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Management Firm of Professional Review and Training Center (PRTC)

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SOLIMAN/UY/AGUILA/RICAFRENTE
Auditing (AUD)
FIRST PRE-BOARD EXAMINATION
CPA Review OCAMPO/OCAMPO
March 2 & 3, 2024

Multiple Choice. Select the letter that corresponds to the best answer. This examination consists of 70 items and the
exam is good for three (3) hours. Good luck!

1. The single feature that most clearly distinguishes Cash

auditing, attestation, and assurance is
The cash account consists of the following:
a. Type of service.
b. Training required to perform the service. Cash in bank P1,490,000
c. Scope of services. Petty cash fund 10,000
d. CPA’s approach to the service. Total P1,500,000
2. Which of the following is ordinarily considered a test
Included among the checks drawn by Entity A against the
of internal control procedures?
Cash in bank account and recorded in Dec. 2024 are the
a. Send confirmation letters to banks.
following:
b. Count and list cash on hand.
• Check written and dated Dec. 29, 2024 and delivered
c. Examine signatures on checks.
to payee on Jan. 2, 2025, P100,000.
d. Obtain or prepare reconciliations of bank accounts
• Check written on Dec. 27, 2024, dated Jan. 2, 2024,
as of the balance sheet date.
delivered to payee on Dec. 29, 2024, P180,000.
3. In the "management discussion and analysis"
contained in the 2023 annual report of X Corporation, The Petty cash fund consisted of the following items as of
management stated that total sales were P4.95 billion Dec. 31, 2024.
and net profit was P500 million. The audited sales and Currency and coins P 2,100
net profit, however, were P3.8 billion and P450 million Employees’ IOUs 1,600
respectively. The financial statements, contained in Currency in an envelope marked “collections
the annual report, reflected the audited figures and for charity” with names attached 1,200
the CPA planned to issue an unqualified opinion. Upon Unreplenished petty cash vouchers 800
noting the inconsistencies between the MD&A and the Check drawn by Entity A, payable to the petty
audited financial statements, however, the CPA should cashier 4,600
a. Refer to the inconsistency in the audit report and P10,300
issue a qualified audit opinion.
b. Issue an unqualified opinion without an Accounts Receivable
explanatory paragraph, because the MD&A is not Confirmation replies received directly from customers
covered in the audit report. disclosed the following exceptions:
c. Issue an unqualified audit opinion with an
explanatory paragraph describing the Cust. Customer’s Audit Findings
inconsistency. Comments
d. Render an adverse opinion on the basis that A The goods sold on The client failed to record a
management had intentionally misrepresented Dec. 1 were credit memo for P25,000.
reported sales and net profit. returned on Dec. The goods were included in
16, 2024. the ending inventory at
Use the following information to answer next five (5) cost.
questions:
B We do not owe this Investigation revealed that
Presented below are unaudited balances of selected amount. We did not goods sold for P68,000
accounts of Entity A as of Dec. 31, 2024: receive any goods were shipped to Customer
from your B on Dec. 29, 2024, terms
Debit Credit company. FOB shipping point. The
Cash P 1,500,000 goods were lost in transit
Accounts receivable 7,800,000 and the shipping company
Inventory 9,600,000 has acknowledged its
Accounts payable P 3,400,000 responsibility for the loss
Sales, net 88,000,000 of the goods.
C I am entitled to a Customer C is an employee
During the course of your audit of Entity A’s books you 10% employee of Entity A. Starting Nov.
obtained additional information affecting these accounts. discount. Your bill 2024, all company
should be reduced employees were entitled to
by P8,000. a special discount.

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Cust. Customer’s Audit Findings
Comments Use to following information to answer next two
D We have not yet Goods billed for P270,000 questions:
sold the goods. We were consigned to
will remit the Customer D on Dec. 30, PLDC, a telecommunications company, employs highly
proceeds as soon as 2024. The goods cost automated processes to deliver services to its subscribers
the goods are sold. P180,000. through its systems. As a result, most evidence of its
revenue transactions exists solely in electronic form, with
E We do not owe you The invoice for the sale of minimal physical documentation. Evidence of service
P20,000. We goods on Dec. 18, 2024 delivery, such as copies of SMS and voice calls, does not
already paid our was paid by Customer E on persist long in the company's systems due to routine
accounts as Jan. 6, 2025. purging. Consequently, the auditor aims to audit the
evidenced by OR company's revenue transactions for the year.
#14344.
9. Based on the information above, which of the
F Reduce your bill by This amount represents following risks is most pertinent in the auditor’s audit
P2,200 freight paid by the of PLDC’s revenue transactions?
customer for the goods a. Business risk, given the company's reliance on
shipped on Dec. 17, 2024, highly automated processes, which may become
terms, FOB destination- obsolete due to technological advancements.
collect. b. Fraud risk, stemming from potential pressure on
the company to inflate its earnings to meet
Inventory analysts' expectations.
You noted the following information relating to certain c. Material but not significant risk, attributable to the
inventory transactions from your observation of the anticipated voluminous nature of revenue
client’s physical count and review of sales and purchases transactions.
cutoff: d. Risk for which substantive procedures alone do
a. Goods costing P230,000 were received from a vendor not provide sufficient and appropriate audit
on Jan. 3, 2025. The related invoice was received and evidence.
recorded on Dec. 30, 2024. The goods were shipped
on Dec. 31, 2024, terms FOB shipping point. 10. To address the risk over revenue transactions, the
b. Goods costing P200,000, sold for P300,000, were auditor might rely on
shipped on Dec. 31, 2024, and were received by the a. Extensive substantive audit procedures through
customer on Jan. 2, 2025. The terms of the invoice examination of evidence for revenue transactions,
were FOB shipping point. The sale was recorded in including copies of SMS and voice calls.
2025. b. Extensive substantive analytical procedures by
c. The invoice for goods costing P170,000 was received comparing monthly revenue of the current period
and recorded as a purchase on Dec. 31, 2024. The with that of the previous period.
related goods, shipped FOB destination, were c. Sampling tests on receivables balances, validating
received on Jan. 2, 2025. supporting evidence.
d. A P600,000 shipment of goods to a customer on Dec. d. Extensive testing of controls over applications that
30, 2024, terms FOB destination, was recorded as a process revenue transactions.
sale upon shipment. The goods costing P400,000
11. The following report of ratings for the recently
were received by the customer on Jan. 6, 2025.
concluded CPA board examination are available for the
Based on the given information and the result of your three candidates as follows:
audit, answer the following:
Angelikah Rhoy Rheeva
4. The adjusted cash as of Dec. 31, 2024 is AUD 89 64 65
a. P1,776,400 c. P1,780,000 MS 77 71 85
b. P1,776,700 d. P1,786,700 TAX 74 75 71
5. The adjusted accounts receivable as of Dec. 31, 2024 RFBT 76 82 76
is FAR 72 76 77
a. P7,126,800 c. P7,197,300 AFAR 81 75 73
b. P7,194,800 d. P7,494,800
Based on the foregoing information, which of the
6. The adjusted inventory as of Dec. 31, 2024 is following is TRUE?
a. P10,010,000 c. P10,230,000 a. Rhoy did not meet the required general average
b. P10,180,000 d. P10,410,000 of 75% for all subjects and he has a disqualifying
grade of 64% from the Auditing subject; hence,
7. The adjusted accounts payable as of Dec. 31, 2024 is
Rhoy is considered failed in the board
a. P3,510,000 c. P3,740,000
examination.
b. P3,680,000 d. P3,910,000
b. Rhoy obtained a conditional status and shall
8. The adjusted net sales for the year ended Dec. 31, retake Auditing and Management services within
2024 is the time prescribed by the Board and the
a. P87,329,000 c. P87,397,000 Commission.
b. P87,394,800 d. P87,405,000

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c. Rheeva shall receive a conditional credit for the
subjects that she passed, and she will be required
to retake Auditing where she got a rating of 65%.
d. Angelikah shall retake the Taxation subject since
she only got a rating of 74% for that subject which
is below the required 75%.
12. Checklists, systems development methodology, and
staff hiring are examples of what type of controls?
a. Detective c. Subjective
b. Preventive d. Corrective
13. Which of the following is most likely to be considered
a “further audit procedure?”
a. Communication with the predecessor auditor.
b. Preparation of an engagement letter.
c. Preparation of a flowchart of the sales function.
d. Performance of tests of controls.
14. The auditor is in the process of gaining an
understanding of an entity and its environment,
aiming to gather information about pending litigations
and lawsuits that could affect the entity. What is the
primary source for the auditor to obtain this
information?
a. The management of the entity.
b. The in-house legal counsel.
c. External legal counsel (independent source).
d. Search from background database.
15. Which of the following statements about the RA 9298
or the Philippine Accountancy Act of 2004 is incorrect?
a. In commerce and industry, private companies that
meet the paid-up capital or revenue threshold
must employ Certified Public Accountants (CPAs)
for supervising financial transaction recording,
preparing financial statements, and coordinating
with external audit.
b. The Board of Accountancy (BOA) must submit the
rating reports for successful candidates of the
board exam to the commission within 15 days
following the examination.
c. A person who shall violate any of the provisions of
the RA No. 9298 or its implementing rules and
regulations is punishable by a fine of not less than
fifty thousand pesos (P50,000) or by
imprisonment for a period not exceeding two
years, or both.
d. The working papers of a CPA in the course of the
CPA’s engagements are treated confidential and
privileged and remain the property of the CPA.
Use the following information to answer next five (5)
questions:
You noted the following items relative to the company’s
Intangible Assets in connection with your audit of Entity
B’s financial statements for the year 2024.
Franchise
On Jan. 1, 2024, Entity B signed an agreement to operate
as franchisee of TenFour Service, Inc. for an initial
franchise of P680,000. Of this amount, P200,000 was paid
when the agreement was signed and the balance was
payable in four annual payments of P120,000 each,
beginning Jan. 1, 2025. The agreement provides that the
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down payment is not refundable and no future services
are required of the franchisor. The implicit rate for loan of
this type is 14%. The agreement also provides the 5% of
the revenue from the franchise must be paid to the
franchisor annually. Entity B’s revenue from the franchise
for 2024 was P8,000,000. Entity B estimates the useful
life of the franchise to be ten years.
Patent
On July 1, 2024, Entity B purchased a patent from the
inventor, who asked P1,100,000 for it. Entity B paid for
the patent as follows: cash, P400,000; issuance of 10,000
shares of its own ordinary shares, par P10 (market value,
P20 per share); and a note payable due at the end of three
years, face amount, P500,000, noninterest-bearing. The
current interest rate for this type of financing is 12
percent. Entity B estimates the useful life of the patent to
be ten years.
Trademark
Entity B purchased for P1,200,000 a trademark for a very
successful product. The trademark was determined to
have an indefinite life. A competitor recently introduced a
product that is in direct competition with the entity’s
product, thus suggesting the need for an impairment test.
Data gathered by the entity suggests that the useful life
of the trademark is still indefinite, but the cash flows
expected to be generated by the trademark have been
reduced either to P40,000 per year (with a probability of
70%) or to P80,000 per year (with 30% probability). The
appropriate risk-free interest rate is 5%. The appropriate
risk-adjusted interest rate is 10%.
Based on the given information and the result of your
audit, answer the following:
16. Carrying amount of franchise as of Dec. 31, 2024
a. P494,680 c. P549,644
b. P538,733 d. P612,000
17. Carrying amount of patent as of Dec. 31, 2024
a. P 860,310 c. P 955,900
b. P 908,105 d. P1,045,000
18. Total expenses related to the intangible assets in 2024
a. P662,759 c. P733,063
b. P711,709 d. P802,212
19. Which statement is correct regarding audit of
intangible assets?
a. The most effective means for the auditor to
determine whether a recorded intangible asset
possesses the characteristics of an asset is to
inquire as to the status of patent applications.
b. An auditor most likely would review or re-compute
amortization and determine whether the
amortization period is reasonable in support of
management’s financial statement assertion of
valuation.
c. When testing a client's additions to an asset for
research and development, the auditor must
remember that such costs should be amortized
over the lesser of their legal lives or useful lives.
d. None of these.
AUD.1stPB5.24
TEAM PRTC
20. Which statement is correct regarding audit of
intangible assets?
a. When testing a client's additions to an asset for
research and development, the auditor must
remember that such costs should be amortized
over the lesser of their legal lives or useful lives.
b. Accounting principles require goodwill to be
amortized over a maximum period of 20 years.
c. Patents are amortized over the longer of the
remaining legal life or their useful life.
d. Expenditures incurred after the initial recognition
of an acquired intangible asset or after completion
of an internally generated intangible asset are
rarely recognized in the carrying amount of an
asset.
21. Which of the following situations represents a risk
factor that relates to misstatements arising from
misappropriation of assets?
a. A high turnover of senior management.
b. A lack of independent checks.
c. A strained relationship between management and
the predecessor auditor.
d. An inability to generate cash flow from operations.
22. To test for unsupported entries in the ledger, the
direction of audit testing should be from the
a. Ledger entries.
b. Journal entries.
c. Externally generated documents.
d. Original source documents.
23. As used in auditing, which of the following statements
best describes "assertions"?
a. Assertions are the representations of
management as to the reliability of the
information system.
b. Assertions are the auditor's findings to be
communicated in the audit report.
c. Assertions are the representations of
management as to the fairness of the financial
statements.
d. Assertions are found only in the footnotes to the
financial statements.
c. Limited liability.
d. Reasonable assurance.
27. As a category of evidence, documents may be external
or internal. As an auditor reviewing your client's
accounts receivable, which of the following is an
example of internal documentary evidence?
a. The carrier's bill of lading.
b. Sales invoice copies.
c. A customer's purchase order.
d. A vendor's month-end statement.
28. An auditor is preparing test data for use in the audit
of a computerized accounts receivable application.
Which of the following items would be appropriate to
include as an item in the test data?
a. A transaction record which contains an incorrect
master file control total.
b. A master file record which contains an invalid
customer identification number.
c. A master file record which contains an incorrect
master file control total.
d. A transaction record which contains an invalid
customer identification number.
29. In accordance with the Continuing Professional
Development (CPD) Law and the latest PRC Resolution
on CPD including its transitory provisions, which of the
following statements is least correct?
a. CPAs requiring accreditation to practice
accountancy shall be required to comply with 120
CPD credit units in a compliance period of 3 years.
b. CPAs working abroad are not covered by the CPD
requirements.
c. Newly licensed CPAs are not covered by the CPD
requirement for their first renewal cycle.
d. CPAs who reached the age of 65 years old are
exempted from complying with the CPD
requirements.
Use the following information to answer next five (5)
questions:
You were able to obtain the following information during
your audit of Entity C:

24. An auditor concluded that no excessive costs for idle Reconciling items:
plant were charged to inventory. This conclusion most
likely related to the auditor's objective to obtain Nov. 30 Dec. 31
evidence about the financial statement assertions Undeposited collections P200,000 P120,000
regarding inventory, particularly Outstanding checks 80,000 60,000
a. Valuation. c. Existence Customer’s notes collected by 100,000 120,000
b. Completeness. d. Rights bank
Bank service charges 2,000 3,000
25. Which of the following will an auditor least likely Erroneous bank debits 10,000 20,000
discuss with the former auditors of a potential client Erroneous bank credits 40,000 30,000
prior to acceptance? NSF checks not redeposited 5,000 7,000
a. Integrity of management. Customer's check deposited
b. Reasons for changing audit firms. December 10, returned by
c. Disagreements with management regarding bank on December 16
accounting principles. marked NSF, and
d. Methods to be used in selecting items for testing. redeposited immediately;
no entry made on books for 10,000
26. The basic concept of internal control which recognizes return or redeposit
that the cost of internal control should not exceed the
benefits expected to be derived is known as
a. Management by exception.
b. Management responsibility.

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TEAM PRTC
You noted the following from the Dec. bank statement: (SEC), and it will also be distributed to the company's
shareholders during their annual shareholders'
• Balance as of Nov. 30 – P230,000 meeting. Based on the foregoing, what is the suitable
• Receipts – P420,000 criteria of such engagement?
• Disbursements – P500,000 a. Philippine Standards on Assurance Engagements
(PSAE) 3000
QUESTIONS: b. Global Reporting Initiative Standards
c. The sustainability report of San Vicente
Based on the given information and the result of your
Corporation
audit, answer the following:
d. The sustainability practices of San Vicente
30. How much is the unadjusted cash balance per books Corporation
as of Nov. 30?
38. Which of the following is correct concerning
a. P227,000 c. P320,000
performance materiality on an audit?
b. P287,000 d. P413,000
a. It will ordinarily be less than financial statement
31. How much is the unadjusted book receipts for Dec.? materiality.
a. P270,000 c. P320,000 b. It should be established at beginning of an audit
b. P290,000 d. P427,000 and not be revised thereafter.
c. It should be established at separate amounts for
32. How much is the unadjusted book disbursements for
the various financial statements.
Dec.?
d. It need not be documented in the working papers.
a. P407,000 c. P457,000
b. P410,000 d. P477,000 39. When financial statements of a prior period are
presented on a comparative basis with financial
33. How much is the unadjusted cash balance as of Dec.
statements of the current period, the continuing
31?
auditor is responsible for
a. P 90,000 c. P200,000
a. Expressing dual date opinions.
b. P110,000 d. P310,000
b. Updating the report on the previous financial
34. Which statement is correct regarding proof of cash? statements only if there has not been a change in
a. Auditors are likely to prepare a proof of cash when opinion.
the client has effective internal controls in cash c. Updating the report on the previous financial
receipts and cash disbursements. statements only if the previous report was
b. A proof of cash represents a test of controls of qualified and the reasons for qualification no
transactions. longer exist.
c. Both a and b. d. Updating the report on the previous financial
d. Neither a nor b. statements regardless of the opinion previously
issued.
35. Which of the following is not an element of an entity's
internal control? Use the following information to answer next five (5)
a. Control risk. c. The information system questions:
b. Control activities. d. The control
The Dec. 31, 2023 statement of financial position of Entity
environment
D showed Accounts receivable of P500,000 and Allowance
c. The information system
for Bad Debts of P48,000. Following is a summary of
d. The control environment.
accounts receivable transactions recorded by the entity in
36. In planning an audit, an auditor should document in 2024:
the working papers the auditor's risk assessment of a
Credit sales during the year P3,120,000
material misstatement of the financial statements due
Accounts collected during the year 3,008,000
to fraud. Which of the following should be included in
Accounts written off as uncollectible 52,000
workpaper documentation if risk factors are identified
Recoveries of accounts written off in the
as being present?
previous year 2,160
a. A copy of the report of the risk factor to the
company's legal counsel
On Dec. 31, 2024, an aging of accounts receivable
b. Discussion of the risk factor with the client
indicated the following:
c. Investigation of the risk factor
d. Those risk factors identified % of total Probability
receivable of
37. Hannah, CPA, has been engaged to deliver an Age group amount collection
assurance report on the sustainability practices of San Less than 60 days 70% 98%
Vicente Corporation, which has prepared its Between 61 and 120 days 18 85
sustainability report following the Global Reporting Between 121 and 180 days 10 50
Initiative (GRI) Standards. She is required to conduct Over 180 days 2 0
her procedures in compliance with the Philippine
Standards on Assurance Engagements (PSAE) 3000. Based on the given information and the result of your
The sustainability report is to be submitted by the audit, answer the following:
company to regulatory agencies, including the
Philippine Securities and Exchange Commission

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40. The accounts receivable as of Dec. 31, 2024 is
a. P431,200 c. P548,800 48. An auditor compares 2023 revenues and expenses
b. P546,684 d. P550,916 with those of the prior year and investigates all
changes exceeding 10%. By this procedure the
41. The allowance for doubtful accounts as of Dec. 31, auditor would be most likely to learn that
2024 is a. An increase in property tax rates has not been
a. P40,040 c. P50,960 recognized in the client's accrual.
b. P50,764 d. P51,156 b. The 2023 provision for uncollectible accounts is
inadequate, because of worsening economic
42. The doubtful account expense for the year 2024 is
conditions.
a. P50,680 c. P64,240
c. Fourth quarter payroll taxes were not paid.
b. P64,000 d. P65,920
d. The client changed its capitalization policy for
43. Which of the following forms of evidence represents small tools in 2023.
the most competent evidence that a receivable
actually exists? 49. Failure to detect material peso misstatements in the
a. A sales invoice. c. A receiving report financial statements is a risk which the auditor
b. A positive confirmation. d. A bill of lading primarily mitigates by
a. Performing substantive procedures.
44. Which statement is correct regarding audit of b. Performing tests of controls.
receivables? c. Assessing internal control.
a. Determining the relationship of receivables to sales d. Obtaining a client representation letter.
is the primary objective of the auditor in the audit
Use the following information to answer next five (5)
of accounts receivable.
questions:
b. Unreturned negative confirmation requests
usually provide significant explicit evidence. The following subsidiary ledger reflects the investments in
c. An auditor should perform alternative procedures shares of Entity E for the year 2024:
to substantiate the existence of accounts
receivable when no reply to a negative PROVEN CORP.
confirmation request is received. Date Transactions Debit Credit
d. If management refuses to allow the auditor to Sep. Purchased 20,000
send a confirmation request, the auditor shall 05 shares P1,000,000
inquire as to management’s reasons for the Cash dividends to
refusal, and seek audit evidence as to their validity 28 stockholders of
and reasonableness. record Sept. 15,
45. When planning the audit, if the auditor has no reason declared Aug. 15
to believe that noncompliance to laws and regulations P50,000
exist, he should Oct. Purchase 50,000 2,600,000
a. make inquiries of management regarding their 01 shares
policies and their knowledge of violations, and Sold 20,000 shares
then rely on normal audit procedures to detect 05 at P65 1,000,000
errors, irregularities, and illegalities. Nov. Cash collected for
b. still include some audit procedures designed 30 sale of 20,000
specifically to uncover illegal acts. shares made on
c. ignore the possibility of illegal acts to occur. Nov. 10, after a
d. include audit procedures which have a strong Nov. 1 declaration
probability of detecting illegal acts. of P5 cash
dividend per share
46. In practice, how do auditors typically assess risk to stockholders on
a. Aggressively c. Quantitatively record as of Dec. 1
b. Conservatively d. Statistically

47. An independent auditor has concluded that the client's 3,300,000

records, procedures and representations can be relied Dec. Cash dividend
upon based on tests made during the year when
15 received . 150,000
internal control was found to be effective. The auditor
Totals P3,600,000 P4,500,000
should test the records, procedures, and
representations again at year-end if On Jan. 2, 2024, Entity E purchased 39,000 ordinary
a. Inquiries and observations lead the auditor to
shares of Tested Corp.’s 200,000 ordinary shares
believe that conditions have changed significantly.
outstanding for P1,170,000. On that date, the carrying
b. Comparisons of year-end balances with like amount of the acquired shares on Tested Corp.’s books
balances at prior dates revealed significant
was P810,000. Entity E attributed the excess of cost over
fluctuations.
carrying amount to goodwill.
c. Unusual transactions occurred subsequent to the
completion of the interim audit work.
During 2024, Entity E’s president gained a seat on
d. Client records are in a condition that facilitate Tested’s board of directors. For the year ended Dec. 31,
effective and efficient testing.

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TEAM PRTC
2024, Tested reported profit of P800,000 and declared and b. Constitute sufficient evidence to support the
paid cash dividends of P200,000. assertion when considered in combination with
reliance on internal control.
Fair values of the shares at Dec. 31, 2024, are as follows: c. Are not part of the audit evidence considered to
Proven Corp. P60 per share support the assertion.
Tested Company P30 per share d. Replace reliance on internal control as evidence to
support the assertion.
Based on the above and the result of your audit, answer
the following: 57. If all other factors in a sampling plan are held
constant, changing the risk of underassessment from
50. The gain on sale of 20,000 shares of Proven Corp. Oct.
five percent to three percent would cause the sample
5 is
size to be:
a. P300,000 c. P 350,000
a. Smaller. c. Unchanged
b. P314,300 d. P1,028,500
b. Larger. d. Indeterminate
51. The gain on sale of 20,000 shares of Proven Corp. on
Nov. 10 is 58. When obtaining an understanding of an entity's
a. P2,160,000 c. P2,185,800 control environment, an auditor should concentrate on
b. P2,171,600 d. P2,260,000 the substance of management's policies and
procedures rather than their form because
52. How much should be recognized as fair value a. The auditor may believe that the policies and
adjustment gain on the investments in shares in 2024 procedures are inappropriate for that particular
profit or loss? entity.
a. Nil c. P257,400 b. The board of directors may not be aware of
b. P240,000 d. P278,700 management's attitude toward the control
environment.
53. The adjusted balance of investment in Tested Corp. at
c. Management may establish appropriate policies
Dec. 31, 2024 is
and procedures but not act on them.
a. P1,170,000 c. P1,287,000
d. The policies and procedures may be so weak that
b. P1,251,000 d. P1,326,000
no reliance is contemplated by the auditor.
54. Which statement is correct regarding audit of
investment securities? 59. In assessing audit risk, the CPA needs to do all of the
a. An auditor’s audit objective is to determine following except
whether the securities are authentic. a. Gather audit evidence in support of recorded
b. Examination of paid checks issued in payment of transactions.
securities purchased is the most effective b. Obtain an understanding of the client's system of
procedure to verify existence. internal control.
c. In performing tests of the carrying amount of c. Understand the economic substance of significant
investments in equity securities, the auditor would transactions completed by the client.
usually refer to the quoted market prices of the d. Understand the entity and the industry in which it
securities. operates.
d. If a client has a large and active investment 60. Which of the following balance-related audit
portfolio that is kept in a bank safe-deposit box objectives are applicable to the audit of accounts
and the auditor is unable to count the securities at receivable, but not applicable to the audit of accounts
the end of the reporting period, the auditor most payable?
likely will request the bank to confirm to the a. Existence c. Detail tie in
auditor the contents of the safe deposit box at the b. Completeness d. Realizable value
end of the reporting period.
61. An attitude that includes a questioning mind and a
55. Accepting an engagement to examine a financial critical assessment of audit evidence is referred to as
projection for a privately held company most likely a. Due professional care. c. Reasonable assurance
would be inappropriate if the projection were to be b. Professional skepticism. d. Supervision
distributed to
a. A bank with which the entity is negotiating for a 62. Which of the following is not a distinguishing feature
loan. of risk-based auditing?
b. A labor union with which the entity is negotiating a. Identifying areas posing the highest risk of
a contract. financial statement errors.
c. The principal stockholder, to the exclusion of the b. Analysis of internal control.
other stockholders. c. Collecting and evaluating evidence.
d. All stockholders of record as of the report date. d. Concentrating audit resources in those areas
presenting the highest risk of financial statement
56. When considering the use of management's written errors.
representations as audit evidence about the
completeness assertion, an auditor should understand 63. Which of the following procedures would an auditor
that such representations most likely perform in the planning stage of an audit?
a. Complement, but do not replace, substantive a. Make a preliminary judgment about materiality.
procedures designed to support the assertion. b. Confirm a sample of the entity's accounts payable
with known creditors.

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TEAM PRTC
c. Obtain written representations from management
that there are no unrecorded transactions.
d. Communicate management's initial selection of
accounting policies to the audit committee.
64. The objective of tests of details of transactions
performed as substantive procedures is to
a. Detect material misstatements in the financial
statements.
b. Evaluate whether management’s policies and
procedures operated effectively.
c. Identify specific financial statement assertions
that satisfy the audit objectives.
d. Verify that significant deficiencies in the
accounting system are discovered.
The following notes are relevant:
(i) At Mar. 31, 2024, an inventory list based on a
physical count had a total cost of P18.9 million.
Some damaged goods that had cost P 1.44 million
were included in these. The realizable value of these
goods is expected to be P 1.71 million, provided a
remedial work costing P0.81 million is done before
they could be sold.
(ii) Included in the computation of profit or loss are
finance costs consisting of interest on overdraft, the
full year's preference dividend and an ordinary
dividend of P0.04 per share that was paid in Sept.
2023.

65. Which of the following statements would least likely (iii) Non-current assets:
appear in an auditor's engagement letter?
a. Fees for our services are based on our regular per Land and building
diem rates, plus travel and other out-of-pocket A professional valuer submitted a report on Apr. 1,
expenses. 2023, revaluing the land at P27 million and building
b. During the course of our audit we may observe at P86.4 million. The directors decided to
opportunities for economy in, or improved incorporate these values in the accounts. On that
controls over, your operations. date the land and building had a carrying value of
c. Discussion of the specific audit findings for P75.6 million and the building had a remaining life
adjustments in the financial statements. of 15 years.
d. Our engagement is subject to the risk that
material misstatements or fraud, if they exist, will Charge depreciation on a straight-line basis. The
not be detected. entity does not make a transfer to retained earnings
in respect of excess depreciation.
Use the following information to answer next five (5)
questions: Plant
All plant is depreciated at 12.5% on the reducing
The following trial balance relates to Entity F at Mar. 31,
balance basis.
2024:
P'000 P'000 Investment property
Debit Credit
Closing inventories - On Mar. 31, 2024, the investment property was
Mar. 31, 2024 (note (i)) 18,900 revalued at P24.3 million. The entity uses the fair
Land and building – value model.
at valuation (note (iii)) 113,400
Plant and equipment - cost Based on the given information and the result of your
(note (iii)) 64,800 audit, answer the following: (Ignore income taxes)
Accumulated depreciation, Apr. 66. The adjusted profit or loss for the year ended Mar. 31,
1, 2023 - plant and 2024 is
equipment 30,240 a. P73,080,000 c. P79,380,000
Investment property – valuation b. P78,840,000 d. P80,640,000
Apr. 1, 2023 (note (iii)) 28,800
Trade receivables 38,700 67. The comprehensive income for the year ended Mar.
Cash in bank 1,620 31, 2024 is
Trade payables 21,240 a. P 79,380,000 c. P117,180,000
Ordinary shares of P0.25 each 36,000 b. P116,640,000 d. P118,440,000
10% Redeemable preference 68. The total assets as of Mar. 31, 2024 is
shares of P1 each 18,000 a. P217,620,000 c. P219,240,000
Revaluation reserve (note (iii)) 37,800 b. P218,160,000 d. P219,780,000
Retained earnings – Apr. 1, 2023 31,500
Profit or loss summary . 88,200 69. The total liabilities as of Mar. 31, 2024 is
264,600 264,600 a. P21,240,000 c. P39,240,000
b. P22,860,000 d. P40,860,000
70. The retained earnings balance as of Mar. 31, 2024 is
a. P 98,820,000 c. P105,120,000
b. P104,580,000 d. P107,100,000

Thank you for participating in Team PRTC Nationwide Open First Pre-Board Examination.

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