AUD 1st PB Exam-May 2021 PRTCaaaaaaaaaaaaa PDF

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Manila * Cavite * Laguna * Cebu * Cagayan De Oro * DavaoAUDITING OCAMPO/OCAMPO/SOLIMAN/UYFIRST PRE-BOARD EXAMINATION FEBRUARY 22, 2021Multiple 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! Whi...

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Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao AUDITING FIRST PRE-BOARD EXAMINATION

OCAMPO/OCAMPO/SOLIMAN/UY FEBRUARY 22, 2021 c.

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!

d. 1.

2.

3.

4.

5.

Which of the following meets the definition of an assurance engagement but does NOT need to be performed in accordance to the Framework for Assurance Engagement? a. Engagements to testify in legal proceedings regarding accounting, auditing, taxation, or other matters. b. Consulting (or advisory) engagements, such as management and tax consulting. c. The preparation of tax returns where no conclusion conveying assurance is expressed. d. Agreed-upon procedures engagements and compilations of financial or other information. Generally Accepted Auditing Standards (GAAS) and Philippine Standards on Auditing (PSA) should be looked upon by practitioners as a. ideals to work for, but which are not achievable. b. maximum standards which denote excellent work. c. minimum standards of performance which must be achieved on each audit engagement. d. benchmarks to be used on all audits, reviews, and compilations. Which of the following statements correctly describes the objective of an auditor in an audit of financial statements? a. To prepare the financial statements in accordance with the applicable financial reporting framework. b. To obtain reasonable assurance whether the financial statements are free from misstatements, whether due to fraud or error, in accordance with the applicable financial reporting framework. c. To express an opinion on the fairness of the financial statements in accordance with the PSAs. d. To provide reasonable assurance as to whether the financial statements are fairly stated in all material respects in accordance with applicable financial reporting framework such as the PFRSs. An entity’s management is responsible for the preparation and fair presentation of the financial statements. Its responsibility includes the following, except a. Designing, implementing, and maintaining internal control relevant to the preparation and presentation of financial statements. b. Making accounting estimates that are responsible in the circumstances. c. Selecting and applying appropriate accounting policies. d. Assessing the risks of material misstatement of the financial statements. Select the correct statement: a. An auditor’s analytical procedures most likely would be facilitated in the entity corrects material weaknesses in internal control before the beginning of the audit. b. An auditor’s analytical procedures most likely would be facilitated in the entity develops its data from sources solely within the entity.

Since 1977

An auditor’s analytical procedures most likely would be facilitated in the entity segregates obsolete inventory before physical count. An auditor’s analytical procedures most likely would be facilitated in the entity uses a standard cost system that produces variance reports.

6.

An entity’s accounting records generally include the records of initial entries and supporting records including: a. Confirmations from third parties. b. Information obtained by the auditor from such audit procedures as inquiry, observation, and inspection. c. Worksheets and spreadsheets supporting cost allocations. d. Other information developed by, or available, to the auditor to permit him/her to reach conclusions through valid reasoning.

7.

If management or those charged with governance impose a limitation on the scope of the auditor’s work in the terms of a proposed audit engagement such that the auditor believes the limitation will result in the auditor disclaiming an opinion on the financial statements, the auditor shall not accept such a limited engagement as an audit engagement, unless required by law or regulation to do so. The auditor shall agree the terms of the audit engagement with management or those charged with governance, as appropriate. a. True, True b. False, False c. True, False d. False, True

8.

When using the work of another auditor, the principal auditor should ordinarily perform the following procedure a. Obtain information regarding the professional competence of the other auditor in the context of the specific assignment undertaken by the other auditor. b. Advise the other auditor of the applicable independence requirements as regards both the entity and the component and obtain representation as to his compliance with them. c. Advise the other auditor of the applicable accounting, auditing and reporting requirements and obtain representation as to compliance with them. d. All of the above.

9.

Which is least likely beneficial in adequately planning an audit of financial statements? a. Assist in coordination of work done by auditors of components and experts. b. Assist in the selection of engagement team members with appropriate levels of capabilities and competence. c. Aid the auditor to identify and resolve potential problems on a timely basis. d. Aid the auditor to devote appropriate attention to all areas of the audit

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EXCEL PROFESSIONAL SERVICES, INC. 10. In all a. b.

planning an examination, the auditor would consider of the following matters, except Anticipated reliance on internal controls. Preliminary judgment about materiality levels for audit purposes. c. Financial statement items likely to require adjustment. d. The kind of opinion (unqualified, qualified, disclaimer, or adverse), likely to be given.

11. A preliminary audit survey, when correctly done, produces: a. b. c. d. Economy in the audit No Yes Yes Yes program An effective report Yes No Yes Yes An effective deployment of audit resources No Yes Yes No 12. In planning a financial statement audit which of the following procedures would an auditor least likely perform: a. Selecting a sample of vendor’s invoices for comparison to receiving reports. b. Discussing matters that may affect the audit with firm personnel responsible for non-audit service to the entity. c. Reading the current year’s interim financial statements. d. Coordinating the assistance of entity personnel in data preparation. 13. During the initial planning for an audit, a CPA obtains a level of knowledge of the client’s business to help him evaluate: a. The reasonableness of estimates, such as valuation of inventories and allowances for doubtful accounts. b. Whether to accept the engagement or not. c. The profitability of the business. d. The nature of the audit report he will issue. 14. An audit program provides proof that a. Sufficient competent evidential matter was obtained. b. The work was adequately planned. c. There was compliance with PSAs. d. There was a proper study and evaluation of internal control. 15. In developing the overall audit strategy for a new client, factor not be considered is: a. The terms of the engagement of any statutory responsibilities. b. The client’s business, including the structure of the organization and accounting system used. c. The amount of estimated audit fee. d. The audit risk, and procedures to be performed to achieve audit objectives. 16. The auditor should take into account the factor for a particular account: a. b. Its liquidity Yes Yes Extent to which judgment enters into No No the determination of balance Size of the items No Yes comprising it

following risk c. Yes

d. No

Yes

Yes

Yes

Yes

17. If the auditor sets the preliminary judgment about materiality level at a relatively low peso amount, a. more evidence will be required than for a high level.

b. c. d.

less evidence will be required than for a high level. the same amount of evidence will be required as for a high level. the amount of evidence required will not be affected.

18. Of the following control environment characteristics, identify the one that contributes most to effective internal control a. The audit committee consists of the president, two vice- presidents, and the corporate controller. b. The company does not have a centralized human resources function. c. The company has an effective internal audit staff that monitors controls on a continuous basis. d. The company routinely transacts business with related parties. 19. A system of internal control, regardless of how carefully designed and implemented, contains certain inherent limitations. Which of the following errors or irregularities is not caused by an inherent limitation? a. The president and chief executive officer, with the assistance of the corporate controller, inflated earnings by recording fictitious sales at year-end. b. A newly installed electronic data processing system failed to provide for a comparison of sales order amount with prior customer balance and credit limit. This resulted in numerous sales to customers who had already exceeded their credit limits. c. Numerous recording errors occurred because persons analyzing and recording transactions did not have the necessary accounting background. d. A computer programmer and a computer operator conspired to divert funds from the company to an account controlled by the dishonest employees. 20. Which of the following responsibility that should not be delegated to only one employee? a. Custody and operation of cash working fund. b. Custodianship of tools and small equipment. c. Access to securities in the company's vault. d. Reconciliation of bank statements. 21. Which of the following statements best describes the auditor’s responsibility regarding the detection of fraud? a. The auditor is responsible for the failure to detect fraud only when such failure clearly results from non-performance of audit procedures specifically described in the engagement letter. b. The auditor must extend auditing procedures to actively search for evidence of fraud in all situations. c. The auditor must extend auditing procedures to actively search for evidence of fraud where the examination indicates that fraud may exist. d. The auditor is responsible for the failure to detect fraud only when an unqualified opinion is issued. 22. If the auditor concludes that the noncompliance has a material effect on the financial statements, and has not been properly reflected in the financial statements, the auditor should express: a. A qualified or an adverse opinion b. A qualified opinion or a disclaimer of opinion c. A disclaimer of opinion d. An unmodified opinion 23. This includes distributing assignments among staff assistants and reviewing the progress of such assignments on a periodic basis. a. Supervision c. Staff training b. CPD d. Planning.

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EXCEL PROFESSIONAL SERVICES, INC. 24. 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 non-sampling risk that are controllable. 25. The auditor, in his plan for an examination in accordance with GAAS, being influenced by the possibility of material errors will therefore conduct the examination with an attitude of a. Professional skepticism. c. Objective indifference. b. Subjective mistrust. d. Professional responsiveness. 26. When evaluating an entity’s accounting estimates, what is one of the auditor’s objective? a. To determine whether the estimates are based on objective assumptions. b. To determine whether the estimates are reasonable in the circumstances. c. To determine whether the estimates are consistent with industry guidelines. d. To determine whether the estimates are not subject to bias. 27. Tests of controls are used to test whether controls are a. operating effectively. b. placed in operation (implemented). c. properly accumulated into balance sheet totals. d. properly documented by the client. 28. Which of the following is not an appropriate auditing procedure supporting fairness of financial presentation? a. Inspecting plant asset additions for existence. b. Recalculating accrued interest on notes payable. c. Examining invoices in support of legal fees recorded during the fiscal year. d. Reviewing the client's production quality control program. 29. Which of the following is correct about forensic audits? a. All audit engagements are forensic in nature. b. Forensic audits are performed by law firms; they are not performed by CPA firms. c. Forensic audits are equivalent to compliance audits. d. Forensic audits are usually performed in situations in which fraud has been found or suspected. 30. Identify the following procedures whether part of compliance testing (CT) or substantive testing (ST) 1.1 Examine approval of check vouchers 1.2 Inspect supporting documents of disbursements 1.3 Verify if bank reconciliation is reviewed by a staff other than the preparer. 1.4 Obtain year end bank reconciliation a. ST, ST, CT, CT. c. CT, CT, CT, ST. b. CT, CT, ST, ST. d. CT, ST, CT, ST. 31. If the auditor expresses disclaimer of opinion in the auditor’s report, which section should be omitted? a. Key audit matters b. Auditor’s responsibilities c. Management’s responsibilities d. Other reporting responsibility 32. A review report states that

a.

b. c.

d.

a review includes assessing the accounting principles used and significant estimates made by the management. a review includes examining on a test-basis. the accountant is not aware of any material modifications that should be made to the financial statements. the accountant does not express an opinion or any other form of assurance.

33. Which of the following is not among the characteristics of the procedures being performed in completing the audit? a. They are optional since they have only an indirect impact on the opinion to be expressed. b. They involve a lot of subjective judgment by the auditor. c. They do not pertain to specific transaction cycles or accounts. d. They are usually performed by the audit managers or other senior members of the audit team who have extensive audit experience with the client. 34. The most critical aspect regarding separation of duties within the information systems is between a. project leaders and programmers. b. programmers and computer operators. c. data control and file librarians. d. management and users. 35. Which of the following test of controls is useful to test the completeness objective for cash receipts? a. Compare shipping documents with sales records. b. Observe endorsement of incoming checks. c. Examine evidence that the receivable master file is reconciled to the general ledger. d. Observe if the client reconciles the bank account. PROBLEM NO. 1 Presented below is the Assets section of Vic Corporation’s statement of financial position as of December 31, 2021. Cash and cash equivalents Trade and other receivables Inventories Other current assets Property, plant and equipment Intangible assets Other non-current assets

P2,100,000 4,200,000 5,400,000 500,000 7,190,000 2,280,000 700,000

During the course of your audit, you noted the following. Cash and cash equivalents The following were included in Cash and cash equivalents: • Credit card receipts representing sales on Dec. 31, 2021, P90,000. • Cryptocurrencies, P360,000. These are not held for sale in the ordinary course of business nor for investment purposes. • Cash set aside for payment of income tax, P140,000. • Cash surrender value of life insurance policy, P33,000. • Investment in preference shares acquired on Dec. 28, 2021, P240,000. The shares are redeemable on Mar. 28, 2022. • Customer’s check for P65,000 dated January 2, 2022, received on December 29, 2021. Inventories The following were included in Inventories: • Equipment held for sale in accordance with PFRS 5, at carrying amount, P52,000. Fair value less costs to sell, P48,000.

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EXCEL PROFESSIONAL SERVICES, INC. • • •

•

•

Goods held on consignment, P36,000. Goods out on consignment, P75,000. Goods in transit to customers (shipped FOB seller), P87,000. The related sales on account of P104,400 recorded in 2022. Goods in transit to customers (shipped FOB buyer), P73,000. The related sales on account of P87,600 recorded in 2022. Office supplies, P12,000.

This line item includes the following: Head office building Factory building Store building Building occupied by employees Land held for a currently undetermined future use Delivery vehicles Equipment for rental to others under operating leases Bearer plants

• •

P1,300,000 1,450,000 920,000 870,000 1,200,000 830,000 240,000 380,000 P7,190,000

The entity uses the cost model for all items of property, plant and equipment. The employees pay rent at market rates. Fair value less costs to sell of bearer plants, P460,000.

Intangible assets This line item includes the following: Patents Trademarks Costs of training employees Research and development costs Organization costs • •

The following provide the details of a sales and purchases cut-off rendered by your audit staff in line with your audit of Cedric Corporation’s financial statements as of and for the period ended December 31, 2021. The inventories reported per books amounting to P339,900 is based on a physical count conducted on the client’s warehouse on December 30, 2021. All customers are a 3-5 days delivery area. Gross profit on sales is at 40%. Audit notes:

Property, plant and equipment

•

PROBLEM NO. 2

P350,000 460,000 280,000 880,000 310,000 P2,280,000

The costs of training employees resulted in a team of skilled staff. The entity cannot distinguish the research phase from the development phase of its project to create an intangible asset.

a. The following is a summary of the cut-off made on purchases transactions: December 2021 entries on the purchases journal: Receiving Report No. RR513

Receiving Report Date Dec. 28

Amount 18,100

RR514

Dec. 29

25,250

RR515 RR516

Dec. 31 Jan. 2

14,950 15,400

Remarks FOB Shipping point FOB Destination (from consignor) FOB Destination FOB Destination (in transit)

January 2022 entries on the purchases journal: Receiving Report No. RR517

Receiving Report Date Jan. 2

Amount 12,750

RR518 RR519

Jan. 3 Jan. 4

16,250 20,700

Remarks FOB Shipping point (in transit) FOB Destination FOB Shipping point

b. The following is a summary of the cut-off made on sales transactions: December 2021 entries on the sales journal: Invoice No. SI517

Invoice date Dec. 26

Shipment date Dec. 27

Amount P38,250

SI518

Dec. 27

Dec. 28

40,450

SI519

Dec. 28

Dec. 29

45,250

SI520

Dec. 29

Dec. 31

25,300

QUESTIONS: Based on the above and the result of your audit, determine the adjusted amount of the following as of December 31, 2021: 36. Cash and cash equivalents a. P1,912,000 c. P1,552,000 b. P1,672,000 d. P1,312,000 37. Trade and other receivables a. P4,459,400 c. P4,394,400 b. P4,442,600 d. P4,369,400

Remarks FOB Shipping point FOB Destination (to consignee) FOB Destination (in transit) FOB Shipping point (in transit)

January 2022 entries on the sales journal: 38. Inventories a. P5,573,000 b. P5,227,000

c. P5,217,000...