
. a. Insurance Broker As defined in the handout, reinsurer is a third
b. Insurance Commissioner person who is procured by the main insurer to
c. Reinsurer insure him against loss or liability by reason of
d. Insurer such original insurance.
For the compliance date of December 31, 2016, what was the minimum net worth B. 550,000,000
requirement for the insurance company? Minimum net worth requirement for an
a. Php 250,000,000 insurance company
b. Php 550,000,000
c. Php 350,000,000 Networth Compliance Date
d. Php 900,000,000 P250,000,000 June 30, 2013
550,000,000 December 31, 2016
900,000,000 December 31, 2019
1,300,000,000 December 31, 2022
It is a multi-party agreement between the design firm, the builder, and the owner. C. Integrated project delivery contract
a. Cost-plus contract
b. Time and materials contract According to Handout 02A, Integrated project
c. Integrated project delivery contract delivery contract (IPD) is a delivery model for
d. Design-build contract delivering construction projects using a single
contract for design and construction with a
 shared risk/reward model, guaranteed costs,
waivers of liability between team members, an
operating system based on lean principles, and
a collaborative culture. The IPD contract is a
multi-party agreement between the design firm,
the builder, and the owner. It may also include
trade partners.

APUYA, Precious NiÑa Y. In the construction industry, they are generally devoted to two primary functions: securing B. Contractor
contracts and delivering finished projects.
a. Project manager The correct answer is option B, Contractor.
b. Contractor According to ACCP307 Handout 02A - Audit
c. General contractor Considerations for Construction Industries, a
d. Subcontractor contractor is an individual or business that
obtains construction contracts and sees them
through, delivering what’s contractually
required. Typically, a contractor is someone
with experience in the construction field, often
within a given trade (an electrician, plumber,
etc.). At base level, the contractor is
devoted to two primary functions: securing
contracts and delivering finished projects.

Moreover, the definition of the incorrect

options from the same reference material is as
follows:
● Project manager - typically a
representative or employee of the
owner. This manager hires various
contractors and workers and oversees
their own work and hiring (if applicable
● General contractor – is the main
contractor on a jobsite, hired by the
owner to completely oversee the project
from start to finish. The GC is involved
in some combination of performing the
work directly, hiring subcontractor and
workers and managing the work of
subcontractors and their own hires.
● Subcontractor – is typically hired for a
specific portion of the job, usually
 related to an area of expertise.
Depending on the jobsite,
subcontractors might be able to hire
their own workers, or may use workers
hired by the general contractor.

Hence, option B, Contractor, is the correct

answer.

ARIAS, Sofia Pauline D.
In auditing trade and other receivables, what alternative procedure could be done when B. Test of Subsequent Collections
there is no receivable confirmation reply?
It is used as an alternative procedure when
a. Vouching of Contracts there’s an absence of receivable confirmation
b. Test of Subsequent Collections reply (CRAM). It traces back the subsequent
c. Test of Subsequent Payments collections to confirm if there is a receivable
d. Subsidiary Ledger-General Ledger Reconciliation initially set-up, hence, receivable is really
existing.

BAGASBAS, Vianca Therese G. This is a type of construction contract where the owner pays an agreed-upon price based D. Time and Materials Contract (T&C)
on the time spent on the project, required materials, and the included profit rate. Like the
lump-sum contract, this agreement is simple and straightforward. Letter A is incorrect because Guaranteed
maximum price contract (GMP) is defined as
a. Guaranteed maximum price contract (GMP)
the maximum amount the owner will have to
b. Integrated project delivery contract (IPD) pay the contractor is capped. Letter B is
c. Incentive construction contracts incorrect because Integrated project delivery
d. Time and materials contract (T&C) contract (IPD) is defined as – is a delivery
model for delivering construction projects using
a single contract for design and construction
with a shared risk/reward model, guaranteed
costs, waivers of liability between team
members, an operating system based on lean
principles, and a collaborative culture. Letter C
is incorrect because Incentive construction
contracts is defined as a type of construction
contract that provide the contractor with an
agreed-upon payment if the project is
delivered by a certain date and at a specific
point. Letter D is correct as it matches the
definition provided in Handout02A - Auditing
Construction Industries.

BALLESTEROS, Nicole C. This phase is where the project team is assembled and aligns the foundation of the project D. Pre-construction Phase
 and a communication structure.
The correct answer is letter D because it is in
A. Construction Phase the pre-construction phase where they
B. Post-construction Phase assemble the project team. This is essential in
C. Procurement Phase order to build a strong foundation and establish
D. Pre-construction Phase effective communication to avoid gaps and
project delays.

CAJURAO, Yan Min Bee P. B. Project Inception

It is one of the stages of construction where the first ideas of a project are thought about
before commencement into detailed design. This follows the search for the project's There are 6 stages of construction namely (1)
location and specification of the building codes involved. Project conception, design and planning (2)
Building permits (3) Pre-construction phase (4)
a. Building Permits Procurement (5) Construction Phase (6) Post-
b. Project Conception Construction. Consequently, the stage of the
c. Pre-Construction Phase construction project known as "project
d. Construction Phase conception" is where the initial ideas are
formulated, which comes before the design
stage.

CONTRERAS, Therese M. What is the processing time of new regular license for a contractor’s license? C. 30 business days

a. 10 business days The recommended processing time for a new

b. 15 business days regular license as reported by the Construction
c. 30 business days Industry Authority of the Philippines is 30
d. 5 business days business days.

ESPENOCILLA, Angela M. It is the payments made by the policyholder or insured to the insurer. An insurer is entitled A. Premium
to that payment as soon as the thing insured is exposed to the peril insured against.
It is based on the definition provided on
A. Premium
the handout, and at the same time, it is
B. Insurance
generally known as the amount to be paid in an
C. Accounts Payable
insurance policy. It is not insurance which is a
D. Commission
contract also to manage your risk. Accounts
payable, which an entity owes its creditors and
commission, is recognized when services as an
insurance broker or agent have been rendered.
So the statement above does not resonate with
 these three other options, but only the first
choice, which is premium.

FLORES, Kaela B. It is is the main contractor on a jobsite, hired by the owner to completely oversee C. General Contractor
the project
from start to finish. According to Handout-02A, this is the
a. Contractor definition of General contractor.
b. Subcontractor
c. General Contractor
d. Independent Contractor
GOLPE, Ressany V. It is the advised minimum paid-up capital for an insurance company. D. At least 1,000,000
a. At least 20,000,000
b. At least 10,000,000 The minimum paid-up capital for insurance
c. At least 2,000,000 companies is at least 1,000,000 pesos. The
d. At least 1,000,000 other choices refer to the minimum net worth
requirements for insurance brokers.

INTERINO, Timothy P. This includes inquiries of management and others within the entity, analytical procedures, D. Risk assessment procedures
and observation and inspection
a. Test of details For the insurance industry, these are the
b. Auditing procedures specific procedures included in the risk
c. Test of balances assessment procedures.
d. Risk assessment procedures

LEONIDAS, Venus . It is an entity’s right to consideration in exchange for goods or services that the entity has A. Contract Asset
transferred to a customer when the right is conditioned to something other than the This term refers to the contract asset since
passage of time (entity’s future performance) Contract liability refers to the entity’s obligation
to transfer goods or services to a customer for
a. Contract Asset
which the entity has received consideration
b. Contract Liability from the customer. Receivable is the entity’s
c. Receivable right to consideration that is unconditional; that
d. Retentions is, only passage of time is required before the
payment of that consideration is due, even if
the amount is subject to refund in the future.
While Retentions are amounts of progress
billings that are not paid until the satisfaction of
conditions specified in the contract for the
payment of such amounts or until defects have
 been rectified. Therefore, the only option is A.
Contract Asset

NOTOB, Mary Nichole R. What is the most convincing method used to gather proof that there is money in a bank A. Confirmation Reply and Assessment
wherein the auditor asks the customer to fill out a blank confirmation letter with the information Monitoring
regarding the bank account and the names of the authorized signatories after the fiscal year has This procedure is the most persuasive in
ended? gathering evidence about the existence of cash in
A. Confirmation Reply and Assessment Monitoring bank. After year-end, the auditor requests the
B. SL-GL Reconciliation client to complete a blank confirmation letter with
C. Confirmation Response and Assessment Monitoring the details of the bank account as well as the
D. Cut-off Testing authorized signatories. The client forwards the
accomplished confirmation template to the
auditor which the latter sends to the client.
Usually, the bank confirmation letter is a positive
confirmation letter which requests the bank to
really respond with the required information.

PALINO, Jhuliane B. The following are the important requirements you’ll need in applying for your PCAB B. Contractor’s Specific Information
license, except:
a. Affidavit of Attestation All of the choices are correct except choice b
b. Contractor’s Specific Information because it should be Contractor’s General
c. Documents supporting other assets Information instead of Contractor’s Specific
d. Integrity Pledge Information

RAFER, Phoebe Anne B. How many years is the term of office of the insurance commissioner? 6 years

The President of the Republic of the Philippines

shall appoint the Insurance Commissioner, who
shall hold office until his or her successor has
been duly appointed and qualified, for a term of
six (6) years without the right to be
reappointed.

If the Insurance Commissioner is removed

before the end of his term, the reason for
removal must be made public.

SABIÑA, Shaine Andrea P. Overall materiality represents the significant level in the company's: C. Financial Statement

A.) Account Balance

B.) Transactions

SABULARSE-CORONEL,
Micah April C.
SALVADOR, Julliana Angela B.
SARMIENTO, Katherine F.
C.) Financial Statement
D.) Overall Materiality
It is an act strengthening the insurance industry, further amending Presidential Decree No. Answer: B. Republic Act No. 10607
612, otherwise known as The Insurance Code.
a. Republic Act No. 10617 Republic Act No. 10607 is an act strengthening
b. Republic Act No. 10607 the insurance industry, further amending
c. Republic Act No. 10606 Presidential Decree No. 612, otherwise known
d. Republic Act No. 10616 as The Insurance Code.
This type of construction contract addresses design and construction costs Answer: B. Design-build Contract
simultaneously. The construction process actually begins before the final design is
completed.
Traditionally, owners receive completed
a. Fixed Price Contract designs before taking in construction bids. That
b. Design-build Contract leads to two separate contracts and a longer
c. Cost plus Contract process. But the design-build contract does
d. Guaranteed Maximum Price Contract things differently. A design-build contract, as its
name suggests, addresses design and
construction costs simultaneously.
Options A, C, and D are incorrect. Option A
refers to a construction contract in which the
contractor agrees to a fixed contract price, or a
fixed rate per unit of output, which in some
cases is subject to cost escalation clauses.
Option C refers to when contractors are paid
for all of their construction-related expenses,
and option D refers to when the maximum
amount the owner will have to pay the
contractor is capped.
Problems regarding raw materials and supplies frequently arise in the following areas, Answer: C. Equipment maintenance
except:
a. Usage of raw materials It is important to audit the materials and
b. Obsolescence and inactivity supplies used in the construction as these
c. Equipment maintenance influence the percentage of completion to be
d. Excess materials on contracts used in computing for the gross profit. In
addition, problems frequently arise in the
following areas:
 1. Obsolescence and inactivity
2. Excess materials on contracts
3. Usage of raw materials

Equipment maintenance is not a problem

considered when auditing raw materials and
supplies. Hence, it is the exception in the list of
choices rendering it to be the right answer in
the given question. (Reference: ACCP307
Handout 02B)

SIBULO, Nicole Anne S. A contractor who’s hired alongside other contractors in a horizontal (equal) relationship C. Independent contractor
to each other, rather than the vertical relationships.
a. General Contractor
b. Contractor
c. Independent contractor
d. Subcontractor

TURIANO, Portia M. It represents one or more insurance companies and sells their policies for a commission. C. Insurance Agent

a. Insurance Company Insurance agents are the ones who represent

b. Insurance Broker insurance companies, and their main revenue
c. Insurance Agent stream is commission income. They are the
d. Insurance Commissioner intermediaries, a pass through of clients and
insurance companies.

UVAS, Elouiza Gay R. This a report signed by the audit partner which indicates that no partner of the Firm is B. Report of independent auditors to
related by consanguinity or affinity to the president, manager or principal stockholders of accompany financial statements for filing
the Company with the BIR
a. Report of independent auditors on supplementary schedules for filing with the
insurance commission
b. Report of independent auditors to accompany financial statements for filing with
the BIR
c. Supplementary schedule of financial soundness indicators under Revised
Securities Regulation Code Rule 68 (for insurance brokers)
d. Report of independent auditors to accompany financial statements for filing with
the SEC
True or False
Name Question Answer

ADAN, Danica May . Statement 1: A subcontractor is typically a representative or employee of the owner. D. Neither statement is correct.
Statement 2: A project manager is typically hired for a specific portion of the job, usually
related to an area of expertise. A subcontractor is typically hired for a specific
a. Only statement 1 is correct. portion of the job, usually related to an area of
b. Only statement 2 is correct. expertise. Depending
c. Both statements are correct. on the jobsite, subcontractors might be able to
d. Neither statement is correct. hire their own workers, or may use workers
hired by the general
Contractor.

A project manager is typically a representative

or employee of the owner. This manager hires
various contractors
and workers and oversees their own work and
hiring (if applicable).

AGAPITO, Val Stephen V. Statement 1: An onerous contract is a contract in which the unavoidable costs of meeting A. Only statement 1 is TRUE.
the obligations under the contract exceed the economic benefits expected to be received
under it. Only statement 1 is true, this really
Statement 2: Estimated total contract costs pertain to the actual total cost of completing refers to the onerous contract since a contract
the construction contract would only be onerous if the expected
a. Only statement 1 is TRUE. economic benefits do not exceed the costs
b. Only statement 2 is TRUE. therefore the contract is no longer profitable.
c. Both statement 1 and statement 2 are TRUE. While statement 2 is false since estimated total
d. Neither statement 1 and statement 2 are TRUE. contact costs pertain to the FORECASTED
total cost instead of the actual total cost of
completing the construction contract.

ALIPANTE, Aiza Marie C. Statement 1: A special license, issued to joint ventures, a consortium, a foreign A.Only statement 1 is correct
contractor, or a project owner authorizing the licensee to only engage in the construction
of a specific project or undertaking; and There are two types of contractor’s license:
1. A regular license, for domestic construction
Statement 2: An ordinary license, for domestic construction firms under a sole firms under a sole proprietorship, partnership or
proprietorship, partnership or corporation. corporation; and

a. Only statement 1 is correct 2. A special license, issued to joint ventures, a


APUYA, Precious NiÑa Y.
ARIAS, Sofia Pauline D.
BAGASBAS, Vianca Therese G. Statement 1: Purchases to disbursements, revenue to collection, and inventory
management are all applicable to insurance industries and shall be considered to
understand its accounting and internal control systems.
b. Only statement 2 is correct consortium, a foreign contractor, or a project
c. Both statements are correct owner authorizing the licensee to only engage
d. Neither statement is correct in the construction of a specific project or
undertaking.
Statement 1: The purpose of the Contractors’ License Law (R.A. 4556) is to ensure, for D. Only statement 2 is correct.
the safety of the public, that only qualified and reliable contractors are allowed to
undertake construction in the country. ● Statement 1 is incorrect because the
Contractors’ License Law is Republic
Statement 2: It is not an offense to engage in contracting business with a license first Act no. 4566, NOT Republic Act no.
being obtained. 4556.
● Statement 2 is correct since obtaining a
a. Only statement 1 is correct license before engaging in a contracting
b. Only statement 2 is correct business is required; doing otherwise is
c. Both statements are correct an offense.
d. Neither statement is correct
Both statements are referenced from
Handout 02C - Audit Considerations for
Construction Industries.
Statement 1: The ceding company is a third person who is procured by the main insurer to D. Neither statements are correct.
insure him against loss or liability by reason of such original insurance.
Statement 1: The Reinsurer is a third person
Statement 2: The commission income is recognized when services as an insurance broker who is procured by the main insurer to insure
or agent have been rendered. Also the amounts collected on behalf of the principals are him against loss or liability by reason of such
recognized as revenue. original insurance.
a. Only statement 1 is correct. Statement 2: The commission income is
b. Only statement 2 is correct. recognized when services as an insurance
c. Both statements are correct. broker or agent have been rendered. Also the
d. Neither statements are correct. amounts collected on behalf of the principals
are NOT recognized as revenue.
B. Only statement 2 is true.
Statement 1 is false because inventory
management is not part of the significant
Statement 2: After understanding the SCOTs, the auditor should conduct a test of one classes of transactions to be considered in
complete transaction and walkthrough. understanding the accounting and internal
control systems insurance industry. Inventory
 a. Only statement 1 is true. management is not applicable as insurance
b. Only statement 2 is true. companies are service-oriented and do not
c. Both statement 1 and statement 2 are true. have merchandise inventory.
d. Neither statement 1 and statement 2 are true.
Statement 2 is true. This is to confirm if
the understanding of the auditor as represented
by the process owners are really evident in
terms of actual documents.

BALLESTEROS, Nicole C. Statement 1: It is not necessary to seek permission from the client when the auditor will D. Neither statement is correct
conduct an interview with the predecessor auditor.
Statement 2: An evaluation to retain the existing client or not should be made at least Prior to sending a letter to the predecessor
every quarter. auditor, it is necessary to seek permission from
the client first before conducting an interview.
A. Only statement 1 is correct Once permitted, the auditor can then send the
B. Only statement 2 is correct letter and wait for the response of the latter as
C. Both statements are correct to where and when is the interview.
D. Neither statement is correct
With regard to the retention of existing clients,
an evaluation should be made at least once a
year on whether to retain the existing client or
not.

CAJURAO, Yan Min Bee P. D. Neither statements are correct.

Statement 1: In Auditing Construction Industries the Zero Profit Method recognizes
profit during the periods in which the construction work is performed but the In Statement 1, when conducting an audit of
the construction industry using the zero profit
construction cost is not fully complete because the revenue recognized is equal to approach, there should be no profit recorded
the cost of construction recognized as expense. during the time period in which the construction
work is being carried out.
Statement 2: For construction, a construction contract becomes onerous if the
expected costs of fulfilling the performance obligation is lesser than the transaction In Statement 2, an onerous construction
price. contract is one in which the expected costs
of fulfilling the performance obligation
a. Only statement 1 is correct exceed than the transaction price.
b. Only statement 2 is correct
c. Both statements are correct
d. Neither statement is correct

CONTRERAS, Therese M. Statement 1: As mandated by the Republic Act 4565, also known as the Contractor’s D. Neither statements are correct.
License Law, the PCAB requires contractors who engage in the construction industry to
have a PCAB license. In Statement 1, the Contractor’s License Law
 or R.A.4566 requires contractors who engage
Statement 2: A special license shall be valid for one (1) fiscal year, unless suspended by in the construction industry or any business of
the Board and shall be renewed annually. contracting in the country to have a PCAB
license.
e. Only statement 1 is correct.
f. Only statement 2 is correct. In Statement 2, a regular license shall be valid
g. Both statements are correct. for one (1) fiscal year, from the 1st of July to
h. Neither statements are correct. the 30th of June of the ensuing year, unless
suspended, invalidated, cancelled or revoked
by the Board and shall be renewed annually.

ESPENOCILLA, Angela M. Statement 1: The relationship between control risk and detection risk is direct. D. Neither statement 1 nor statement 2 is
Statement 2: The auditor reduces the level of detection risk through the nature, timing, true.
and extent of the substantive procedures performed.
A. Only statement 1 is true. Both statements are incorrect since the
B. Only statement 2 is true. relationship between control and direction risks
C. Both statement 1 and statement 2 are true. is inverse, not direct. In statement number two,
D. Neither statement 1 nor statement 2 are true. it should be it reduces, not increases, since the
auditor reduces the level of detection risk
through the nature, timing, and extent of the
substantive procedures performed.

FLORES, Kaela B. Statement 1: A management letter is a written contract between an auditor and an D. Neither Statement 1 and Statement 2 are
audit client usually prepared after accepting an audit engagement. true

Statement 2: The responsibility of the management to provide an restricted Statement 1: what makes the statement
access to the company’s records, documentation, and other information that the wrong is the word “management,” it should
auditor may determine as necessary for the be “engagement.” It is because an
conduct of audit. engagement letter is different from a
a. Only statement 1 is TRUE. management letter. The former’s definition
b. Only statement 2 is TRUE. is stated in this statement while the
c. Both statement 1 and statement 2 are TRUE. management letter is a letter prepared by
d. Neither statement 1 and statement 2 are TRUE. the auditor which discusses its findings and
recommendation for improvement in
internal control.
 Statement 2: What makes the statement
wrong is the word “restricted,” it should be
“unrestricted.”
GOLPE, Ressany V. Statement 1: The contractor is the main contractor on a job site, hired by the owner to B. Only Statement 2 is Correct
completely oversee the project from start to finish. He is typically involved in some
combination of performing the work directly, hiring subcontractors and workers, and The one that is described in Statement 1 is the
managing the work of subcontractors and their own hires. General Contractor.

Statement 2: Independent contractor is one who’s hired alongside other contractors in a The Contractor is different for he is the
horizontal (equal) relationship to each other, rather than the vertical relationships between individual or business that obtains construction
contractors and subcontractors. contracts and sees them through, delivering
what’s contractually required. Typically, a
a. Only Statement 1 is Correct. contractor is someone with experience in the
b. Only Statement 2 is Correct. construction field, often within a given trade (an
c. Both Statements are Correct. electrician, plumber, etc.). At the base level, the
d. Neither Statements are Correct contractor is devoted to two primary functions:
securing contracts and delivering finished
projects.

INTERINO, Timothy P. Statement 1: The result of the SL-GL reconciliation brings an evidence that the C. Both statement 1 and statement 2 are
transactions are complete in relation with the account in total. TRUE.
Statement 2: The result of the receivable confirmation reply is the proper amount of
receivable per customer. S1: True, this is a preliminary procedure to
a. Only statement 1 is TRUE. ensure that the population which is subjected to
b. Only statement 2 is TRUE. sampling is complete.
c. Both statement 1 and statement 2 are TRUE. S2: True, if there are discrepancies, the
d. Neither statement 1 and statement 2 are TRUE. problem may arise because of timing difference
in terms of recording. If this happens, the
auditor must gather the appropriate source
document such as sales invoice or delivery
receipts to know whether the receivable must
be reflected or not.

LEONIDAS, Venus . Statement 1: Report of independent auditors to accompany financial statements for filing
D. Neither statement 1 and statement 2 are
with the SEC is signed by the audit partner which indicates that no partner of our Firm is
TRUE.
related by consanguinity or affinity to the president, manager, or principal stockholders of
Statement 1 is False since the financial
the Company statement signed by the audit partner that
indicates that “no partner of our Firm is related
Statement 2: Report of independent auditors on supplementary schedules for filing with by consanguinity or affinity to the president,
the insurance commission, includes an attachment to the statement of business manager, or principal stockholders of the
 operations which is the responsibility of the management and is part of the basic financial Company” should be filed to the different
statements governing body, specifically, Bureau of Internal
a. Only statement 1 is TRUE. Revenue (BIR) instead of the Security and
b. Only statement 2 is TRUE. Exchange Commission (SEC).
c. Both statement 1 and statement 2 are TRUE.
d. Neither statement 1 and statement 2 are TRUE. Statement 2 is False since statement of
business operations which is the responsibility
of the management and is NOT part of the
basic financial statements that is being filed to
the insurance commission.

NOTOB, Mary Nichole R. Statement 1: Republic Act No. 10670 is an act strengthening the insurance industry, further
amending Presidential decree No.621, otherwise known as the Insurance code. B. Both are FALSE

Statement 2: Insurance Commission shall be appointed by the President of the Republic of the
Philippines for a term of six (6) years without reappointment and who shall serve as such until the
successor shall have been appointed and qualified. If the Insurance Commissioner is removed
after the expiration of his term of office, the reason for the removal must be published.

Which of the following is true in the statement?

A. Both are TRUE

B. Both are FALSE
C. Statement 1 is false, statement 2 is true
D. Statement 1 is true, statement 2 is false

PALINO, Jhuliane B. Statement 1: A regular license shall be valid for two (2) fiscal years, unless suspended, D. Only statement 2 is TRUE.
invalidated, cancelled or revoked by the Board and shall be renewed every two years.
Statement 1 is false because a regular license
Statement 2: The aging analysis is an internal document of the client which subgroups shall be valid for one (1) fiscal year, from the
1st of July to the 30th of June of the ensuing
the receivables based on aging categories and based on per client.
year, unless suspended, invalidated, cancelled
a. Only statement 1 is TRUE. or revoked by the Board and shall be renewed
b. Only statement 2 is TRUE. annually.
c. Both statement 1 and statement 2 are TRUE.
d. Neither statement 1 and statement 2 are TRUE. Statement 2 is correct
RAFER, Phoebe Anne B. Statement 1: The minimum net worth requirement for insurance broker- New entrant as an A. Only statement 1 is correct.
insurance broker or reinsurance broker is Php 20,000,000.
Statement 1 is correct.
Statement 2: The minimum net worth requirement for insurance agent- Existing insurance
or reinsurance broker Php 10,000,000 Minimum net worth requirement for insurance
broker:
a. Only statement 1 is correct.
b. Only Statement 2 is correct. New entrant as an insurance broker or
c. Both statements are correct. reinsurance broker- P20,000,000
d. Neither statements are correct. New entrant as an insurance broker and
reinsurance broker- 50,000,000
Existing insurance or reinsurance broker-
10,000,000
Existing insurance and reinsurance broker-
25,000,000

Statement 2 is incorrect.
No minimum net worth requirement for
insurance agents

SABIÑA, Shaine Andrea P. Statement 1: In the output method, if the outcome of a performance obligation cannot be C. Neither of the statements is true.
measured but the entity expects to recover the costs incurred in satisfying the
performance obligation, revenue shall be recognized to the extent of the costs incurred
and the remaining estimated cost to complete until such time that the outcome of the
performance obligation can be reliably measured.

Statement 2: The Project conception, design and planning stage is the phase where the
project team is assembled and aligns the foundation of the project and a communication
structure.

A..) Only statement 1 is true.

B.) Only statement 2 is true.
C.) Neither of the statements is true.
D.) Either of the statements is true.

SABULARSE-CORONEL, Statement 1: The minimum net worth requirement for an insurance broker on December Answer: D. Neither Statements are Correct.
Micah April C. 31, 2022, is P1,300,000.
Statement 1 is incorrect because P1,300,000
Statement 2: A regular license is valid for three (3) fiscal years, from the 1st of July to the minimum net worth requirement on December
30th of June from the ensuing year, unless suspended, invalidated, canceled or revoked 31, 2022 is for insurance company, not
by the Board. insurance broker.

SALVADOR, Julliana Angela B.
SARMIENTO, Katherine F.
SIBULO, Nicole Anne S.
a. Only Statement 1 is Correct. Statement 2 is incorrect because the validity of
b. Only Statement 2 is Correct. a regular contractor’s license is one (1) fiscal
c. Both Statements are Correct. year, from the 1st of July to the 30th of June
d. Neither Statements are Correct from the ensuing year, unless suspended,
invalidated, cancelled or revoked by the Board
and shall be renewed annually.
Statement 1: Contractors can engage in a contracting business without a license being Answer: C. Neither of the statements are
obtained as long as they obtain their license in the same year when the business was true.
established.
Statement 1 is incorrect. As mandated by the
Statement 2: A regular license shall be valid for three (3) years, unless suspended, Republic Act 4566 or also known as the
invalidated, canceled, or revoked by the Board. Contractor’s License Law, the Philippine
Contractors Association Board (PCAB) requires
a. Only statement 1 is true. contractors who engage in the construction
b. Only statement 2 is true. industry or any business of contracting in the
c. Neither of the statements are true. country to have a PCAB license. It is an
d. Either of the statements are true. offense to engage in contracting business
without a license first being obtained.
Statement 2 is also incorrect. A regular license
shall be valid for only one (1) fiscal year, from
the 1st of July to the 30th of June of the
ensuing year, unless suspended, invalidated,
canceled or revoked by the Board and shall be
renewed annually.
Statement 1: If the client is profit-oriented, the appropriate benchmark is the total assets. Answer: D. Neither statement is correct
Statement 2: If the client is not profit-oriented, the appropriate benchmark is pre-tax net The first step in setting up materiality is to
income. determine a benchmark that is applicable to the
audit. If the client is profit-oriented, the
a. Only statement 1 is correct appropriate benchmark is the pre-tax net
b. Only statement 2 is correct income. If the client is not profit-oriented such
c. Both statements are correct as non-profit organizations, the appropriate
d. Neither statement is correct benchmark is the total assets. (Reference:
ACCP307 Handout 01A)
Statement 1: The procurement stage is necessary for developing a formal approach in D. Both statements are FALSE.
calculating costs, scope, and schedules for project execution.
 Statement 2: The pre-construction stage is where the project team obtains the equipment,
labor, and materials necessary.

a. Only statement 1 is True.

b. Only statement 2 is True.
c. Both statements are TRUE.
d. Both statements are FALSE.

TURIANO, Portia M. Statement 1: The minimum net worth requirement of new entrant as an insurance broker C. Both statements are correct
or reinsurance broker is Php 20,000,000.
Minimum net worth requirement:
Statement 2: The minimum net worth requirement of existing insurance and reinsurance >New entrant as an insurance broker or
broker is Php 25,000,000. reinsurance broker- Php 20,000,000
>New entrant as an insurance broker and
a. Only statement 1 is correct reinsurance broker- Php 50,000,000
b. Only statement 2 is correct >Existing insurance or reinsurance broker- Php
c. Both statements are correct 10,000,000
d. Neither statement is correct >Existing insurance and reinsurance broker-
Php 25,000,000

UVAS, Elouiza Gay R. Statement 1: The result of the bank confirmation reply brings evidence that transactions B. Only statement 2 is TRUE.
are complete in relation with the account in total.

Statement 2: The result of cut-off procedures is the complete receivables to be presented

under the statement of comprehensive income.

a. Only statement 1 is TRUE.

b. Only statement 2 is TRUE.
c. Both statement 1 and statement 2 are TRUE.
d. Neither statement 1 and statement 2 are TRUE.
Simple Problem Solving
Name Question Answer

ADAN, Danica May . The following data pertains to the financial statement of the EPC Insurance Broker, Inc. C. 4,000,000
Cash in bank 1,000,000
Property, plant and equipment 6,200,000 Cash in bank 1,000,000
Trade and other payables 1,500,000 Right of use asset 3,000,000
Common stock 2,500,000 Total admitted assets 4,000,000
Retained Earnings 3,200,000

Additional Information:
• Property, plant and equipment is composed of:
Office equipment 3,200,000
Right of use asset 3,000,000

Compute for the total admitted asset.

a. 7,200,000
b. 4,200,000
c. 4,000,000
d. 1,000,000

AGAPITO, Val Stephen V. Uni Builders, Inc. has consistently used the percentage-of-completion method of Answer A. 100,000
accounting for construction-type contracts. In 2021, Uni Builders started work on a 2021 2022
P9,000,000 fixed price construction contract that was completed in 2022. The company's
accounting records disclosed the following: Contract Price P9,000,000 9,000,000

Less: Total estimated 7,800,000 8,100,000

2021 2022 cost
Cumulative contract costs incurred 3,900,000 6,300,000
Estimated gross 1,200,000 900,000
Estimated total costs at completion 7,800,000 8,100,000 profit
How much income would Uni have recognized on this contract for the year ended
% of completion: 50%
December 31, 2022? 2021
a. P100,000
b. P300,000 2022 78%

c. P600,000 Gross profit earned 600,000 700,000

d. P700,000 to date

Less: Gross profit - 600,000

earned in prior year

Gross profit earned 600,000 100,000

each year
ALIPANTE, Aiza Marie C. The following data pertains to E.C Builders,Inc. which uses the percentage of completion C. 150,000
method:
Contract Price 5,000,000 Solution:
Cost incurred,2020 1,350,000
Estimated costs to complete,2020 3,150,000

How much is the gross profit to be recognized in 2020?

a. 500,000
b. 300,000
c. 150,000
d. 3,650,000

APUYA, Precious NiÑa Y. ECuadro Construction Company recognized a gross profit of Php 18,000 on its ACCP307 B. 159,000
contract which as accumulated costs of P35,000. To finish the project, the company
estimates that it has to incur P70,000 more. The contract price must be:
a. P106,000
b. P159,000
c. P140,000
d. P123,000

ARIAS, Sofia Pauline D. Cash in Bank 1,500,000 A. 3,900,000

Short-term investment 2,050,000
Trade and other receivables 1,000,000 Cash in Bank 1,500,000
Office Equipment 400,000 Short-term investment 2,050,000
Trade Payable 550,000 Trade and other receivables 350,000
 Capital Stock 2,400,000 Total Admitted Assets 3,900,000
Retained Earnings 2,000,000
● The trade and other receivable for over
Additional information: 180 day is NOT included in the
● Trade and other receivables: computation of admitted assets.
○ over 180 day receivable - 650,000 ● Office equipment is classified as non-
○ Less than 180 day receivable - 350,000 admitted assets.

What is the total admitted assets?

a. 3,900,000
b. 4,300,000
c. 3,750,000
d. 4,900,000

BAGASBAS, Vianca Therese G. Gomez, Inc. C. 7,275,500

Statement of Financial Position
As of December 31, 2021 Trade and other receivables 3,900,000
Refundable Deposits 2,000,000
Cash in Bank 16,000,000 Furnitures and Fixtures 900,500
Trade and other receivable 8,500,000 Office Equipment 475,000
Short-term investments 3,550,000 Total Non-admitted Assets 7,275,500
Creditable withholding tax 2,900,000
Refundable Deposits 2,000,000
ROU Asset 3,500,000
Furnitures and Fixtures 900,500
Office Equipment 475,000
Trade Payable 7,800,000
Lease Liability 1,000,000
Common Stock 6,400,000
Retained Earnings 4,700,000

Additional Information:
a. Included in the Trade and other receivable is an outstanding receivable (over 200
days) of 3,900,000.

How much is the total non-admitted assets?

a. 3,375,500
b. 5,275,500
c. 7,275,500
 d. 10,178,500

BALLESTEROS, Nicole C. Cash in Bank 1,800,000 B. 3,300,000

Short-term investments 1,000,000
Trade and other receivables 500,000 Cash in Bank 1,800,000
Furniture and Fixtures 800,000 Short-term investments 1,000,000
Trade Payable 200,000 Trade and other receivables 500,000
Capital Stock 2,500,000 TOTAL ADMITTED ASSETS 3,300,000
Retained Earnings 1,000,000
The admitted assets in this example are cash
Additional information: in bank, short-term investments, and trade and
Trade and other receivables are less than 180 days. other receivables only. The furniture and
fixture, although classified as an asset, are not
What is the total admitted assets? included as it is classified as non-admitted
assets. The trade and other receivables are
A. 3,500,000 also added in their full amount since it is less
B. 3,300,000 than 180 days.
C. 2,800,000
D. 2,000,000

CAJURAO, Yan Min Bee P. B. 250,000

1. In 2021. UC Builders started work on a P1,000,000 fixed price contract,
information on the construction is shown below
Contract Price - 1,000,000

2021 2022 2023 Percentage of Completion (2021) -

Cost incurred to date 200,000 825,000 1,020,000 (800,000/200,000) = 25%
Estimated costs to complete 600,000 275,000

The contract was completed in 2023 Formula:

What is the revenue to be recognized in 2021 Contract Price x Percentage of Completion

a. 200,000 1,000,000 x 25% = 25

b. 250,000
c. 300,000 Revenue to be recognized in 2021
d. 225,000 250,000
CONTRERAS, Therese M. IKON Construction Corporation uses the percentage-of-completion method of accounting. C. P400,000
In 2022, the company began work on a contract it had received which provided for a
contract price of P8,000,000. Other details follow: Contract price………………...P8,000,000
Less: Estimated cost:
Costs incurred during the year P1,200,000 Cost incurred during the year....1,200,000
Estimated costs to complete as of December 31 4,800,000 Cost to complete………………..4,800,000
Billing during the year 1,440,000
Collections during the year 1,000,000 Estimated gross profit………….2,000,000
% of Completion (1.2M/6M)....... 20%
What should be the gross profit recognized in 2022? Gross profit earned in 2022……P400,000
a. P160,000
b. P240,000
c. P400,000
d. P1,600,000

ESPENOCILLA, Angela M. The following data relating to a construction job started by Labs Co. during 2022: B. P O and P13,333, respectively

Under the zero profit method no gross

Total contract price P100,000
profit is to be recognized since the project is
Actual costs during 2022 20,000
not yet completed; under the percentage-of-
Estimated remaining costs 40,000
completion method, the gross profit to be
Billed to customer during 2022 30,000
recognized in 2022 is computed below:
Received from customer during 2022 10,000

Contract price P100,000

How much gross profit would Labs Co. recognized for 2022 under the zero profit method
Estimated cost:
and the percentage-of-completion method?
Cost to date P20,000
Cost to complete 40,000 60,000
A. P O and P26,667, respectively
Estimated gross profit 40,000
B. P O and P13,333, respectively
% of completion (P20,000+ P60,000) 33-1/3%
C. P 4,000 and P13,333, respectively
Gross profit recognized P13,333
D. P 12,000 and P33,333, respectively

FLORES, Kaela B. Cash in Bank 3,400,000 A. 420,000

 Trade and other receivables 3,000,000
Other current asset: SOLUTION:
CWT 5,000,000
Refundable deposit 300,000 Trade and OR 1,500,000
PPE: RD 300,000
ROU Asset 2,500,000 F&F 900,000
Furniture and fixtures 900,000 OE 1,500,000
Office equipment 1,500,000 Non-admitted 4,200,000

Trade Payables 2,500,000

Lease Liability 400,000

Additional information:
Trade and other receivables include outstanding receivables over 180 days
amounting to P500,000 and
over 365 days amounting to P1,000,000.

How much is the non-admitted asset?

A. 4,200,000
B. 3,000,000
C. 4,000,000
D. 6,700,000
GOLPE, Ressany V. During the year, Nida Corporation entered into a contract with a customer to build a 5- B. 28.57%
story building with 50 rooms. The corporation uses the percentage of completion as the
method of recognizing income from long-term construction contracts.

Additional Information:
Contract Price P165,000,000
Cumulative Cost Incurred 0
Total Cost Incurred 40,000,000
Estimated Cost to Complete 100,000,000

Based on these details, calculate the percentage of completion for the current period.

a. 17.86%
b. 28.57%
c. 62.50%
d. 71.43%
INTERINO, Timothy P. Manne Constructions entered in a construction project with EMS Corp that had a contract B. P350,000
price of P1,000,000. The Cost incurred to date and the Estimated cost to complete are
P250,000 and P400,000 respectively. Compute for the Estimated gross profit. EGP = Contract price – CITD – ECTC
a. P1,650,000 = P1,000,000 – 250,000 – 400,000
b. P350,000 = P350,000
c. P600,000
d. P750,000

LEONIDAS, Venus . The following data pertains to the statement of financial position of Manticore Insurance A. Php 52,800,000
Brokers, Inc., an existing insurance broker. Cash in banks of P50,000,000, Trade and Cash in banks P50,000,000
Trade and other receivables 6,500,000
other receivables of 6,500,000 (including outstanding receivables over 180 days Other current assets 800,000
amounting to P3,000,000 and over 365 days amounting to P1,500,000), and Other current Total Assets 57,300,000
assets of 800,000. How much is the total admitted assets of the corporation? Less:
a. Php 52,800,000 Non Admiited Assets
Outstanding Receivables (over 180 days) 3,000,000
b. Php 54,300,000 Outstanding Receivables (over 365 days) 1,500,000
c. Php 55,800,000 Total Admitted Assets 52,800,000
d. Php 57,300,000

NOTOB, Mary Nichole R. A. 70%

PALINO, Jhuliane B. Hotdog Corp. is a construction company, given the following data, compute for the C. 19%
percentage of completion of the project they are currently working on.
● Actual cost incurred to date 13,000,000 Actual cost incurred to date 13,000,000
● Estimated cost to complete 55,000,000 Add:Estimated cost to complete 55,000,000
Total estimated cost 68,000,000
a. 23%
b. 20.5% Actual cost incurred to date 13,000,000
c. 19% Divide by:Total estimated cost 68,000,000
 d. 19.4% Percentage of completion 19%

RAFER, Phoebe Anne B. How much is the Gross profit to date if: 89,275

Cost incurred this year- 250,000 950,000

Estimated cost to complete- 450,000 (700,000)
Contract price- 950,000 250,000

250/700= 35.71%

250,000*35.71%= 89,275

SABIÑA, Shaine Andrea P. Sir Emman Ipasa Mo Ako Please Inc. has consistently used the percentage-of-completion C.) 100,000
method of accounting for construction- type contracts. During 2020 the company started
work on a P9,000,000 fixed-price construction contract that was completed
in 2022. The company’s accounting records disclosed the following:

December 31
2020 2021

Cumulative contract costs incurred P3,900,000 P6,300,000

Estimated total cost at completion 7,800,000 8,100,000

How much income would Sir Emman Ipasa Mo Ako Please Inc. have recognized on this
contract for the year ended December 31, 2021?

a. P700,000
b. P600,000
c. P100,000
d. P300,000

SABULARSE-CORONEL, The statement of financial position of Tangol Insurance Company shows the following Answer: A. P92,100,000
Micah April C. assets:
Cash in bank P65,000,000
Cash in bank P65,000,000 Short-term investment 5,000,000
Short-term investment 5,000,000 Trades and other receivables 21,500,000
Trades and other receivables 40,000,000 Other current assets 600,000
(Including outstanding receivables over 180 days amounting to 10,500,000 and over Total admitted assets 92,100,000
 365 days of 8,000,000)
Other current assets 600,000 Note:
Trades and other receivables is computed by
What is the amount of total admitted assets? deducting the 10,500,000 receivables over 180
a. P92,100,000 days and 8,000,000 over 365 days. Both are
b. P110,600,000 classified as NON-ADMITTED ASSETS.
c. P129,100,000
d. P91,500,000

SALVADOR, Julliana Angela B. The following data pertains to ACCP307 Co’s construction jobs, which commenced during Answer: A. P(20,000) and P20,000
2022:

Project 1 Project 2 Under the zero profit method. The expected

Contract Price 420,000 300,000 income on project 1 [P420,000 – (P240,000 +
Costs incurred during 2022 240,000 280,000 P120,000) = P60,000] is not recognized until
Estimated costs to complete 120,000 40,000 the project is completed. However, under this
Billed to customers during 2022 150,000 270,000 method, an expected loss on a contract must
Received from customers during 2022 90,000 250,000 be recognized in full in the period in which it is
discovered. Project 2 has an expected loss of
What amount of gross profit (loss) would ACCP307 Co. report in 2022 under the zero (P20,000) [P800,000 – (P280,000 + P40,000)]
profit method and the percentage-of-completion method, respectively? which must be recognized immediately in 2022.
Under the percentage-of-completion method
a. P(20,000) and P20,000 gross profit is recognize using the following
b. P20,000 and P(20,000) formula:
c. P20,000 and P340,000
d. P40,000 and P420,000

ACCP307 Co. would recognize gross profit of

P40,000 on project 1:

Prior years’ gross profit need not be subtracted

from P40,000 because the project commenced
during 2022.

Under both the percentage-of-completion

method and the zero profit method, an
expected loss must be recognized in full in the
 period in which the expected loss is
discovered. Project 2 has an expected loss of
(P20,000) [P300,000 – (P280,000 + P40,000)]
which must be recognized in full in 2022. The
net gross profit recognized on the two projects
is P20,000 (P40,000 profit less (P20,000) loss.

SARMIENTO, Katherine F. In your 2022 audit of a construction company, you discovered that your client recorded a Answer: C. Understated by 30,000
gross profit of Php 60,000 this year for Contract A. The data for the construction contract
being audited are as follows.

Start of contract: 2022 (current year)

Fixed price of the contract: Php 1,500,000
Costs for the year: Php 450,000
Estimated costs to complete: Php 800,000

Based on your audit, by how much is the gross profit understated/overstated?

a. Overstated by 90,000
b. The gross profit recorded is correct.
c. Understated by 30,000
d. Overstated by 30,000

SIBULO, Nicole Anne S. On Oct. 1, 20x1, Cute A Co. enters into a construction contract with a customer. The A. 38%
performance obligation in the contract will be satisfied over time. Cute A Co. uses the
“cost-to-cost” method in measuring its progress. The estimated total contract cost is
₱10M. In 20x1, Cute A Co. incurred a total cost of ₱6M, which includes ₱2M advance
payment to a subcontractor (the subcontracted work is not yet started) and ₱200,000 cost
of materials not yet installed. Cute Co. does not regard the cost of the unused materials as
significant in relation to the expected total contract costs. Moreover, Cute A Co. retains
control over the unused materials because it can use them in a contract with another
customer. What is the percentage of completion in 20x1?

a. 38%
b. 40%
c. 42%
d. 56%

TURIANO, Portia M. On contract X, which had accrued costs of P35,000, Magis Construction, Inc. reported a C. Php 159,000
gross profit of P18,000. According to the company's estimate, the project will cost an
 additional P70,000. The contract price shall be? Contract Price
(54,000+ 105,000) Php 159,000
Contract Price ?
Cost to date Php 35,000
Cost to date Php 35,000 Estimated cost Php 70,000
Estimated cost Php 70,000 Total Cost Php 105,000
Total Cost Php 105,000
Gross Profit (18,000/33.33%)Php 54,000
Gross Profit ? Realized Gross Profit Php 18,000
Realized Gross Profit Php 18,000 Percentage of completion
Percentage of completion ? (35,000/105,000) 33.33%

a. Php 106, 000

b. Php 140,000
c. Php 159,000
d. Php 123,000

UVAS, Elouiza Gay R. ABC Construction Company uses the percentage-of-completion method of accounting. B. 250,000
During 2023, ABC was contracted to build an apartment house for George for
P10,000,000. ABC estimated the total costs would amount to P8,000,000 over the period
of construction. In connection with this contract, ABC incurred P1,000,000 of construction
costs during 2023. They billed and collected P1,500,000 from George in 2023. How much
gross profit should ABC recognize in 2023?
a. 300,000
b. 250,000
c. 187,500
d. 125,000

Instruction:
1. Look for your name in the three sections.
2. Input the question and corresponding answer
Coverage of Questions:
1. Insurance Industry
2. Construction Industry
Identification
Name
ABIOG
AGUILA, John Paul B.
ALIGANDO, Hazel Ann N.
BELARDO, Ma. Ciela S.
ACCP307.AC32Am Final Examination Questions
Question Answer
It is defined as an account used in traditional construction accounting to record amounts billed for B. PROGRESS BILLING
work performed on a contract whether or not they have been paid by the customer.
a. Project Billing
b. Progress Billing
c. Process Billing
d. Recurring Billing
The following are the important requirements needed in applying for PCAB license, except: D. Original Copy of the Business Name
a. Original NBI Clearance Registration Certificate
b. Proofs of Employer’s membership with SSS, PHILHEALTH, and PAG-IBIG
c. Documents supporting other assets
d. Original Copy of the Business Name Registration Certificate
A regular license shall be valid for one (1) fiscal year, ____________ of the ensuing year, unless B. From the 1st of July to the 30th of June
suspended, invalidated, cancelled or revoked by the Board and shall be renewed annually.
a. From the 1st of January to the 30th of December
b. From the 1st of July to the 30th of June
c. From the 1st of April to the 30th of March
d. From the 1st of June to the 30th of May
A person or an entity that purchase life or non-life insurance policies and pays periodic premiums A. POLICYHOLDER
a. Policyholder
 b. Ceding Company
c. Insurance broker
d. Insurance Agent

CABALTERA ____ is defined as a contract specifically negotiated for the construction of an asset or a A. Construction contract
combination of assets that are closely interrelated and interdependent in terms of the design,
technology and function or their ultimate purpose or use)
a. Construction contract
b. Promissory note
c. Employment contract
d. Franchise contract

CLEDERA The following are the weaknesses and deficiencies that may arise in the audit of construction
except C. Lack of cost record and poor quality of
construction equipment
A. Failure to periodically evaluate contract profitability on a realistic basis
B. Inadequate control of construction equipment and
C. Lack of cost record and poor quality of construction equipment
D. Weakness in billing procedures

DELOS SANTOS, Karren Andrea D.
A type of construction contract wherein the maximum amount the owner will have to pay the B. Guaranteed maximum price contract (GMP)
contractor is capped. It limits the amount the owner will have to pay, and any additional expenses
incurred are covered by the contractor.
a. Fixed price contract
b. Guaranteed maximum price contract (GMP)
c. Integrated project delivery contract (IPD)
d. Time and materials contract (T&C)

DERIS It shall be appointed by the President of the Republic of the Philippines for a term of six D. Insurance commissioner
(6) years without reappointment and who shall serve as such until the successor shall have been
appointed and qualified.

a. Insurance broker
b. Insurance agent
c. Insurance commission
d. Insurance commissioner

GARCHITORENA, Dale Jose R. When auditing a construction industry client, which of the following is not an appropriate audit B. Confirming the revenue balance with
procedure to test the completeness of revenue? the client's customers
 a. Vouching a sample of revenue transactions to the underlying contracts or agreements
b. Confirming the revenue balance with the client's customers
c. Inspecting the client's bank statements for evidence of deposits
d. Examining the client's invoices to ensure that they are properly recorded in the
accounting records

GUIRUELA A procedure that is most persuasive in gathering evidence about the existence of B. Confirmation Reply and Assessment
receivables accounts Monitoring
a. Test of Subsequent Collections
b. Confirmation Reply and Assessment Monitoring
c. Aging analysis
d. Vouching of Contracts

IMPERIAL The following statements are the reason why adequate planning is important, except: D. Helps ensure that the audit is conducted
A. Helps ensure that appropriate attention is devoted to important areas of the audit flawlessly
B. Identification of potential problems
C. Assists in the proper assignment and coordination of work
D. Helps ensure that the audit is conducted flawlessly

MERCADAL, Allea Marie P. A contractor who’s hired alongside other contractors in a horizontal (equal) relationship to each a. Independent contractor
other, rather than the vertical relationships between contractors and subcontractors.
a. Independent contractor
b. General contractor
c. Subcontractor
d. Project contractor

OYARDO What does IFRS 15, the standard on revenue recognition from contracts with customers, primarily B. The recognition of revenue should occur when
aim to achieve? an entity transfers control of goods or services to a
customer, at an amount that the entity anticipates
a. The recognition of revenue should occur when an entity transfers control of goods or being entitled to.
services to a customer.
b. The recognition of revenue should occur when an entity transfers control of goods or
services to a customer, at an amount that the entity anticipates being entitled to.
c. Revenue should be recognized gradually over time in a way that accurately represents the
entity's performance.
d. Revenue should be recognized at a specific moment when control of the goods or services
is transferred to the customer.
PERRAS This represents the entity that prepares and issues policies to consumers; shall include all C. Insurance Company
partnerships, associations, cooperatives, or corporations, including government-owned or
controlled corporations or entities, engaged as principals in the insurance business, except mutual
benefit associations.
a. Insurance agent
b. Insurance broker
c. Insurance company
d. Insurance policy

SERRANO This audit procedure may be used as an alternative to CRAM in the audit of Trade and Other C. Test of Subsequent Payments
Payables in accordance with the existence assertion .

a. Test of Subsequent Collection

b. Vouching of Contracts
c. Test of Subsequent Payments
d. Cut off Testing

SIO This accounting standard establishes principles for the recognition, measurement, presentation, b.) PFRS 17
and disclosure of insurance contracts within the scope of the Standard. The objective is to ensure
that an entity provides relevant information that faithfully represents those contracts. This
information gives a basis for users of financial statements to assess insurance contracts' effect on
the entity’s financial position, financial performance, and cash flows.
a.) PAS 26
b.) PFRS 17
c.) PFRS 15
d.) PFRS 9
True or False
Name Question Answer

ABIOG Statement I- Cost-plus-fixed-fee contract is a contract where the contractor is reimbursed for D. NEITHER STATEMENT I NOR
agreed costs with no provision for a fixed fee; total contract price composes of the reimbursable STATEMENT II ARE CORRECT.
costs and the percentage of these costs

Statement II - Cost-plus-variable-fee contract is a contract where the contractor is reimbursed for

agreed costs plus provision for a fixed fee. The contract price is the sum of reimbursable costs and
fixed rate.
a. Only Statement I is true.
b. Only Statement II is true.
c. Both statements are correct.
d. Neither Statement I nor Statement II are correct.

AGUILA, John Paul B. Statement 1: The minimum net worth requirement for a new entrant as an insurance broker or D. Both statements are false
reinsurance broker is P25,000,000.

Statement 2: The minimum paid-up capital for insurance companies must be at least two billion
pesos.

a. Only Statement 1 is true

b. Only Statement 2 is true
c. Both statements are true
d. Both statements are false

ALIGANDO, Hazel Ann N. Statement 1: A special license shall be cancelled by the Board upon completion of the single B. FALSE : TRUE
specific undertaking/project authorized by the license or shall be valid for one (1) year, whichever
comes earlier. Statement 2: The independent auditor should investigate contracts which indicates
an abnormally low rate of gross profit
a. TRUE : FALSE
b. FALSE : TRUE
c. FALSE : FALSE
d. TRUE : TRUE

BELARDO, Ma. Ciela S. Statement 1 - It is crucial to determine the completeness and accuracy of recorded actual costs C. ONLY STATEMENT 1 IS CORRECT
 during the period.
Statement 2 - Estimated cost incurred during the year also influences the percentage of
completion to be
applied in getting the gross profit for the current year.

a. BOTH Statement 1 and 2 are correct

b. Neither Statements are correct
c. Only Statement 1 is correct
d. Only Statement 2 is correct

BRUSAS

CABALTERA A. Both statements are true

Statement I: Fixed price contract is a construction contract on which the contractor agrees to a
fixed contract price, or a fixed rate per unit of output, which in some cases is subject to cost
escalation clauses

Statement II: Cost plus contract is a construction contract in which the contractor is reimbursed
for allowance or otherwise defined costs, plus a percentage of these costs or a fixed fee

A. Both statements are true

B. Both statement are false
C. Only statement 1 is true
D. Only statement 2 is true

CLEDERA Statement 1: The auditor must have sufficient knowledge of the contractor's operations and
general understanding of the construction problems. B. Only statement 1 is correct

Statement 2: The internal auditor should investigate contracts which indicates an abnormally low
rate of gross profit

A. Both statements are correct

B. Only statement 1 is correct
C. Only statement 2 is correct
D. Both statements are false
DELOS SANTOS, Karren Andrea D.
DERIS
GARCHITORENA, Dale Jose R.
Statement 1: Insurance company shall include all partnerships, associations, cooperatives or D. Both statement are false
corporations, engaged as principals in the insurance business, excepting government-owned or -
controlled corporations
Statement 2: For the proper valuation of the property, plant and equipment, the auditor should
also consider if there are impairment indicators and write
down the asset to its historical amount.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statement are false
D. Both statements are false
Statement 1- The audit plan sets out in detail the audit procedures to be performed in each
segment of the audit; should include the detailed audit procedures to address the specific
management assertions per account in the financial statements.
Statement 2 - The audit program is an overview of the expected scope and conduct of the
audit; sets out in broad terms the nature, timing, and extent of the audit procedures to be
performed
a) Both statements are correct
b) Only statement 1 is correct
c) Only statement 2 is correct
d) Both statements are false
Statement I - The degree of competition in the construction industry is a significant inherent risk D. Neither Statement 1 nor Statement 2 is true.
factor in auditing a construction industry client.
Statement II - The level of expertise of the client's management team is an appropriate
consideration in assessing the risk of material misstatement in the financial statements of a
construction industry client.
a. Only Statement 1 is true.
b. Only Statement 2 is true.
c. Both Statements are true.
d. Neither Statement 1 nor Statement 2 is true.
GUIRUELA Statement 1: Guaranteed maximum price contract is the maximum amount with an e. Statement 1 is false, statement 2 is true
agreed-upon payment if the project is delivered by a certain date and at a specific point.
Statement 2: Integrated project delivery contract is a delivery model for delivering
construction projects using a single contract for design and construction.
a. Statement 1 is true, statement 2 is false
b. Statement 1 is false, statement 2 is true
c. Both statements are true
d. Both statements are false

IMPERIAL Statement 1: In the stages of construction, before the commencement of the project, it is D. Both statements are false.
necessary to secure some of the building permits. This process goes on throughout the project as
different disciplines have different licenses.
Statement 2: In the post-construction stage, all the resources unnecessary for the project are
mobilized.
A. Statement 1 is true, statement 2 is false
B. Statement 1 is false, statement 2 is true
C. Both statements are true
D. Both statements are false

MERCADAL, Allea Marie P. Statement 1: A contractor’s receivables include amounts currently receivable on completed and C. Both statements are true
uncompleted contracts and certain percentages retained from these receivables.
Statement 2: The contractor’s accounting records should have separate accounts for these two
types of receivables.
a. Statement 1 is true, statement 2 is false
b. Statement 1 is false, statement 2 is true
c. Both statements are true
d. Both statements are false

OPES

OYARDO Statement 1: The income recognized using the installment method is calculated by multiplying the D. 2 of the statements are incorrect
cash collected by the net operating profit percentage.
Statement 2: Under contract costs that cannot be recovered, auditors should recognize expense
immediately and in effect, contract can still be fully enforceable.
a. 2 of the statements are correct
 b. Only statement one is correct
c. Only statement two is correct
d. 2 of the statements are incorrect

PERRAS Statement 1: One of the essential but very important aspects of auditing construction industries is A. Only statement 1 is true
the review of the major contracts.

Statement 2: Mandated by the Republic Act 4565 or also known as the Contractor’s License Law,
the Philippine Contractors Association Board (PCAB) requires contractors who engage in the
construction industry or any business of contracting in the country to have a PCAB license.

a. Only statement 1 is true

b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

SERRANO Statement 1: It is not an offense to engage in contracting business without a license

Statement 2: Special license is canceled by the contractor upon completion of the single or D. Neither statements are true
specific undertaking authorized by the license.

a. Only Statement 1 is true

b. Only Statement 2 is true
c. Both statements are true
d. Neither statements are true

SIO Statement 1: A contract of insurance is a written instrument in which a contract of insurance is b.) Both statements are false.
set forth.
Statement 2: The spouse's consent is necessary for the validity of an insurance policy taken out by
a married person on his or her life or that of his or her children.

a.) Both statements are true.

b.) Both statements are false.
c.) Only statement one is true.
d.) Only statement two is true.
Simple Problem Solving
Name Question Answer

ABIOG Hogwarts Construction, Inc recognized gross profit of P18,000 on its contract X which has B. P159,000
accumulated costs of P35,000. To finish the project, the company estimates that it has to incur
P70,000 more. Compute for the contract price.

a. P106,000 c. P140,000
b. P159,000 d. P123,000

AGUILA, John Paul B. Angat Pinas, Inc has consistently used the percentage-of-completion method of recognizing B. 3,700,000
income. During 2021, Angat Pinas, Inc. entered into a fixed-price contract to construct an office
building for P10,000,000. Information relating to the contract is as follows:

At December 31

2021 2022

Percentage of completion 20% 60%

Estimated total cost at completion 8,500,000 9,000,000

Income recognized (cumulative) 600,000 1,300,000

Contract costs incurred during 2022 were:

a. 7,100,000
b. 3,700,000
c. 3,500,000
d. 5,400,000

ALIGANDO, Hazel Ann N. CHALLENGE Construction Company is executing a gigantic project of constructing the tallest B. 10,000,000
boarding house in the country.The project is expected to take three years to complete.
CHALLENGE uses the percentage of completion method.

The company has signed a fixed price contract of P12,000,000 for the construction of this
prestigious boarding house.

The details of the costs incurred to date in the first year are:
 Site labor costs 1,000,000

Costs of construction material 3,000,000

Depreciation of special plant and equipment used in constructing the 500,000

boarding house

Marketing and selling costs to get the boarding house in the country the 1,000,000
right exposure

Total contract cost estimated to complete 5,500,000

How much is the Total Estimated Cost?

a. 5,500,000
b. 10,000,000
c. 4,500,000
d. 5,400,000

BELARDO, Ma. Ciela S. Flower Company Inc. has consistently used the percentage-of-completion method of recognizing B. P100,000
income. In 2016, Flower started work on a P3,000,000 fixed-price construction contract. The
accounting records disclosed the following data for the year ended December 31, 2016:
Cost incurred - P930,000
Estimated cost to complete - P2,170,000

How much loss should Flower Company have recognized in 2016?

a. P230,000
b. P100,000
c. P30,000
d. P 0

BRUSAS

CABALTERA The following pertains to the Statement of Financial Position of JMC Insurance Brokers, Inc., an A. 100,000,000; 0
existing insurance.

Cash in banks 100,000,000

Trade and other receivables 50,000,000
PPE 60,000,00
 Trade and other payables 70,000,000

Additional information:
● Trade and other receivables includes outstanding over 180 days amounting to 6,000
● PPE is composed of:Office equipment 20,000,000, Office furniture 15,000,000, Right of
use assets 25,000,000

How much is the Admitted Cash in bank, to be included in the computation of net worth of JMC
Insurance Brokers, Inc. and the Non-admitted cash in bank to be excluded?

a. 100,000,000; 0
b. 0; 100,000,000
c. 50,000,000; 100,000,000
d. 60,000,000; 50,000,000

CLEDERA GAP Construction company was awarded a contract to construct a new solar power source for a
price of 80,000,000. Information on the contract are the following: Cost incurred to date B.33.33%
25,000,000, estimated cost to complete 50,000,000 and progress billings of 10,000,000. Using the
percentage-of-completion method, compute the percentage of completion

A. 31.25%
B. 33.33%
C. 62.5%
D. 80%

DELOS SANTOS, Karren Andrea D. 1. On October 1, 2017, Zenith Corporation entered a contract to build a sports arena which B. 147,240
it estimated would cost P3,120,000. Zenith bills its clients at cost plus 20% and recognized
construction revenue on a percentage-of-completion basis. Data on this project for 2017,
2018, and 2019 follow:

Cost incurred Estimated costs to

complete

2017 546,000 2,054,000

2018 998,400 1,315,600

2019 1,575,000 0
 Zenith Corporation’s gross profit earned for 2019 is:

a. 237,120
b. 147,240
c. 240,240
d. 624,600

DERIS Marr Construction Company has consistently used the percentage-of-completion method. On A. 300,000
January 10, 2015, Marr began work on a P6,000,000 construction contract. At the inception date,
the estimated cost of construction was P4,500,000. The following data relate to the progress of
the contract:
Income recognized at 12/31/2015 P 600,000
Cost incurred 1/10/2013 through 12/31/2016 3,600,000
Estimated cost to complete at 12/31/2016 1,200,000

How much income should Marr recognize for the year ended December 31, 2016?
a) P300,000
b) P525,000
c) P600,000
d) P900,000

GARCHITORENA, Dale Jose R. Marupok Inc., an insurance company has the following financial information in your year-end A. P 2,000,000
audit:
Total admitted assets: P 10,000,000
Non-admitted assets: P 2,000,000
Liabilities: P 8,000,000
What is the net worth of the insurance company?
a. P 2,000,000
b. P 4,000,000
c. P 10,000,000
d. P 12,000,000

GUIRUELA

IMPERIAL Below presents the Statement of Financial Position of De Guzman Insurance Brokers, Inc. B. P5,978,000

De Guzman Insurance Brokers, Inc.

Statement of Financial Position
As of December 31, 2021
 Cash in hand 16,000,000
Cash in bank 18,000,000
Trade and other receivables 6,500,000
Other current assets 143,000
Property, plant and equipment 5,000,000
Trade and other payables 9,800,000
Common stock 8,000,000
Retained earnings 15,350,000

Additional information:
1. The outstanding amount of trade and other receivables over 180 days are half of its
amount.
2. Other current assets include refundable deposits from a lease contract amounting to
65,000.
3. PPE composes of:
Office equipment 2,650,000
Right of use assets 2,350,000

Required:
Compute for the non-admitted assets.

A. P8,328,000
B. P5,978,000
C. P5,678,000
D. P9,293,000

MERCADAL, Allea Marie P. In 2009, Prim Builders began construction work under a three-year contract at a price of d. P2,315,385
P7,000,000. The firm uses the percentage-of-completion method for financial accounting
purposes. The income to be recognized each year is based on the proportion of cost incurred to
the total estimated costs for completing the contract. The financial statement presentations
relating to this contract on December 31, 2009, are:
Balance Sheet
Accounts receivable P150,500
Construction in progress P602,000
Less progress billings 562,000 40,000

Income Statement
 Gross profit on construction contracts P301,000

What is the estimated income on the construction contract?

a. P2,508,333
b. P903,000
c. P7,525,000
d. P2,315,385

OPES

OYARDO Kimmy Builders Construction and Irithel, a customer, sign a contract on March 30, 20x5, for the a. 894,500
construction of a warehouse valued at P850,000. The contract includes a performance bonus of
P50,000, which will be awarded if the building is finished by July 31, 20x5. However, the bonus
amount will be reduced by P10,000 for every week of delay in completion. Kimmy Builders
frequently incorporates such completion bonuses in its contracts and, based on previous
encounters, makes estimated projections for the following completion scenarios:

Completed by Probability

July 31, 20x5 65%

August 7, 20x5 25%

August 14, 20x5 5%

August 21, 20x5 5%

The transaction price amounted to:

a. 894,500
b. 850,000
c. 585,000
d. 552,500

PERRAS Yellow Construction Inc. has consistently used the percentage-of-completion method of D. 100,000
recognizing income. In 2022, Yellow started to work on a Php 3,000,000 fixed-price construction
 contract. The accounting records disclosed the following data for the year ended December 31,
2022.

Cost of Construction 930,000

Estimated cost to complete the construction 2,170,000
Progress Billing 1,100,000
Collections 700,000

How much loss should Yellow Inc. have recognized in 2022?

a. 140,000
b. 30,000
c. 0
d. 100,000

SERRANO CBG Construction Company uses the percentage-of-completion method of accounting. CBG began A. 30%
work on a project which had a contract price of 55,000,000 and estimated costs of 35,000,000.
Additional information are as follows: Cost to date 15,000,000, Progress billing 7,000,000 and
Cash collected 7,000,000. Compute for the percentage of completion.

a. 30%
b. 50%
c. 70%
d. 45%

SIO Jayserson Construction Company uses the percentage-of-completion accounting approach. During d.) P250,000
2023, Jayserson contracted to develop an apartment house for Panglidawan for P10,000,000.
Over the course of construction, Jayserson predicted that total expenses would total P8,000,000.
Jayserson spent P1,000,000 on construction in 2023 as a result of this deal. In 2023, Panglidawan
paid Jayserson P1,500,000 in bills and collections. What amount of gross profit should Jayserson
expect in 2023?
a.) P300,000
b.) P187,500
c.) P125,000
d.) P250,000
 ACCP 307.AC 33 Am Final Examination Questions
Instruction:
1. Look for your name in the three sections.
2. Input your question and answer. (Explanation is submitted along with individual output)
Coverage of Questions:
1. Insurance Industry
2. Construction Industry
I. Identification
No Name
1 ADRIANO, Limuel P.
2 ASIDO, Maricon B.
3 BAILEY, Ahren Julian Marie N.
4 BALID, Allea Nicole L.
Question Answer
It is a type of construction contract where the owner pays an agreed-upon price based on the time spent c. Time and materials contract (T&C)
on the project, required materials, and the included profit rate. Like the lump-sum contract, this agreement
is simple and straightforward.
a. Fixed price contract
b. Guaranteed maximum price contract (GMP)
c. Time and materials contract (T&C)
d. Incentive construction contracts
This is defined as the amount of consideration to which an entity expects to be entitled in exchange for C. Transaction price
transferring promised goods and services to a customer, excluding amounts collected on behalf of third
parties.
a. Fixed price
b. Contract price
c. Transaction price
d. Exchange price
Which of the following Processing Time for Contractor’s License is correct? C. Additional Project Kind - 15
A. New Regular License - 20 days business days
B. Renewal of Regular License - 15 business days
C. Additional Project Kind - 15 business days
D. Additional Project Kind - 20 business days
Which of the following terms refers to a person or company that agrees to fulfill the terms of a construction a. Contractor
contract with the owner or developer of a project?
a. Contractor

5 BASTO, Hannah Fria B.
6 BAZAR, Abegail S.
7 BERJUEGA, Ana Carmela A.
8 BOTOR, Rhosell Dionne P.
9 BRIONES, Jullia Iris C.
b. Subcontractor
c. Insurance broker
d. None of the above
They represent consumers in their search for coverage and can sell policies from several different a. Insurance broker
insurance companies for a commission.
a. Insurance broker
b. Insurance agent
c. Insurance company
d. Insurance commission
During the audit of payments under a construction contract with a local firm, the auditor finds a 35,000 a. Inform the audit director.
recurring monthly reimbursement for rent at a local apartment complex. Each reimbursement is authorized
by the same project engineer. The auditor finds no provision for payment of temporary living expenses in
the construction contract. Discussion with the project engineer could not resolve the matter. The auditor
should:
a. Inform the audit director.
b. Call the engineer into a private meeting to confront the situation.
c. Complete the audit as scheduled, noting the 35,000 recurring reimbursement in the working
papers.
d. Wait until the engineer is surrounded by plenty of witnesses and then inquire about the payments.
This is one of the stages of construction which is necessary for developing a formal approach in a. Pre-construction phase
calculating costs, scope, and schedules for project execution.
a. Pre-construction phase
b. Procurement
c. Construction phase
d. Post-construction phase
It is the most persuasive audit procedure in terms of gathering evidence about the existence of cash in a. Confirmation Reply and Assessment
bank. Monitoring (CRAM)
a. Confirmation Reply and Assessment Monitoring (CRAM)
b. SL-GL Reconciliation
c. Test of Subsequent Collections
d. Test of Reasonableness of Amortization
A type of contract that addresses design and construction costs simultaneously. Under this type of d. Design-build Contract
contract, the construction process actually begins before the final design is completed.
a. Guaranteed Maximum Price Contract
b. Incentive Construction Contract
c. Integrated Project Delivery Contract
 d. Design-build Contract

10 CARIÑO, Jhovet Christian M. The most likely reason for the auditor to be concerned about the valuation of cash is that d. The client has foreign currency
a. The proof of cash cannot be reconciled. accounts.
b. The client uses a checking account.
c. Both currency and negotiable securities are on hand.
d. The client has foreign currency accounts.

11 DELORINO, John Carlo .

12 ESPAÑO, Leslie Jam O. It is an account used in traditional construction accounting to accumulate contract costs incurred and c. Construction in progress
recognized profits (less recognized losses) to date.
a. Progress Billing
b. Contract asset
c. Construction in progress
d. Contract Liability

13 EVALLA, Kathleen Mae T. The main contractor on a jobsite, hired by the owner to completely oversee the project from start to finish. c. General Contractor
They are involved in some combination of performing the work directly, hiring subcontractor and workers
and managing the work of subcontractors and their own hires.
a. Contractor
b. Project Manager
c. General Contractor
d. Subcontractor

14 FLORDELIZ, Jean Grace P. As an auditor, it is important to have a broker's agreement with the insurance companies a. Vouching of Broker's Agreement
because this embodies the terms such as the commission rate. What audit procedure can a
broker's agreement be verified?
a. Vouching of Broker's Agreement
a. Tracing of Broker's Agreement
b. Rollforward of Broker's Agreement
c. Proper Classification of Broker's Agreement

15 ILARDE, Revelyn A. It is an entity’s right to consideration that is unconditional; that is, only passage of time is required b . Receivable
before the payment of that consideration is due, even if the amount is subject to refund in the future
a. Contract asset
b. Receivable
c. Contract Liability
d. Retentions

16 LIZARDO, Dominique T. The auditor wishes to test the assertion that all claims paid by a medical insurance company contain d. Select a sample of paid claims from
proper authorization and documentation, including but not limited to the validity of the claim from an the claims (cash) disbursement file and
approved physician and an indication that the claim complies with the claimant’s policy. The most trace to documentary evidence of
appropriate audit procedure would be to: authorization and other supporting
a. Select a random statistical sample of all policyholders and examine all claims for the sampled documentation.
 items during the year to determine if they were handled properly.
b. Select a sample of claims filed and trace to documentary evidence of authorization and other
supporting documentation.
c. Select a sample of claims denied and determine that all claims denied were appropriate. The
claims denied file is much smaller, and the auditor can obtain greater coverage with the sample
size.
d. Select a sample of paid claims from the claims (cash) disbursement file and trace to documentary
evidence of authorization and other supporting documentation.

17 MANACOB, Trisha Mae V. It is known as the main contractor on a jobsite which is hired by the owner to completely oversee the b. General Contractor
project from start to finish.
a. Contractor
b. General Contractor
c. Subcontractor
d. Project manager

18 MONTE, Aubrey Mae G. Contract asset is an entity’s ___ to consideration in exchange for goods or services that the entity has a. right
transferred to a customer when the right is conditioned to something other than passage of time (entity’s
future performance).
a. right
b. obligation
c. either A and B
d. none of these

19 NARADULLA, Rhea Loren R. It is the phase when the shovel hits the ground, transforming the empty field into a skyscraper. b. Construction phase
a. Post-construction phase
b. Construction phase
c. Pre-construction phase
d. Project conception

20 OATEMAR, Czyrean O. The auditor’s procedure to search for unrecorded retirement of property, plant and equipment is consistent a. Existence
with the auditor’s objective of auditing which financial statement assertion over PPE?
a. Existence
b. Completeness
c. Valuation
d. Rights and Obligation

21 OREA, Danielle Ann . It sets out in detail the audit procedures to be performed in each segment of the audit. b. Audit Program
a. Audit Plan
b. Audit Program
c. Time Budget
d. Engagement Letter

22 PACIFICO, Mariane Fatima E. A third person who is procured by the main insurer to insure him against loss or liability by reason of such b. Reinsurer
original insurance.
a. Policyholder
 b. Reinsurer
c. Ceding Company
d. Contract of Reinsurance

23 SABUERO, Jericho C. Which of the following is not a key objective of an audit for a construction company? b. Maximizing shareholder profit
a. Ensuring compliance with legal and regulatory requirements
b. Maximizing shareholder profit
c. Verifying the accuracy of financial statements
d. Evaluating the effectiveness of internal controls

24 SAN JOSE, Jashylle Krishane B. It is typically known as a representative or employee of the owner. This manager hires various contractors c. Project Manager
and workers and oversees their own work and hiring (if applicable).
a. Contractor
b. General Contractor
c. Project Manager
d. General Manager

25 SEECHUNG, Florizza Dominique I. A contract in which the unavoidable costs of meeting the obligations under the contract exceed the c. Onerous contract
economic benefits expected to be received under it.
a. General contract
b. Construction contract
c. Onerous contract
d. Gratuitous contract

26 TALBO, Georgie Ann M. It is done at the initial stage of construction where it involves checking whether the proposed solutions are c. Feasibility studies
in alignment with the main objectives.
a. Project cost evaluation
b. Project plan
c. Feasibility studies
d. Strategic plan

27 TANCUECO, Janica Mae DR.

28 TEJERO, Daniella Clarisse T. After the project conception, the owner, architect, and construction manager move to this stage, which b. Design
gives a roadmap that highlights the purpose of the project and foreseeable hurdles.

a. Pre-construction
b. Design
c. Procurement
d. Construction

29 VELASCO, Juan Paulo Mari S. D. Verifying the existence of

Which of the following audit procedures would be most relevant for an audit of a construction company? construction permits for new projects
 a. Reviewing the company's compliance with environmental regulations
b. Testing the accuracy of inventory counts at a retail store
c. Examining the adequacy of internal controls over financial reporting
d. Verifying the existence of construction permits for new projects

30 VILLAS, Nikki F. The Insurance Commissioner shall be appointed by the President of the Republic of the Philippines for a c. six
term of ____ years without reappointment and who shall serve as such until the successor shall have
been appointed and qualified.
a. four
b. five
c. six
d. seven
 II. True or False
No Name
1 ADRIANO, Limuel P.
2 ASIDO, Maricon B.
3 BAILEY, Ahren Julian Marie N.
4 BALID, Allea Nicole L.
Question Answer
Statement 1: Output method recognize revenue on the basis of indirect measurements of the value to d. Neither statement 1 and statement 2
the customer of the goods and services transferred to date relative to the remaining goods or services are TRUE
promised under the contract
Statement 2: A Subcontractor is an individual or business that obtains construction contracts and sees
them through, delivering what’s contractually required.
a. Only statement 1 is TRUE
b. Only statement 2 is TRUE
c. Both statement 1 and statement 2 are TRUE
d. Neither statement 1 and statement 2 are TRUE
Statement 1: Translation of Foreign Currency Denominated Bank Account is the most persuasive D. Both statements are false
procedure in gathering evidence about the existence of cash in a bank.
Statement 2: Confirmation Reply and Assessment Monitoring (CRAM) refers to reconciliation made
between the General Ledger and Subsidiary Ledger of cash and cash equivalents account.
a. Statement 1 is true and Statement 2 is false
b. Statement 1 is false and Statement 2 is true
c. Both statements are true
d. Both statements are false
Statement 1: A regular license shall be valid for one (1) fiscal year, from the 1st of July to the 30th of B. Both Statements are False
June of the ensuing year, unless suspended, invalidated, cancelled or revoked by the Board and shall be
renewed monthly.
Statement 2: A special license shall be cancelled by the Board upon completion of the single specific
undertaking/project authorized by the license and to which it is, therefore, restricted even though after
expiry of the fiscal year.
a. Both statements are true
b. Both statements are false
c. Statement I is true and Statement II is false
d. Statement I is false and Statement II is true
Statement 1: A contract of insurance is a legally binding agreement between an insurer and a c. Statement I is true and Statement II is
policyholder. false
Statement 2: A contract of insurance can be canceled by the insurer at any time without notice to the
policyholder.
e. Both statements are true
f. Both statements are false
g. Statement I is true and Statement II is false
h. Statement I is false and Statement II is true
5 BASTO, Hannah Fria B.
6 BAZAR, Abegail S.
7 BERJUEGA, Ana Carmela A.
8 BOTOR, Rhosell Dionne P.
9 BRIONES, Jullia Iris C.
Statement 1: The minimum net worth requirement for a new entrant as an insurance or reinsurance b. Only statement 2 is true
company is P20,000,000
Statement 2: Retention receivables are withheld until the completion of the job or even longer in the
event certain contract guarantees must be fulfilled prior to final acceptance.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false
Statement 1: Contract of insurance is a written instrument in which a contract of insurance is set forth d. Both Statement is false
Statement 2: Reinsurer is one by which an insurer procures a third person to insure him against loss or
liability by reason of such original insurance.
a. Statement 1 is true, Statement 2 is false
b. Statement 1 is false, Statement 2 is true
c. Both statements are true
d. Both statements are false
Statement 1: The independent auditor should investigate contracts which indicate an abnormally high d. Neither statement 1 and statement 2
rate of gross profit because of the possibility that such contracts may result in a loss. are TRUE
Statement 2: The contractor’s accounting records should not have separate accounts for contractor’s
receivables and retention receivables.
a. Only statement 1 is TRUE.
b. Only statement 2 is TRUE.
c. Both statement 1 and statement 2 are TRUE.
d. Neither statement 1 and statement 2 are TRUE.
Statement 1: A regular license is issued to joint ventures, a consortium, a foreign contractor, or a project d. Neither statement 1 and statement 2
owner authorizing the licensee to only engage in the construction of a specific project or undertaking. are TRUE.
Statement 2: A special license is issued to domestic construction firms under a sole proprietorship,
partnership or corporation
a. Only statement 1 is TRUE.
b. Only statement 2 is TRUE.
c. Both statement 1 and statement 2 are TRUE.
d. Neither statement 1 and statement 2 are TRUE.
Statement 1: In the Test of Subsequent Collections, the auditor considers the subsequent collections c. Both statements are TRUE.
and traces back if there is a receivable initially set-up.
Statement 2: Cut-off procedure is done by choosing samples from subsequent receivables and
obtaining the supporting documents to know the proper period of recording.
a. Only statement 1 is TRUE.
b. Only statement 2 is TRUE.
c. Both statements are TRUE.
 d. Both statements are FALSE.

10 CARIÑO, Jhovet Christian M. Statement 1: For insurance company, the main revenue stream is the commission income. d. Both statements are FALSE
Statement 2: For construction, a construction contract becomes onerous if the transaction price exceeds
the expected costs of fulfilling the performance obligation.
a. Only statement 1 is TRUE.
b. Only statement 2 is TRUE.
c. Both statements are TRUE.
d. Both statements are FALSE.

11 DELORINO, John Carlo .

12 ESPAÑO, Leslie Jam O. Statement 1: The independent auditor should investigate contracts which indicate an abnormally low a. Statement 1 is true, Statement 2 is
rate of gross profit because of the possibility that such contracts may result into a loss. false
Statement 2: Contracts that are newly acquired during the year, but have not yet commenced in
operation should not be vouched to not distort such references in the succeeding audits.
a. Statement 1 is true, Statement 2 is false
b. Statement 1 is false, Statement 2 is true
c. Both statements are true
d. Both statements are false

13 EVALLA, Kathleen Mae T. Statement I: After understanding the SCOTs, the auditor should conduct test of one complete c. Both statements are true
transaction and walkthrough. This is to confirm if the understanding of the auditor as represented by the
process owners are really evident in terms of actual documents.

Statement II: In addition to the SCOTs, the auditor should also conduct interview regarding the financial
statement closing process (FSCP) of the entity.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

14 FLORDELIZ, Jean Grace P. Which of the following statement(s) is/are true? d. Neither statement 1 and statement 2
are TRUE
Statement 1: Inventory management is applicable to Insurance Agency and Insurance Broker
because of their office supplies.
Statement 2: After understanding the significant classes of transactions, the auditor should conduct test
of one partial transaction and tracing.
a. Both statement 1 and statement 2 are TRUE
b. Only statement 1 is TRUE
c. Only statement 2 is TRUE
d. Neither statement 1 and statement 2 are TRUE

15 ILARDE, Revelyn A. Statement 1: A regular license should be valid for three (3) years, from the 1st of July to the 30th of June d.Only statement 2 is true.
of the ensuing year, unless suspended, invalidated, canceled or revoked by the Board and shall be
renewed annually.
 Statement 2: A special license shall be canceled by the Board upon completion of the single specific
undertaking/project authorized by the license and to which it is, therefore, restricted even though before
expiry of the fiscal year.
a. Both statements are true
b. Both statements are false.
c. Only statement 1 is true.
d. Only statement 2 is true.

16 LIZARDO, Dominique T. Statement I: Construction auditing provides process improvement recommendation for project c. Both statements are true
management teams.
Statement II: Construction planning includes the scheduling of activities for planning, completion of
the project and the checks on construction's progress.

a. Only statement 1 is true

b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

17 MANACOB, Trisha Mae V. Statement I: Insurance company represents the entity who prepares and issues policies to consumers. c. Both statements are true
Statement II: Insurance policy is the written instrument in which a contract of insurance is set forth.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

18 MONTE, Aubrey Mae G. Statement 1: The pre-construction meeting should address logistics and storage, primary contact d. Statement 2 is False.
details, health and safety, quality control and possible design challenges.
Statement 2: Before the commencement of the project, it is not necessary to secure all the needed
building permits.
a. Both statements are true
b. Both statements are false
c. Statement 1 is False
d. Statement 2 is False

19 NARADULLA, Rhea Loren R. Statement 1: Estimated total contract costs pertain to the anticipated additional contract costs required d. Neither statement 1 and statement 2
to fully complete the contract at a scheduled time. are TRUE.
Statement 2: Estimated cost to complete pertain to the forecasted total cost of completing the
construction contract.
a. Only statement 1 is TRUE.
b. Only statement 2 is TRUE.
c. Both statement 1 and statement 2 are TRUE.
d. Neither statement 1 and statement 2 are TRUE.
20 OATEMAR, Czyrean O. Evaluate the following statements: b. Only statement 2 is correct.

Statement 1: An engagement quality review is an objective evaluation of the significant judgments made
by the engagement team and the conclusions reached thereon, performed by the engagement quality
reviewer and completed on or after the date of the engagement report.
Statement 2: When the auditor intends to use information obtained from the auditor’s previous
experience with the entity and from audit procedures performed in previous audits, the auditor shall
evaluate whether such information remains relevant and reliable as audit evidence for the current audit.
a. Only statement 1 is correct.
b. Only statement 2 is correct.
c. Both statements are correct.
d. Both statements are incorrect.

21 OREA, Danielle Ann . Statement 1: In planning the audit, one of its objectives is to obtain evidence to confirm individual d. Both statements are false
account balances.
Statement 2: The objective of substantive testing is to understand the client’s business and its
environment.
a. Statement 1 is true and statement 2 is false
b. Statement 1 is false and statement 2 is true
c. Both statements are true
d. Both statements are false

22 PACIFICO, Mariane Fatima E. Statement I: Special license is issued for domestic construction firms under a sole proprietorship, d. Both statements are false
partnership or corporation.
Statement II: Regular license is provided to joint ventures, consortium, a foreign contractor, or a project
owner authorizing the licenses to only engage in the construction of a specific project or undertaking,
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

23 SABUERO, Jericho C. Statement I: Insurance companies only make money by collecting premiums from policyholders. d. False; True
Statement II: The completed contract method of accounting for long-term construction contracts
recognizes revenue and expenses only when the contract is completed.
a. True; True
b. False; False
c. True; False
d. False; True

24 SAN JOSE, Jashylle Krishane B. Statement 1: For construction contracts, the transaction price normally consists of the following: b. True; False
Contract price and any subsequent variations in the contract price to the extent that it is probable that
they will result in revenue and they are capable of being measured reliably.
Statement 2: Contractors are typically not required to have insurance coverage for their work, as long as
 they have a valid contractor's license
a. True; True
b. True; False
c. False; True
d. False; False

25 SEECHUNG, Florizza Dominique I. Statement I: The contractor’s accounting records should have one account for current receivable and d. False, False
retention receivable.
Statement II: Project planning is where the first ideas of a project are thought about before
commencement into detailed design.
a. True, False
b. False, True
c. True, True
d. False, False

26 TALBO, Georgie Ann M. Statement 1: An act creating the Philippine Licensing Board for contractors, prescribing its powers, b. Only statement 2 is true.
duties and functions, providing funds therefor, and for other purposes is Republic Act No. 5466
or known as the Contractor’s License Law.
Statement 2: The law aims to promote for the benefit of the public and private sectors and for the
national interest, the orderly growth of the contracting sector and the upgrading of construction
capability.
a. Only statement 1 is true.
b. Only statement 2 is true.
c. Both statements are true.
d. Neither statements are true.

27 TANCUECO, Janica Mae DR.

28 TEJERO, Daniella Clarisse T. Statement 1: Estimated cost to complete pertain to the forecasted total cost of completing the d. Both statements are false
construction contract.
Statement 2: If the actual costs recorded are excessive, the percentage of completion will also be higher
than the correct amount; thus, will result in an understated gross profit.
a. Statement 1 is true, Statement 2 is false
b. Statement 1 is false, Statement 2 is true
c. Both statements are true
d. Both statements are false

29 VELASCO, Juan Paulo Mari S. D. Neither Statements are correct

Statement 1: Auditors of construction companies typically focus on the accuracy of inventory counts and
valuation of finished goods.

Statement 2: Auditors of construction companies are not required to understand the construction
process or terminology.

a. Statement 1 is true, Statement 2 is false

 b. Statement 1 is false, Statement 2 is true
c. Both Statements are correct
d. Neither Statements are correct

30 VILLAS, Nikki F. Statement l: A regular license shall be valid for one (1) fiscal year, from the 1st of May to the 30th of d. Both statements are false
April of the ensuing year, unless suspended, invalidated, cancelled or revoked by the Board and shall be
renewed annually.
Statement ll: A special license shall be cancelled by the Board upon completion of the single specific
undertaking/project authorized by the license and to which it is, therefore, restricted even though before
expiry of the calendar year.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false
 III. Simple Problem Solving
No Name Question Answer

1 ADRIANO, Limuel P. Meron Ka Bang Lemon Construction, has consistently used the percentage-of-completion method of b. P100,000
recognizing income. During 2022 Hansen started work on a P3,000,000 fixed-price construction contract.
The accounting records disclosed the following data for the year ended December 31,2022

Costs Incurred P930,000

Estimated Cost to Complete P2,170,000
Progress Building P1,100,000
Collections P700,000

How much loss should Hansen have recognized in 2022?

a. P230,000
b. P100,000
c. P30,000
d. P. 0

2 ASIDO, Maricon B.
The following data relate to a construction job started by M Company during 20x6: A. 0
Total contract price………………………………….100,000
Actual costs during 20x6…………………………….20,000
Estimated remaining costs……………………….….40,000
Billed to customer during 20x6…………………...…30,000
Received from customer during 20x6…………..…..20,000
Any costs incurred are expected to be recoverable. Under the cost recovery method-construction
accounting (zero-profit approach), what amount should M Company recognize as gross profit for 20x6:
a. P 0
b. 4,000
c. 10,000
d. 12,000

3 BAILEY, Ahren Julian Marie N. EXO Company uses the percentage of completion method of recognizing income. In 2001, work was C. 1,704,845
started on a P20,000,000 job completed in 2001. Records in 2002 show the following:
Progress Billing P6,000,000
Costs Incurred 4,500,000
Collections 4,200,000
Cost to Complete 10,000,500

Gross Profit Recognized in 2002 was:

A. 1,704,840
B. 7,104,845
C. 1,704,845
D. 7,104,840

4 BALID, Allea Nicole L. A construction company has been awarded a contract for a project with a total contract price of b. P25,000
P500,000. The company's insurance policy requires them to carry liability insurance coverage of at least
 5% of the total contract price. How much liability insurance coverage must the company carry?
a. P5,000
b. P25,000
c. P50,000
d. P100,000

5 BASTO, Hannah Fria B. Tower Builders, Inc. has consistently used the percentage-of-completion method of accounting for a. P100,000
construction-type contracts. In 2015, Tower Builders started work on a P9,000,000 fixed price
construction contract that was completed in 2016. The company's accounting records disclosed the
following:
DECEMBER 31

2015 2016

Cumulative contract costs incurred P3,900,000 6,300,000

Estimated total costs at completion 7,800,000 8,100,000

How much income would Tower have recognized on this contract for the year ended December 31,
2016?
a. P100,000
b. P300,000
c. P600,000
d. P700,000

6 BAZAR, Abegail S. In 2019, Mommy Oni Construction Company began construction work under a three-year contract at a b. 411,500 and P2,508,333
price of P7,525,000. The firm uses the percentage-of-completion method for financial accounting
purposes. The income to be recognized each year is based on the proportion of cost incurred to the total
estimated costs for completing the contract. The financial statement presentations relating to this
contract on December 31, 2019, are:

Balance Sheet

Accounts receivable P150,500

Construction in progress P602,000

Less: Progress billings 562,000 40,000

Income Statement

Gross profit on construction contracts P301,000


7 BERJUEGA, Ana Carmela A.
8 BOTOR, Rhosell Dionne P.
What is the total amount of cash collected in 2019 and the estimated income of the construction contract
respectively?
a. 411,000 and 2,508,000
b. 411,500 and P2,508,333
c. 712,000 and 5,016,000
d. 712,500 and 5,016,667
An auditor is conducting an audit of a construction company’s financial statements and discovers that a. Performing a substantive test of
the company has not properly accounted for its long-term contracts. The auditor suspects that revenue transactions
has been recognized prematurely, but needs to verify this before making any conclusions.
What is the most appropriate audit procedure for the auditor to use in verifying the recognition of
revenue from long-term contracts?
a. Performing a substantive test of transactions
b. Testing the accuracy of the company’s cost accounting system
c. Reviewing the company’s internal control policies
d. Testing the completeness of the company’s disclosures
The following data pertains to the statement of financial position of ABC Insurance Brokers, Inc., a new a. 21,675,000
entrant as insurance broker:
ABC Insurance Brokers, Inc.
Statement of Financial Position
As of December 31, 2023
Cash P25,000,000
Trade and other receivables 12,000,000
Refundable deposit 325,000
Creditable withholding tax 1,000,000
Property, plant and equipment 8,000,000
Trade and other payables 8,600,000
Common stock 8,000,000
APIC 2,000,000
Retained earnings 20,000,000
Additional information:
1. Trade and other receivables include outstanding receivables over 180 days amounting to
P6,000,000 and over 365 days amounting to P1,500,000.
2. Property plant and equipment composes of:
Office furniture and fixtures 500,000
Right of use assets 3,000,000
 How much is the net worth of the company?
a. 21,675,000
b. 21,600,000
c. 22,475,000
d. 22,675,000

9 BRIONES, Jullia Iris C. Future Construction Inc. has consistently used the percentage-of-completion method. On January a. 150,000
10, 2021, Shepard began work on a P3,000,000 construction contract. At the inception date, the
estimated cost of construction was P2,250,000. The following data relate to the progress of the contract:

Gross profit recognized on December 31, 2021 P 300,000

Costs incurred Jan. 10, 2021, through Dec. 31, 2022 1,800,000
Estimated cost to complete at December 31, 2022 600,000

How much gross profit should Future Construction Inc. recognize for the year ended
December 31, 2022?
a. P 150,000
b. P 262,500
c. P 300,000
d. P 450,000

10 CARIÑO, Jhovet Christian M. JCMC Construction Co. uses the percentage of completion method of accounting. During 2020, JCMC b. 250,000
contracted to build an apartment house for Secret Inc., for P10,000,000. JCMC estimated that total costs
would amount to P8,000,000 over the period of construction. In connection with this contract, JCMC
incurred P1,000,000 of construction costs during 2020. JCMC billed and collected P1,500,000 from
Secret Inc., in 2020. How much is the gross profit should JCMC recognize in 2020?
a. 300,000
b. 250,000
c. 187,500
d. 125,000

11 DELORINO, John Carlo .

12 ESPAÑO, Leslie Jam O. Starview Construction began work on a two-year fixed price contract project. Starview used percentage d. 80,000,000
of completion for this contract to recognize revenue, and provides the following information:

Accounts receivable. 12/31/2022

(from construction progress billings) P 30,000,000
Actual construction costs incurred in 2022 120,000,000
Cash collected on project during 2022 110,000,000
Construction in progress. 12/31/2022 210,000,000
Estimated percentage of completion during 2022 60%
 What are Starview's estimated remaining construction costs on the project at the end of 2022?
a. 200,000,000
b. 135,000,000
c. 110,000,000
d. 80,000,000

13 EVALLA, Kathleen Mae T. On April 1, 2021, Dash Construction Company entered into a fixed-price contract to construct an c. 1,980,000
apartment building for 6,000,000. Pine will satisfy the performance obligations in the contract over time
and appropriately accounts for this contract. Information relating to the contract is as follows:

At December 31, 2021 At December 31, 2022

Percentage of completion 20% 60%

Estimated costs at completion 4,500,000 4,800,000

Gross profit recognized (cumulative) 300,000 720,000

What is the amount of contract costs incurred during the year ended December 31, 2022?
a. 1,200,000
b. 1,920,000
c. 1,980,000
d. 2,880,000

14 FLORDELIZ, Jean Grace P. On September 14, 2022, Flordz Construction Company entered into a contract with a customer for the b. 5,000,000 and 10,000,000
construction of a building. Flordz Construction Company uses the cost-to-cost method in measuring its respectively
progress on the contract. The contractual agreement stipulates that the contract price is P40 million. The
construction company incurred a contract cost of P1 million during this year and P4 million incurred last
year. In addition, the estimated total cost is P10 million. What is the estimated cost to complete and the
estimated gross profit of the construction company respectively?
a. 4,000,000 and 9,000,000 respectively
b. 5,000,000 and 10,000,000 respectively
c. 6,000,000 and 11,000,000 respectively
d. 7,000,000 and 12,000,000 respectively

15 ILARDE, Revelyn A. The following pertains to the Statement of Financial Position of ACCP Insurance Brokers, Inc., an a. 500,000,000; 0
existing insurance company.

Cash in banks 500,000,000

Trade and other receivables 60,000,000
PPE 70,000,000
Trade and other payables 80,000,000

Additional information:
 ● Trade and other receivables includes outstanding over 180 days amounting to 6,000
● PPE is composed of:
-Office equipment 30,000,000
-Office furniture 25,000,000
-Right of use assets 35,000,000

How much is the Admitted Cash in bank, to be included in the computation of net worth of ACCP
Insurance Brokers, Inc. and the Non-admitted cash in bank to be excluded?
a. 500,000,000; 0
b. 0; 100,000,000
c. 50,000,000; 100,000,000
d. 60,000,000; 50,000,000

16 LIZARDO, Dominique T. On Oct. 1, 20x2, MASAGANA Co. entered into a construction contract with a customer. The performance a. 7,600,000
obligation in the contract will be satisfied over time. MASAGANA Co. uses the "cost-to-cost" method in
measuring its progress. The estimated total contract cost is P10,000,000. In 20x2, MASAGANA Co.
incurred a total cost of P6,000,000, which includes P2,000,000 advance payment to a subcontractor (the
subcontracted work is not yet started) and P200,000 cost of materials not yet installed. MASAGANA Co.
does not regard the cost of the unused materials as significant in relation to the expected total contract
costs. Moreover, MASAGANA Co. retains control over the unused materials because it can use them in
a contract with another customer. The contract price is P20,000,000.

How much is the revenue recognized in 20x2?

a. 7,600,000
b. 12,000,000
c. 8,200,000
d. 11,600,000

17 MANACOB, Trisha Mae V. XYZ Corporation began construction work in 2023 for a project with a contract price of P8,000,000. XYZ b. P1,400,000
Corporation uses the percentage-of-completion method. The financial statements for 2023 relating to the
contract shows the following:

Accounts Receivable P500,000

Construction in Progress 1,600,000

Progress billings to date 1,500,000

Gross profit earned in 2023 200,000

Compute for the cost incurred to date.

a. 1,600,000
 b. 1,400,000
c. 1,000,000
d. 7,500,000

18 MONTE, Aubrey Mae G. In 20x1, Momo Company enters into a construction contract with a customer. The contract price is a. 2,100,000
₱10,000,000. Information on the contract follows:

20x1 20x2 20x3

Costs incurred to date 2,400,000 4,500,000 6,000,000

Estimated costs to 3,600,000 1,500,000 -

complete

At contract inception, Momo Company assesses its performance obligations in the contract and
concludes that it has a single performance obligation that is satisfied overtime. However, Momo
Company determines that the outcome of the performance obligation cannot be reasonably measured
but expects to recover the contract costs incurred.

How much is the cost of construction recognized as expense in 20x2?

a. 2,100,000
b. 2,400,000
c. 3,800,000
d. 0

19 NARADULLA, Rhea Loren R. Ana Construction company began work on a contract in 2021 and completed contract in 2022. The total a. P240,000; P210,000
contract price was P4,200,000. Information concerning for 2021 and 2022 is as follows:
2021 2022

Cost incurred during year P600,000 P3,150,000

Estimated costs to complete at end of year 2,400,000 -0-
Billings during year 720,000 3,280,000
Collections during year 400,000 3,000,000

Under the percentage-of-completion method, what amount of the P4,200,000 contract price is to be
recognized as income in 2021 and 2022, respectively?
a. P240,000; P210,000
b. P240,000; P810,000
c. P360,000; P90,000
d. P360,000; P690,000
20 OATEMAR, Czyrean O. Co Co. had the following first-year amounts related to its P9,000,000 construction contract: c. P0

Actual costs incurred and paid: P2,000,000

Estimated costs to complete: P6,000,000
Progress billings: P1,800,000
Cash collected: P1,500,000

Using the percentage-of-completion method, what amount should Co recognize as a current liability at
year-end?

a. P250,000
a. P200,000
b. P0
c. P300,000

21 OREA, Danielle Ann . Layla company uses the percentage of completion method of recognizing income. In 2012, work was d. 600,000
started on a P18,000,000 job completed in 2012. Records in 2013 show the following:

Progress Billings 6,600,000

Costs Incurred 4,500,000

Collections 4,200,000

Costs to Complete 10,600,000

Gross profit recognized in 2013 was:

a. 1,400,000
b. 1,200,000
c. 900,000
d. 600,000

22 PACIFICO, Mariane Fatima E. ABC Construction Company uses the percentage-completion-method of accounting. In 2022, XYZ began d. P4,000,000
work under contract #143, which provided for a contract price of P20,000,000. Other details show:
2022 2023

Cost incurred during the year P3,000,000 P15,750,000

Estimated cost to complete, as of Dec. 31 12,000,000 -

Billed during the year 3,600,000 15,400,000

Collections during the year 2,500,000 15,500,000

 The total contract price to be recognized as revenue in 2022 is
a. P3,200,000
b. P3,600,000
c. P2,500,000
d. P4,000,000

23 SABUERO, Jericho C. Atlas Construction Company has a government contract for the construction of a road. The total contract b. PHP 15,000,000
price is PHP 100,000,000, with an estimated completion time of two years. At the end of the first year,
Atlas company has billed the government for PHP 40,000,000 and has incurred PHP 35,000,000 in
costs. The auditor wants to determine the estimated gross profit on the contract using the percentage of
completion method. The estimated total contract costs are PHP 70,000,000. What is the estimated gross
profit on the contract at the end of the first year?
a. PHP 10,000,000
b. PHP 15,000,000
c. PHP 20,000,000
d. PHP 25,000,000

24 SAN JOSE, Jashylle Krishane B. Renso’s company has $20 million in admitted assets and $5 million in non-admitted assets. If the b. $15 million; 0
company needs to pay out $15 million in claims, what portion of the claims will be paid using admitted
assets, and what portion will be paid using non-admitted assets?
a. $10 million;$5 million
b. $15 million; 0
c. 0; $15 million
d. $5 million;$10 million

25 SEECHUNG, Florizza Dominique I. MPL Construction uses the percentage-of-completion method of accounting. In 2007, MPL began work c. P1,800,000
on a contract it had received which provided for a contract price of P15,000,000. Other details follow:
2007
Costs incurred during the year P7,200,000
Estimated costs to complete as of December 31 4,800,000
Billings during the year 6,600,000
Collections during the year 3,900,000

What should be the gross profit recognized in 2007?

a. P600,000
b. P7,800,000
c. P1,800,000
d. P3,000,000

26 TALBO, Georgie Ann M. IBT Co. started work on two separate projects during 20x1. Information on these projects is shown a. 4,000,000
below:

Project Contract price Costs incurred Estimated costs to Progress billings

complete
 I 9,000,000 4,000,000 2,000,000 5,000,000

II 8,000,000 5,000,000 - 8,000,000

How much is the total balance of the “construction in progress” accounts as of December 31, 20x1 under
the zero-profit method?
a. 4,000,000
b. 8,000,000
c. 16,000,000
d. 0

27 TANCUECO, Janica Mae DR.

28 TEJERO, Daniella Clarisse T. Easy Construction Company uses the percentage-of-completion method of accounting. During 2023, c. P300,000
Easy contracted to build an apartment house for Manny for P12,000,000. Easy estimated that total costs
would amount to P10,000,000 over the period of construction. In connection with this contract, Easy
incurred P1,500,000 of construction costs during 2023. Easy billed and collected P1,800,000 from Manny
in 2023. How much gross profit should Easy recognize in 2023?
a. P570,000
b. P270,000
c. P300,000
d. P333,333

29 VELASCO, Juan Paulo Mari S. a. $25,000

Victoria Chicklet Inc. started a new project on January 1, 2023. The project is expected to take 18
months to complete and has a total estimated cost of $2,500,000. The company uses the percentage-of-
completion method to recognize revenue and expenses for long-term construction projects. The following
information pertains to the project at the end of the first quarter of 2023:

· Total Estimated Cost: $2,400,000

· Estimated costs to complete: $1,800,000

· Billings to date: $450,000

· Collections to date: $400,000

Assuming that the company's estimates remain accurate, calculate the gross profit to be recognized for
the first quarter of 2023:

Note: Please assume that the company does not use the cost recovery method.

a. $25,000
b. $30,000
 c. $38,500
d. $25,400

30 VILLAS, Nikki F. Parangdikanaggradetwo Co. was contracted by Gow, Inc. for the construction of a flyover in 2021. The b. P5,500,000
contract price is P11,000,000. Information on costs is as follows:

2021 2022

Total costs incurred to date P2,000,000 P6,000,000

Estimated costs to complete P6,000,000 P2,000,000

How much revenue is recognized in 2022?

a. P6,000,000
b. P5,500,000
c. P4,500,000
d. P0
 AUDITING SPECIALIZED INDUSTRIES Handout-03
Auditing Hotel Industries EPC

AUDITING HOTELS AND OTHER CONSIDERATIONS

Definition of Terms:

1. Hotel – a building, edifice or premises or a completely independent part thereof, which is used for the regular
reception, accommodation or lodging of travelers and tourist and the provision of services incidental thereto for
a fee.

2. Resort – any place or places with pleasant environment and atmosphere conducive to comfort, healthful
relaxation and rest, offering food, sleeping accommodation and recreational facilities to the public for a fee or
remuneration.

3. Tourist Inn – a lodging establishment catering to transients which does not meet the minimum requirements of
an economy hotel.

4. Apartel – any building or edifice containing several independent and furnished or semi-furnished apartments,
regularly leased to tourists and travelers for dwelling on a more or less long term basis and offering basic services
to its tenants, similar to hotels.

5. Pension house – a private or family-operated tourist boarding house, tourist guest house or tourist lodging house
employing non-professional domestic helpers regularly catering to tourists and travelers, containing several
independent lettable rooms, providing common facilities such as toilets, bathrooms/showers, living and dining
rooms and/or kitchen and where a combination of board and lodging may be provided.

6. Motorist hotel (Motel) - any structure with several separate units, primarily located along the highway with
individual or common parking space at which motorists may obtain lodging and, in some instances, meals.

Classifications and Standard Requirements for Hotels

For purposes of accreditation, hotels are hereby classified into the following categories, namely:
1. De Luxe Class
2. First Class
3. Standard Class
4. Economy Class

Requirement for a De Luxe Class Hotel. The following are the minimum requirements for the establishment, operation
and maintenance of a De Luxe Class Hotel:

Location
1. The locality and environs including approaches shall be suitable for a luxury hotel of international standard;
2. The facade, architectural features and general construction of the building shall have the distinctive qualities of
a luxury hotel.

Bedroom Facilities and Furnishings

 Size
o All single and double rooms shall have a floor area of not less than twenty-five (25) square meters,
inclusive of bathrooms.
 Suite
o There shall be one (1) suite per thirty (30) guest rooms.

Requirements for a First Class Hotel. The following are the minimum requirements for the establishment, operation and
maintenance of a first class hotel:

Location
1. The locality and environs including approaches shall be suitable for a first class hotel of international standard;

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 AUDITING SPECIALIZED INDUSTRIES Handout-03
Auditing Hotel Industries EPC

2. The facade, architectural features and general construction of the building shall have the distinctive qualities of
a first class hotel.

Bedroom Facilities and Furnishings

 Size
o All single and double rooms shall have a floor area of not less than twenty-five (25) square meters,
inclusive of bathrooms.
 Suite
o There shall be one (1) suite per thirty (40) guest rooms.

Requirements for a Standard Class Hotel. The following are the minimum requirements for the establishment, operation
and maintenance of a Standard Class Hotel:

Location
1. The locality and environs including approaches shall be suitable for a very good hotel;
2. The architectural features and general construction of the building shall be of very good standard.

Bedroom Facilities and Furnishings

 Size
o All single and double rooms shall have a floor area of not less than eighteen (18) square meters, inclusive
of bathrooms.

Requirements for an Economy Class Hotel. The following are the minimum requirements for the establishment, operation
and maintenance of an Economy Class Hotel:

Location
1. The locality and environs including approaches shall be such as are suitable for a good hotel;
2. The architectural features and general construction of the building shall be of good standard.

Bedroom Facilities and Furnishings

 Size
o All single and double rooms shall have a floor area of not less than eighteen (18) square meters, inclusive
of bathrooms.

New Philippine Hotel Rating System

The new set of accreditation is in accordance with the Tourism Act of 2009 or Republic Act 9593. This new scheme for
hotel ratings will be based on the number of points earned by each hotel after the audit. Compared to the old DOT
standards, which classify hotels by deluxe, first-class, standard, and economy, the new hotel rating system classifies hotels
by stars.

Each hotel can get a maximum of 5 stars, or a maximum of 1,000 equivalent points.

 1 star hotel = 251 to 400 points

 2 star hotel = 401 to 550 points
 3 star hotel = 551 to 700 points
 4 star hotel = 701 to 850 points
 5 star hotel = 851 to 1,000 points

In the new Philippine Hotel Rating System, the auditors will focus on the availability of certain facilities and their inventory,
availability, condition, quality, usability, and overall service. Hotels get star points depending on the criteria indicators like
the location of hotel, resort, and apartment hotel. One of the requirements includes hot and cold showers in bathrooms
that could start heating up in 20 seconds to get higher points.

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 AUDITING SPECIALIZED INDUSTRIES Handout-03
Auditing Hotel Industries EPC

Specific Audit Considerations

These are some of the key audit considerations for hotel industries. Again, these are not all-inclusive as other audit
considerations may arise during the course of the audit.

Revenue from Room Rent

This may be considered as the main revenue stream of a hotel company. Revenue from room rent is based on the price
set per category of room. It is important for an auditor to examine the pricing per room category and if proper pricing is
applied. The auditor may obtain list of room accommodations and compare the pricing charged with the price basis.

Upon ensuring that there is a consistency in terms of charging room rates, the auditor may resort to substantive analytical
review by making a straightforward computation of room rates per category times the number of occupants/tenants per
category during the year. Thereafter, the recomputed amount is compared with the balance of rental revenue per books
for any difference noted. The auditor may propose adjustment if with the result gathered the difference is material or
may ignore the difference, as applicable.

In addition, discounts may be granted to customers depending on various factors like holidays or company-made promos.
Special discount is also offered to groups of students, delegates, corporate customers, VIP customers, etc. The discount
granted should be based on the authorized structure by the management and board of directors. The auditor should
gather the pertinent documentation regarding the policy in granting discount and compare this with the actual discount
provided to customers. Any discount given outside of permissible limit should be inquired and investigated accordingly.

Revenue from rooms is subject to 2% withholding tax based on gross receipts.

Revenue from Foods and Beverages

Foods and beverages are billed separately from the room rentals. Business tax on foods and beverages is based on gross
selling price, exclusive of VAT. The auditor should ensure that the VAT is appropriately charged. Aside from this, the auditor
should validate the existence of the transaction through direct test of details. The auditor may get sample of transactions
during the year and vouch the related documents. The auditor should also consider the completeness of revenue by
conducting cut-off testing for transactions which happened near and after the reporting period.

Revenue from foods and beverages is subject to 1% withholding tax based on gross sales002E

Collectibility of Receivables
The auditor should obtain aging schedule from clients for the receivables from room rentals and foods and beverages, as
applicable. Thereafter, the auditor should test the completeness of the aging schedule with the receivables per books.
Any difference with the schedule and the balance should be reconciled by the client accordingly.

At year-end, the auditor should also compute for the expected credit losses (ECL) on the financial assets at amortized cost.
The auditor should obtain evidences of possible increase in credit risk from the initial recognition of the receivables. Should
there be significant increase in credit risk, ECL should be based on lifetime expected credit losses. If there are no indications
of any increase in the credit risk, ECL is based on 12-month assessment. Nevertheless, if there is an objective evidence of
impairment, the ECL should be based on lifetime expected credit losses with identified receivables that are credit-
impaired.

Reasonableness of VAT
Aside from that, the auditor should check the mathematical accuracy and reasonableness of business tax charged in the
official receipt. The proportional VAT of 12% should be based on the total room bill; thus, room rates charged should be
exclusive of VAT. Thereafter, the auditor should conduct test of reasonableness of output VAT. This is done by multiplying
the gross receipts during the year by 12% and comparing the result with the output VAT declared per BIR Form 2550Q.
Any ending balance of VAT payable per books should be reflected as the fourth quarter VAT payable in the tax return.

Service Charge
A service charge is the amount that is added to a bill for any work or services performed. The amount collected shall be
distributed to the “covered employees” under Republic Act (R.A.) No. 11360 or “An Act Providing that Service Charges
Collected by Hotels, Restaurants and other Similar Establishments be Distributed in Full to All Covered Employees”,
amending Article 96 of the Labor Code of the Philippines, which previously provides 85% of the total service charge
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Auditing Hotel Industries EPC

collected by the establishment be distributed to covered employees, while 15% would account for losses and breakages
and be given to managerial employees, at the discretion of management.

Under R.A. 11360, all employees, except for managerial and supervisory employees, will be receiving additional pay
coming from the collection of service charges not less than once every two or twice a month, at intervals not exceeding
16 days. The collected service charge should be distributed “completely and equally” to the qualified workers based on
their actual hours or days of work or service rendered.

The company may include reasonable service charge, say, 10% based on the room rates availed by the clients. However,
the service charge should not form part of the billable amount subject to VAT.

Any dispute or difference on the distribution of service charges shall be settled through the grievance machinery as
provided in the Collective Bargaining Agreement (CBA). In unorganized establishments, where no grievance mechanism is
established or the grievance mechanism is inadequate, the grievance will be referred to the DOLE Regional Office which
has jurisdiction over the workplace for conciliation. Unsolved grievances shall be resolved in accordance with existing rules
and regulations on the visitorial and enforcement power of the Secretary of Labor.

In connection with this, the auditor should ensure that reasonable service charge is separately included in the bill and the
service charge is distributed to covered employees accordingly. Again, covered employees should only pertain to “rank
and file employees”. Also, the auditor should check whether the service charges are distributed on time based on the
requirements under R.A. 11360.

DOT Accreditation
A certification issued by the Department to a tourism enterprise that officially recognizes it as having complied with the
minimum standards for the operation of tourism facilities and services.

Primary Tourism Enterprises

These are facilities and services directly related to tourism. DOT-certified primary tourism enterprises shall be periodically
required to obtain accreditation from DOT to ensure the quality of its facilities and services.

List of Primary Tourism Enterprises

 Hotel
 Resort
 Apartment Hotel
 Mabuhay Accommodation (tourist inns, motels, pension houses, and bed and breakfast, among others)
 Homestay

Secondary Tourism Enterprises

 Restaurant
 Tourism Training Center
 Target Shooting Range
 Department Store/ Shopping Mall/ Tourist Shop/ Specialty Shop
 Farm Tourism Camp
 Gallery/ Museum
 Tourism Entertainment Complex
 Tourism Recreation Center
 Zoos
 Rest Area/ Restroom
 Surfing Camp

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 ATENEO DE NAGA UNIVERSITY
College of Business and Accountancy
2nd Semester – S/Y 2022-2023

Auditing Specialized Industries

Preliminary Examination E.P.Cuadro, CPA

Name: Date: Section: Score:

INSTRUCTIONS: 1. Choose the best option and encircle the letter of your choice.
2. Erasures are not allowed and considered wrong.

GOOD LUCK!

1. This is a listing of all the things which the auditor will use to gather sufficient appropriate audit evidence:
a. Audit procedures
b. Audit plan
c. Audit program
d. Audit risk model
2. Which of the following procedures is not performed as a part of planning an audit engagement?
a. Reviewing the working papers of the prior year.
b. Performing analytical procedures.
c. Test of controls.
d. Designing an audit program.
3. Statement 1: Analytical procedures used in planning an audit should focus on detecting material
misstatements at the account balance level.
Statement 2: Substantive audit procedures are audit procedures are audit procedures designed to obtain
an understanding of the entity and its environment.
a. Only statement 1 is true.
b. Only statement 2 is true.
c. Both statement 1 and statement 2 are true.
d. Neither statement 1 and statement 2 are true.
4. Statement 1: The higher the materiality level, the higher the amount of required evidence from
substantive procedures to compensate for increased risk.
Statement 2: An auditor should design the written audit program so that all material transactions will be
selected for substantive testing.
a. Only statement 1 is true.
b. Only statement 2 is true.
c. Both statement 1 and statement 2 are true.
d. Neither statement 1 and statement 2 are true.
5. Analytical procedures are required:
a. As a risk assessment procedure performed during planning
b. As a substantive test procedure during evidence-gathering
c. As an overall review at audit completion
d. Both A and C.
6. Statement 1: Further audit procedures include risk assessment, test of controls and substantive test.
Statement 2: The higher the control risk assessment, the higher the reliance on substantive tests.
a. Only statement 1 is true.
b. Only statement 2 is true.
c. Both statement 1 and statement 2 are true.
d. Neither statement 1 and statement 2 are true.
7. In an audit of financial statements, an auditor’s primary consideration regarding a control is whether it:
a. Enhances management’s decision-making process.
b. Reflects management’s philosophy and operating style.
c. Affects management’s financial statement assertions.
d. Provides adequate safeguards over access to assets.
8. Which of the following procedures most likely would be included as part of an auditor’s tests of control?
a. Inspection
b. Reconciliation
c. Confirmation
d. Analytical procedures

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 9. Which of the following is a correct response of the auditor when a lower acceptable level of detection risk
is allowed?
Nature Timing Extent
a. Less effective Year-end More extensive
b. Less effective Interim Less extensive
c. More effective Interim More extensive
d. More effective Year-end Less extensive

10. Statement 1: Risk assessment procedures refer to audit procedures performed for the purpose of
detecting material misstatements in the financial statements.
Statement 2: Audit procedures establish broad general goals, audit objectives specify the detailed work
to be performed.
a. Only statement 1 is true.
b. Only statement 2 is true.
c. Both statement 1 and statement 2 are true.
d. Neither statement 1 and statement 2 are true.
11. The audit risk model is used primarily
a. For planning purposes in determining how much evidence to accumulate
b. To test effectiveness of controls
c. To determine the type of opinion to express
d. To evaluate the evidence which has been gathered
12. Relationship between control risk and detection risk is
a. Parallel
b. Direct
c. Inverse
d. Equal
13. Confirmation is most likely to be the relevant form of evidence with regard to assertions about accounts
receivable when the auditor has concerns about the receivables’
a. Valuation
b. Classification
c. Existence
d. Completeness
14. Working papers which contain information of continuing importance or significance are known as
a. Current audit file
b. Permanent audit file
c. Financial reporting file
d. Correspondence file
15. Which result of an analytical procedure suggests the existence of obsolete merchandise?
a. Decrease in inventory turnover rate
b. Decrease in the ratio of gross profit to sales
c. Decrease in the ratio of inventories to accounts payable
d. Decrease in the ratio of inventory to accounts receivable
16. Statement 1: Working papers, when properly prepared, serve as a substitute for the client’s accounting
records.
Statement 2: Working papers serve to provide support for the auditor’s report and as a guide on future
engagements for the same client.
a. Only statement 1 is true.
b. Only statement 2 is true.
c. Both statement 1 and statement 2 are true.
d. Neither statement 1 and statement 2 are true.
17. The purpose of analytical procedures at the completion of the audit includes all of the following except
a. Revising the audit plan
b. Considering overall reasonableness of the financial statements
c. Reviewing adequacy of evidence gathered to investigate unusual fluctuations
d. Recalculating some of the ratios examined during audit planning
18. The level of assurance provided by CPAs on an agreed-upon procedures is
a. None
b. Low
c. Medium
d. High

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 19. Which of the following key-risk areas may not be present to an insurance company?
a. Significant acquisition of property, plant and equipment
b. Completeness of commission income
c. Impact of changes in tax rate
d. PFRS 16 assessment
20. Which of the following is not an example of a financial statement closing process?
a. Bank reconciliation
b. Purchase requisition
c. Computation for depreciation expense
d. Income tax computation
21. Statement 1: Financial soundness indicator for insurance brokers is required by BIR.
Statement 2: A partner need not be accredited with the IC in connection with the signing of the opinion
of the financial statements.
a. Only statement 1 is true.
b. Only statement 2 is true.
c. Both statement 1 and statement 2 are true.
d. Neither statement 1 and statement 2 are true.
22. Statement 1: Amounts collected on behalf of the principal companies are revenue by the insurance
brokers.
Statement 2: Notwithstanding any agreement to the contrary, no policy or contract of insurance issued
by an insurance company is valid and binding unless and until the premium thereof has been paid.
a. Only statement 1 is true.
b. Only statement 2 is true.
c. Both statement 1 and statement 2 are true.
d. Neither statement 1 and statement 2 are true.

For items 23 – 26:

During planning, an auditor sets its materiality for ACCP307 Insurance Brokers, Inc. The following shows the
components of the materiality:

Benchmark Net income before tax

Benchmark amount P45,000,000
Overall materiality 13,500,000
Performance materiality 6,750,000
Clearly trivial threshold 675,000

23. The auditor conducts test of details of transactions for the commission income. Based on the procedure
performed, the amount per trial balance shows an unadjusted amount of P120,000,000 and the amount
per substantive testing was P115,000,000. In relation to the materiality, what is the proper response of
the auditor?
a. The auditor needs to propose an adjustment for the misstatement.
b. The auditor may include the adjustment as part of the summary of unadjusted audit differences.
c. The auditor may ignore the adjustment by indicating in the working paper that the amount is
immaterial.
d. The auditor may ignore the adjustment without the need to indicate in the working paper that
the amount is immaterial.
24. The auditor conducts recomputation of depreciation expense for its property and equipment. Based on
the findings of the procedure, the amount of depreciation expense per recomputation exceeded the
amount per books by P7,230,000. The difference is attributed to high value properties which are not being
depreciated yearly. The auditor informed the management of the potential misstatement, however, the
management did not agree to accept the adjustment. In relation to the materiality, what is the proper
response of the auditor?
a. The auditor needs to propose an adjustment for the misstatement.
b. The auditor may include the adjustment as part of the summary of unadjusted audit differences.
c. The auditor needs to change its opinion to qualified.
d. The auditor may ignore the adjustment without the need to indicate in the working paper that
the amount is immaterial.
25. The auditor conducts cut-off testing for the inventories. Based on the evidences gathered, there are
merchandise in transit that should have been part of the ending inventories amounting to P6,800,000.
The auditor relayed the information to the client, however, the client refuses again to accept the
adjustment. In relation to the materiality, what is the proper response of the auditor?
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 a. The auditor needs to propose an adjustment for the misstatement.
b. The auditor may include the adjustment as part of the summary of unadjusted audit differences.
c. The auditor may ignore the adjustment by indicating in the working paper that the amount is
immaterial.
d. The auditor may ignore the adjustment without the need to indicate in the working paper that
the amount is immaterial.
26. Using information from items 23 to 25 and assuming that the previous items were the only misstatements,
what is the appropriate response of the auditor during the completion stage?
a. The auditor need not conduct further investigations with regard to the misstatements.
b. The auditor may already wrap-up the audit and form an unqualified opinion.
c. The auditor needs to revisit the adjustments and assess a need to adjust an amount.
d. The auditor needs to revisit the adjustments for potential immaterial adjustments.

For items 27 to 30:

The following data pertains to the statement of financial position of ACCP307 Insurance Brokers, Inc., an existing
insurance broker.

ACCP307 Insurance Brokers, Inc.

Statement of Financial Position
As of December 31, 2022

Cash in banks P21,000,000

Trade and other receivables 12,500,000
Other current assets 700,000
Property, plant and equipment 7,200,000
Trade and other payables 8,600,000
Common stock 10,000,000
Retained earnings 22,800,000

Additional information:
1. Trade and other receivables include outstanding receivables over 180 days amounting to P5,900,000 and
over 365 days amounting to P1,300,000.
2. Other current assets include refundable deposits from a lease contract amounting to P325,000.
3. Property plant and equipment composes of:
Office equipment P3,400,000
Office furniture and fixtures 600,000
Right of use assets 3,200,000

27. How much is the total admitted assets?

a. P29,875,000
b. P30,200,000
c. P31,175,000
d. P30,475,000
28. How much is the total non-admitted assets?
a. P11,525,000
b. P11,200,000
c. P10,225,000
d. P10,925,000
29. How much is the net worth of the company?
a. P21,600,000
b. P21,875,000
c. P21,275,000
d. P22,575,000
30. Which of the following is TRUE?
a. The insurance broker did not meet the minimum net worth requirement.
b. The insurance broker met the minimum net worth requirement.
c. The insurance broker need not meet the minimum net worth requirement.
d. The insurance broker met the minimum required investment. Huhh???

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 ATENEO DE NAGA UNIVERSITY
College of Business and Accountancy
2nd Semester – S/Y 2022-2023

Auditing Specialized Industries

Midterm Examination E.P.Cuadro, CPA

Name: Date: Section: Score:

INSTRUCTIONS: 1. Read carefully the questions.

2. Choose the best option and shade the letter of your choice in the answer sheet provided.
3. Erasures are not allowed and considered wrong.

GOOD LUCK!

1. Traditionally, confirmations are used to verify

a. Individual sales transactions between organizations, such as sales transactions
b. Bank balances and accounts receivable
c. Fixed asset additions
d. All of the three above.
2. When the auditor examines the client’s documents and records to substantiate information on the financial
statements, it is commonly referred to as
a. Inquiry
b. Tracing
c. Physical examination
d. Vouching
3. Which of the following is not correct?
a. It would be a violation of the completeness assertion if management would record a sale that did not take
place.
b. The completeness assertion deals with matters opposite from those of the existence assertion.
c. The completeness assertion is concerned with the possibility of omitting items from the financial
statements that should have been included.
d. The existence assertion is concerned with inclusion of amount that should not have been.
4. When an independent auditor is approached to perform an audit for the first time, he or she should make inquiries
of the predecessor auditor. Inquiries are necessary because the predecessor may be able to provide the successor
with information that will assist the successor in determining whether
a. The predecessor’s work should be used.
b. The company rotates auditors.
c. In the predecessor’s opinion, control risk is low.
d. The engagement should be accepted.
5. Which of the following is appropriately included in an audit engagement letter?
I. Because of the test nature and other inherent limitations of an audit, together with the inherent
limitations of any accounting and internal control system, there is an unavoidable risk that even some
material misstatements may remain undiscovered.
II. The audit will be made with the objective of expressing an opinion on the financial statements.
III. An audit also includes assessing the accounting procedures used and significant estimates made by
management.
a. I and II
b. I and III
c. II and III
d. I, II and III
6. The following are valid reasons why an auditor sends to his client an engagement letter:

A B C D
a. Avoid misunderstanding with respect to engagement Yes Yes No Yes
b. Confirms the auditor’s acceptance of the appointment Yes Yes Yes No
c. Objective and scope of the audit Yes Yes Yes Yes
d. Assures CPA’s compliance to GAAS Yes No No Yes

7. 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.
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 c. Enhancing the auditor’s understanding of the client’s business.
d. Assessing the adequacy of the available evidential matter.
8. Which of the following matters would lease likely appear in the audit program?
a. Specific procedures to be performed
b. Specific audit objectives
c. Estimated time that will be spent in performing certain procedures
d. Documentation of the accounting and internal control systems being reviewed
9. To obtain an understanding of a continuing client’s business in planning an audit, an auditor most likely would
a. Perform tests of details of transactions and balances.
b. Review prior-year working papers and the permanent file for the client.
c. Read specialized industry journals.
d. Reevaluate client’s internal control environment
10. Understanding the business and using this information appropriately assists the auditor in, except
a. Deciding whether to do tests of controls.
b. Evaluating audit evidence.
c. Assessing risks and identifying potential problems.
d. Planning and performing the audit effectively and efficiently.
11. Why would the auditor assess control risk?
a. Because it indicates where inherent risk may be the greatest.
b. Because it determines whether sampling risk is sufficiently low.
c. Because it affects the level of detection risk the auditor may accept.
d. Because it includes the aspects of nonsampling risk that are controllable.
12. As the acceptable level of detection risk decreases, the assurance directly provided from
a. Substantive tests should increase.
b. Tests of controls should increase.
c. Substantive tests should decrease.
d. Tests of controls should decrease.
13. Which statement is incorrect regarding obtaining an understanding of the entity and its environment?
a. Obtaining an understanding of the entity and its environment is an essential aspect of performing an audit
in accordance with PSAs.
b. That understanding establishes a frame of reference within which the auditor plans the audit and
exercises professional judgment about assessing risks of material misstatement of the financial
statements and responding to those risks throughout the audit.
c. The auditor’s primary consideration is whether the understanding that has been obtained is sufficient to
assess the risks of material misstatement of the financial statements and to design and perform further
audit procedures.
d. The depth of the overall understanding that is required by the auditor in performing the audit is equal to
that possessed by management in managing the entity.
14. Evidence is generally considered sufficient when
a. It is appropriate.
b. There is enough of it to afford a reasonable basis for an opinion on financial statements.
c. It has the qualities of being relevant, objective and free from unknown bias.
d. It has been obtained by random selection.
15. Appropriateness of evidence is a measure of the:
a. Quantity of evidence.
b. Quality of evidence.
c. Sufficiency of evidence.
d. Meaning of evidence.
16. Insurance brokers or reinsurance brokers must file ____Errors and Omissions (Professional Liability or Professional
Indemnity) insurance policies issued separately by ____insurance companies authorized to do business in the
Philippines.
a. One, Two
b. Two, One
c. Two, Two
d. One, One
17. Statement 1: The minimum net worth requirement for insurance agency is the same with the insurance brokers.
Statement 2: The minimum net worth requirement for insurance brokers depend on the year stipulated in the
circular letters of the Insurance Commission.
a. Only statement 1 is TRUE.
b. Only statement 2 is TRUE.
c. Both statement 1 and statement 2 are TRUE.
d. Neither statement 1 and statement 2 are TRUE.
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18. This is a company which procures a third person to insure him against loss or liability by reason of such original
insurance.
a. Reinsurer
b. Retrocessionaire
c. Policyholder
d. Ceding company
19. Knowledge about the insurance industries can be acquired through
a. Circular letters
b. Insurance Code
c. Trends in the industry
d. All of the choices
20. Statement 1: Audit associates are primarily responsible in communicating matters of significant audit attention to
the audit partners.
Statement 2: Senior audit associates are primarily designated in executing the detailed audit procedures.
a. Only statement 1 is TRUE.
b. Only statement 2 is TRUE.
c. Both statement 1 and statement 2 are TRUE.
d. Neither statement 1 and statement 2 are TRUE.
21. Statement 1: The report of independent auditors to accompany financial statements for filing with the SEC is
signed by the audit partner which states the number of stockholder of the company owning more than 100 shares.
Statement 2: The report of independent auditors on supplementary schedules for filing with the insurance
commission is included as an attachment to the statement of business operations which is the responsibility of
the management and is part of the basic financial statements.
a. Only statement 1 is TRUE.
b. Only statement 2 is TRUE.
c. Both statement 1 and statement 2 are TRUE.
d. Neither statement 1 and statement 2 are TRUE.
22. These are professionals that are not part of the original audit team, but are important in the conduct of specific
audit procedures due to their expertise.
a. Experts
b. Internal auditors
c. Certified tax technicians
d. None of the choices.
23. Statement 1: Inventory management is not usually part of the significant classes of transactions for insurance
industries.
Statement 2: Revenue to collection cycle is the same for the three types of insurance industries.
a. Only statement 1 is TRUE.
b. Only statement 2 is TRUE.
c. Both statement 1 and statement 2 are TRUE.
d. Neither statement 1 and statement 2 are TRUE.
24. During planning, you determined that the audit risk is at high level. Which of the following are the effects in the
materiality and audit procedures?

Materiality Audit Procedures

a. Low More extensive
b. High Less extensive
c. Low Less extensive
d. High More extensive

25. Based on the audit procedures performed in reconciling the subsidiary ledger of commission receivable, you noted
that the trial balance amount exceeds by P10,000. The table below shows the materiality set during planning:

Materiality Amount
Overall P5,000,000
Performance 1,250,000
Clearly trivial threshold 50,000

What may be the best course of action to be taken?

a. Do not adjust the difference, but indicate in the working paper that the difference is immaterial.
b. Ask the client to reconcile the amount noted.
c. Adjust the amount to an income statement account.
d. Do nothing.
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 26. For insurance brokers, the timing of recognition of commission receivable and commission income happens
a. When the policy is issued to the customer
b. When the premium is received by the broker
c. When the premium is remitted to the insurance company
d. When the commission is received by the broker
27. The auditor vouched a lease contract and found out that refundable deposit should be recorded as of December
31. Upon checking the cash disbursements journal, the deposit is paid in January of the succeeding year. The
company recorded the payment at the end of the reporting period. As an auditor, what do you need to do?
a. Reverse the entry made for the refundable deposit.
b. Recheck the refundable deposit recorded with the lease contract and adjust any discrepancy noted.
c. Advise the client to establish an accrual instead.
d. Do nothing. The entry is correct.
28. Which of the following procedures most likely would support the classification assertion for an office equipment?
a. Test of additions
b. Recomputation of depreciation expense
c. Test of repairs and maintenance
d. Impairment assessment
29. Dividend declarations are usually documented in
a. Articles of incorporation
b. General information sheet
c. Corporate secretary reply
d. Board resolutions
30. One way to address the existence assertion of the commission income is to
a. Vouch the subsequent remittance of premiums collected and trace the related commission income
recorded
b. Vouch subsequent issuance of policies and trace the related commission income recorded
c. Vouch the brokers’ agreements
d. Recompute the commission income using the commission rate per vouching of the brokers’ agreements

For items 31 to 33:

You were assigned to audit the commission receivable of ACCP307 Insurance Brokers, Inc. During the prior year, the main
audit finding was the timing of recording of the commission receivable. In accordance with the company policy, the
commission receivables were recorded with the revenue upon issuance of the policies to the clients. This year, the audit
team is determined the attain reasonable assurance that the commission receivable is properly recorded and disclosed in
the financial statements.

31. The main assertion to be addressed in the situation is

a. Existence and cut-off
b. Completeness and existence
c. Cut-off and completeness
d. Valuation and allocation.
32. To address the assertion, what audit procedure should be done?
a. You must group receivables according to customer and select the major customers for sending of the
receivable confirmation reply.
b. You must obtain subsequent collections schedule and trace the collection to the related commission
receivable.
c. You must group receivables according to customer and assess the uncollectibility of the accounts based
on established aging categories.
d. You must choose samples from subsequent receivables and obtain the supporting documents.
33. To the commission receivable in the financial statements during the year, what should be done?
a. Request for remittance schedule of premiums collected and establish the correct commission receivable.
b. Obtain schedule of premiums collected and trace the collections to the commission receivable.
c. Determine whether the commission receivable has supporting insurance policies.
d. Gather commission received and trace the collections with the premiums remitted.

For items 34 and 35:

You were assigned to audit the commission income of ACCP307 Insurance Brokers, Inc. Based on your preliminary
understanding, the commission income is recorded when the premiums are remitted to the insurance companies. Also,
you were able to get the pertinent broker’s agreements. Your senior audit associate discussed that the audit risk is at low
level and adequate internal controls are in place as a result of the test of controls.
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34. Based on the information above, which is TRUE?
a. The recording of the commission income is incorrect and must be adjusted.
b. You need to do extensive procedures to obtain sufficient and appropriate audit evidence to support the
conclusion.
c. You may resort to doing substantive analytical review only.
d. Ask your senior audit associate to do it.
35. Vouching broker’s agreement will prove that the commission rates applied is
a. Complete
b. Existing
c. Accurate
d. All of the choices.

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 ATENEO DE NAGA UNIVERSITY
College of Business and Accountancy
2nd Semester – S/Y 2022-2023

Auditing Specialized Industries

Midterm Examination E.P.Cuadro, CPA

Name: Date: Section: Score:

INSTRUCTIONS: 1. Read carefully the questions.

2. Choose the best option and shade the letter of your choice in the answer sheet provided.
3. Erasures are not allowed and considered wrong.

GOOD LUCK!

1. If the contract costs exceed the transaction price, this creates an onerous contract. The unavoidable costs under
the contract reflect the least net cost of exiting the contract, which is the LOWER of:
a. Cost of the contract and cost of fulling the contract
b. Cost of the contract and penalties arising from failure to fulfill the contract
c. Cost of the fulfilling the contract and penalties arising from failure to fulfill the contract
d. Cost of the fulfilling the contract and finance charges arising from failure to fulfill the contract
2. The construction in progress account represents the accumulation of contract cost incurred for the current year
and the
a. Estimated gross profit for the current year
b. Gross profit accumulated at percentage of completion during the year
c. Gross profit recognized during the year at percentage of completion during the year
d. Estimated cost to complete for the current year
3. The cost-to-cost method reflects the satisfaction of performance obligation at
a. Point in time
b. Over time
c. End of year
d. None of the choices.
4. This is an individual or business that obtains construction contracts and sees them through, delivering what’s
contractually required.
a. Contractor
b. General contractor
c. Subcontractor
d. Project manager
5. Statement 1: A contract liability is established when an entity delivers the goods and services and the entity
expects to receive payment at the specified payment period.
Statement 2: Progress billing is an account used in traditional construction accounting to record amounts billed
for work performed on a contract that have been paid by the customer.
a. Only statement 1 is TRUE.
b. Only statement 2 is TRUE.
c. Both statement 1 and statement 2 are TRUE.
d. Neither statement 1 and statement 2 are TRUE.
6. This is the stage of construction when the project team obtains the equipment, labor, and materials necessary.
a. Construction phase
b. Procurement
c. Pre-construction phase
d. Building permits
7. Which of the following would distort the percentage of completion and misstate the gross profit earned for the
current year?
a. Variable considerations of the contract price during the year
b. Percentage of completion assessed by the engineer
c. Unused materials charged to production
d. All of the choices would distort the percentage of completion and misstate the gross profit earned for the
current year.
8. Which of the following would most likely to be requested by the auditor after reviewing the major construction
contracts of the company?
a. Schedule of the construction in progress and gross profit computation
b. Supporting documents for the materials used, including labor and overhead.
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 c. Percentage of completion assessed by the engineer
d. Management’s estimate of completed contracts
9. Statement 1: Recurring construction contracts may still be used as basis of the progress to date during the current
audit period.
Statement 2: If there are problems in estimating the costs to complete the contracts, contractors may defer the
recognition of profits until sufficient amount of work has been performed.
a. Only statement 1 is TRUE.
b. Only statement 2 is TRUE.
c. Both statement 1 and statement 2 are TRUE.
d. Neither statement 1 and statement 2 are TRUE.
10. Which of the following items is less likely to be a concern of an auditor assigned to audit the completeness and
accuracy of contract costs?
a. Excessive charges for contractor’s equipment on the job site
b. Contractor’s accounting policy with respect to overhead
c. Charges accumulated on cost-plus type contracts which are not reimbursable
d. Petty cash fund allocation for the major costs incurred
11. Statement 1: Physical verification of the equipment used in the construction site would be enough to support the
existence and ownership of the equipment.
Statement 2: Testing the cash disbursement’s journal for the payment of salaries would ultimately address the
existence of the workers in the site.
a. Only statement 1 is TRUE.
b. Only statement 2 is TRUE.
c. Both statement 1 and statement 2 are TRUE.
d. Neither statement 1 and statement 2 are TRUE.
12. These are portion of the receivables that are currently withheld by the clients until the completion of the job or
even longer in the event certain contract guarantees must be fulfilled prior to final acceptance.
a. Accounts receivable
b. Retention receivable
c. Factor’s holdback
d. Progress billing
13. To record accounts receivable, the receivable should be __________.
a. Unconditional
b. Conditional
c. Collectible currently
d. None of the choices.
14. Which of the following contracts may not result in the recognition of revenue during the year?
a. Construction contracts acquired during the current year.
b. Construction contracts with variable consideration that arise in the second year of operation.
c. Construction contracts which are cancelled at the middle of the year.
d. Construction contracts at the final year of completion.
15. What is the third step in the revenue recognition under PFRS 15?
a. Identification of performance obligation
b. Identification of transaction price
c. Allocation of the transaction price to performance obligation
d. Recognition of revenue
16. Which best characterizes the cost recovery method?
a. Profit is recognized as the progress towards the completion of the contract is not reasonably
determinable.
b. Profit is recognized based on the construction contract regardless of outcome of the performance
obligation.
c. Profit is recognized only when the outcome of the performance obligation can be reliably measured.
d. Profit is not recognized until the completion of the contract and the revenue is limited only to the actual
costs incurred.
17. These are necessary for developing a formal approach in calculating costs, scope, and schedules for project
execution.
a. Pre-construction phase
b. Building permits
c. Procurement
d. Construction phase
18. The auditor noticed internal control deficiencies in the job sites specially in handling of materials and recording of
contract costs. The auditor performed test of controls and determined the that unused materials are charged in
the production and some of the materials do not have supporting invoices.
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 During the completion of the audit, the auditor would relay the significant internal control deficiencies noted and
any suggestion for improvement in
a. Management representation letter
b. Minutes of meeting
c. Statement of management responsibility
d. Management letter
19. Which of the following is not a criterion for a performance obligation to be satisfied over time?
a. The customer simultaneously receives and consumes the benefits provided by the entity’s performance
as the entity performs.
b. The entity’s performance creates or enhances an asset that the customer controls as the asset is created
or enhanced.
c. The entity’s performance does not create an asset with an alternative use to the company and the entity
has an enforceable right to payment for performance completed to date.
d. All of the choices are criteria for a performance obligation to be satisfied over time.
20. This is a construction contract which limits the amount the owner will have to pay, and any additional expenses
incurred are covered by the contractor.
a. Cost plus contract
b. Guaranteed maximum price contract
c. Incentive construction contract
d. Fixed price contract.
21. This is known as the Contractor’s License Law
a. RA 4555
b. RA 4556
c. RA 4565
d. RA 4566
22. How many hours is the prescribed Construction Safety and Health Seminar (COSH)?
a. 30 hours
b. 40 hours
c. 50 hours
d. 60 hours
23. How many days is the processing time for the renewal of regular license?
a. 30 business days
b. 10 business days
c. 5 business days
d. 15 business days
24. The requirement for the Audited Financial Statements shall be dated within ___ months immediately preceding
the filing of the application.
a. 4
b. 5
c. 6
d. 7

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