Icare-AUD- First- Preboard- Examinations- Batch-3 PDF

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Lipa City, Batangas, Philippines Mobile : 0927 283 8234 Telephone : (043) 723 8412 Gmail : icarecpareview@gmailAUDITINGiCARE Accountancy Review 1 st Open Preboard Examination, Batch 3INSTRUCTIONS: Choose the best answer among the given choices. Policies on academic honesty are strictly enforced.Audi...

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No. 125 Brgy. San Sebastian Lipa City, Batangas, Philippines Mobile

: 0927 283 8234

Telephone

: (043) 723 8412

Gmail

: [email protected]

AUDITING iCARE Accountancy Review st 1 Open Preboard Examination, Batch 3 INSTRUCTIONS: Choose the best answer among the given choices. Policies on academic honesty are strictly enforced. Auditing Theory 1. Which of the following is not a distinctive feature of a risk-based audit? a. Identifying areas posing the significant risk of financial statement errors. b. Collecting and evaluating evidence. c. Analysis of internal control. d. Concentrating audit resources in those areas presenting the highest risk of financial statement errors. 2. The best description of the scope of internal auditing is that it encompasses a. Primarily operational auditing. b. Primarily financial auditing. c. Both financial and operational auditing. d. Primarily the safeguarding of assets and verifying the existence of such assets. 3. Which one of the following is more difficult to evaluate objectively? a. Presentation of financial statements in accordance with Philippine Financial Reporting Standards. b. Compliance with Bureau of Internal Revenue regulations. c. Efficiency and effectiveness of operations. d. All other choices are equally difficult. 4. When auditors apportion the preliminary judgment about materiality to account balances, the materiality apportioned to any given material item is referred to as: a. Overall materiality. b. Allocated materiality. c. Tolerable materiality. d. Tolerable misstatement. 5. This is a type of misstatement where the auditor can determine the amount of the misstatement in the account. a. Potential b. Theoretical c. Uncorrected d. Known 6. Which of the following statements is incorrect? a. Inherent risk is inversely related to detection risk. b. Inherent risk is inversely related to evidence. c. Inherent risk is the susceptibility of the financial statements to material error, assuming no internal controls. d. Inherent risk is the auditor’s assessment of the likelihood that errors exceeding a tolerable amount exist in a segment before considering the effectiveness of internal controls.

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JABELLAR/ AJABINAL/AI BAY/RBERC ASIO/JM AGLINAO

No. 125 Brgy. San Sebastian Lipa City, Batangas, Philippines Mobile

: 0927 283 8234

Telephone

: (043) 723 8412

Gmail

: [email protected]

7. Authorizations can be either general or specific. Which of the following is not an example of a general authorization? a. Automatic reorder points for raw materials inventory. b. Credit limits for various classes of customers. c. A sales manager’s authorization for a sales return. d. A sales price list for merchandise. 8. Which of the following is not a likely procedure to support the operating effectiveness of internal controls? a. Inquiry of client personnel. b. Observation of control-related activities. c. Reperformance of client procedures. d. Completing an internal control questionnaire. 9. For efficiency, tests of controls are frequently done at the same time as: a. analytical procedures. b. compliance tests. c. tests of transactions. d. tests of details of balances. 10. Which of the following is not a direct result of performing analytical procedures? a. Identify areas of potential misstatements. b. Identify specific errors in the accounts. c. Reduce detailed audit tests. d. Understand the client’s business. 11. In the audit of which of the following types of profit-oriented enterprises would the auditor be most likely to place special emphasis on tests of controls for proper classifications of payroll transactions? a. A retail organization b. A wholesale organization c. A manufacturing organization d. A service organization 12. As it relates to an audit, materiality is a. not taken into consideration. b. related only to the sufficiency of procedures performed. c. based upon audit fees. d. determined based upon the importance to a user of the financial statements. 13. An auditor obtains knowledge about a new client's business and its industry in order to a. Make constructive suggestions concerning improvements to the client's internal control structure b. Develop an attitude of professional skepticism concerning management's financial statement assertions c. Evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated d. Understand the events and transactions that may have an effect on the client's financial statements 14. Which of the following is not true regarding the performance of a walkthrough?

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JABELLAR/ AJABINAL/AI BAY/RBERC ASIO/JM AGLINAO

No. 125 Brgy. San Sebastian Lipa City, Batangas, Philippines Mobile

: 0927 283 8234

Telephone

: (043) 723 8412

Gmail

: [email protected]

a. It is performed together for the purpose of identifying important control points or deficiencies in controls. b. The auditor follows a transaction from origination through the processes and information systems until it is recorded in the accounting books. c. It combines the audit procedures of tracing, inquiry, and observation. d. It is an efficient way for an auditor to test the operating effectiveness of controls. 15. Which one of the following is not an auditor's concern about a key authorization point in the sales/collection cycle? a. Credit must be authorized before the sale. b. Goods must be shipped after the authorization. c. Prices must be authorized. d. The receiving room must have authorization before releasing items to inventory control. 16. A client's internal control appears strong, but the CPA has elected not to perform any tests of controls. The planned assessed level of control risk is at what level? a. Zero. b. Low. c. Moderate. d. Maximum. 17. What is the report being issued by a practitioner in an agreed-upon procedure engagement? a. Opinion on Factual Findings b. Investigative Report c. Report on Factual Findings d. Independent Practitioner's Report on Factual Findings 18. This is the outcome of the evaluation or measurement of a subject matter a. Subject Matter Information b. Suitable Criteria c. Subject Matter d. Reasonable Assurance 19. Tracing recorded sales transactions in the sales journal to the shipping documents (bills of lading) provides evidence about the: a. Completeness of recording of sales transactions. b. Occurrence of sales transactions. c. Billing of all sales transactions. d. Presentation of payables. 20. Which of the following is not considered to be an analytical procedure? a. Comparisons of financial statement amounts with source documents. b. Comparisons of financial statement amounts with nonfinancial data. c. Comparisons of financial statement amounts with budgeted amounts. d. Comparisons of financial statement amounts with comparable prior year amounts. 21. Which of the following factors most likely would cause an auditor not to accept a new audit engagement? a. Concluding that the entity's management probably lacks integrity. 3Pag e

JABELLAR/ AJABINAL/AI BAY/RBERC ASIO/JM AGLINAO

No. 125 Brgy. San Sebastian Lipa City, Batangas, Philippines Mobile

: 0927 283 8234

Telephone

: (043) 723 8412

Gmail

: [email protected]

b. An inadequate understanding of the entity's internal control structure. c. The close proximity to the end of the entity's fiscal year. d. An inability to perform preliminary analytical procedures before assessing control risk. 22. Which of the following is not one of the factors that make up the control environment? a. IT hardware and software b. board of directors and audit committee c. organizational structure d. human resource policies and practices 23. Which one of the following is not an auditor's concern about a key authorization point in the sales/collection cycle? a. Credit must be authorized before the sale. b. Goods must be shipped after the authorization. c. Prices must be authorized. d. The receiving room must have authorization before releasing items to inventory control. 24. The most common technique used by management to misstate financial information, and is always presumed to exist under PSA 315, is: a. overstatement of expenses. b. improper revenue recognition. c. understatement of liabilities. d. understatement of assets. 25. When an auditor encounters a scenario wherein the client entity's control environment is ineffective, which of the following is an inappropriate response? a. Assigning more experienced audit staff. b. Obtaining more extensive audit evidence from substantive procedures. c. Making changes to the nature, timing, or extent of audit procedures to be performed. d. Conducting more audit procedures at an interim date. 26. An auditor has been asked to report on the balance sheet of LPSK Company but not on the other basic financial statements. The auditor will have access to all information underlying the basic financial statements. Under these circumstances, the auditor: a. May accept the engagement because such engagements merely involve limited reporting objectives. b. May accept the engagement but should disclaim an opinion because of an inability to apply the procedures considered necessary. c. Should refuse the engagement because there is a client-imposed scope limitation. d. Should refuse the engagement in accordance with generally accepted auditing standards. 27. An auditor who audits a business cycle that has low inherent risk should: a. increase the amount of audit evidence gathered. b. assign more experienced staff to that area. c. increase the tolerable misstatement for the area. d. expand planning procedures. 4Pag e

JABELLAR/ AJABINAL/AI BAY/RBERC ASIO/JM AGLINAO

No. 125 Brgy. San Sebastian Lipa City, Batangas, Philippines Mobile

: 0927 283 8234

Telephone

: (043) 723 8412

Gmail

: [email protected]

28. Which of the following is not one of the three major phases of a risk-based audit process in accordance with PSAs? a. Risk assessment b. Risk response c. Audit completion d. Conclusion and reporting 29. The audit plan includes: a. A description of the nature, timing and extent of planned risk assessment procedures sufficient to assess the risk of material misstatement. b. A description of the nature, timing and extent of planned further audit procedures at the assertion level for each material class of transactions, account balances and disclosures. c. Other planned audit procedures that are required to be carried out so that the engagement complies with our audit approach. d. All of the above. 30. During the initial planning phase of an audit, a CPA most likely would a. Identify specific internal control activities that are likely to prevent fraud. b. Evaluate reasonableness of the client's accounting estimates. c. Discuss the timing of the audit procedures with the client's management. d. Inquire of the client's attorney as to whether any unrecorded claims are probable of assertion. 31. An initial audit requires more audit time to complete than a recurring audit. One of the reasons for this is that a. new auditors are usually assigned to an initial audit. b. predecessor auditors need to be consumed. c. the client’s business, industry and internal control are unfamiliar to the auditor and need to be carefully studied. d. a larger proportion of customer accounts receivable need to be confirmed on an initial audit. 32. Information systems and communications component of internal controls a. Is the entity's identification and analysis of relevant risks as a basis for their management. b. Is a process that assesses the quality of internal control performance over time. c. Sets the tone of an organization, influencing the control consciousness of its people. d. Support the identification, capture, and exchange of information in a form and time frame that enable people to carry out their responsibilities. 33. When considering internal control, an auditor must be aware of the concept of reasonable assurance, which recognizes that a. Employment of competent personnel provides assurance that the objectives of internal control will be achieved. b. Establishment and maintenance of internal control is an important responsibility of the management and not of the auditor. c. Cost of internal control procedures should not exceed the benefits expected to be derived from the control.

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JABELLAR/ AJABINAL/AI BAY/RBERC ASIO/JM AGLINAO

No. 125 Brgy. San Sebastian Lipa City, Batangas, Philippines Mobile

: 0927 283 8234

Telephone

: (043) 723 8412

Gmail

: [email protected]

d. Segregation of incompatible functions is necessary to ascertain that the control procedures are effective. 34. Holding other planning considerations equal, a decrease in the amount of misstatement in a class of transactions that an auditor could tolerate most likely would cause the auditor to a. the planned substantive tests prior to the balance sheet date b. increase the assessed level of control risk for relevant financial statement assertions c. Perform the planned auditing procedures close to the balance sheet date d. decrease the extent of auditing procedures to be applied to the class of transactions 35. Which of the following areas is least likely an application of analytical procedures? a. Risk of material misstatements b. Internal controls c. Significant changes in the client’s industry d. Effects of the pandemic

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JABELLAR/ AJABINAL/AI BAY/RBERC ASIO/JM AGLINAO

No. 125 Brgy. San Sebastian Lipa City, Batangas, Philippines Mobile

: 0927 283 8234

Telephone

: (043) 723 8412

Gmail

: [email protected]

Auditing Problems 1. Which of the following controls would most likely detect equipment acquisitions that are misclassified as maintenance expense? a. Segregation of duties of employees in the accounts payable department. b. Authorization by the board of directors of significant equipment acquisitions. c. Independent verification of invoices for disbursements recorded as equipment acquisitions. d. Investigation of variances within a formal budgeting system. 2. Which of the following control activities is most likely to prevent the improper disposition of equipment? a. A periodic analysis of the scrap sales and the repairs and maintenance accounts. b. Periodic comparison of removal work orders with authorizing documentation. c. The use of serial numbers to identify equipment that could be sold. d. A separation of duties between those authorized to dispose of equipment and those authorized to approve removal work orders. 3. Which of the following control activities most likely would justify a reduced level of control risk concerning property, plant and equipment acquisitions? a. Periodic physical inspection of PPE by the internal audit staff. b. Approval of periodic depreciation entries by a supervisor independent of the accounting department. c. The review of prenumbered purchase orders to detect unrecorded trade-ins. d. Comparison of current year PPE account balances with prior-year figures. 4. Which of the following conditions would an auditor most likely assess a high level of risk of material misstatement? a. All material acquisitions of PPE are required to be approved by the board of directors. b. Most additions are self-constructed by the entity. c. Recently acquired loans include covenants that preclude plant acquisitions for 5 years. d. Gross PPE increased 30% during the current period. 5. Which of the following misstatements or questionable practices may be uncovered if an auditor tours an entity’s production facility? a. Insurance coverage on the facility has lapsed. b. Overhead has been overapplied. c. Depreciation expense on fully depreciated machinery has been recognized. d. Necessary facility maintenance has not been performed. 6. The major working paper for stockholder’s equity is the a. Schedule of all activity for each equity account for the year. b. Confirmation of shares outstanding with stockholders. c. Carry-forward schedule of all transactions since the initial audit. d. Subsidiary schedule of stock issued to general ledger control. 7. A client acquired 25% of its outstanding capital stock after year-end and prior to completion of the auditor’s field work. The auditor should a. Advice management to adjust the statement of financial position to reflect the acquisition.

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JABELLAR/ AJABINAL/AI BAY/RBERC ASIO/JM AGLINAO...