AUDITING PREBOARD

Total points35/70
 
Instructions: Choose the best answer.

Last Name *
Tayobana

First Name *
Daniel

Middle Initial
B.

Suffix

1. You are an audit staff engaged in the audit of the Shareholders’ Equity of ABC Corp. You were
asked by the Audit Manager, "which among the assertions, is not addressed by the procedures to
be done for the audit of SHE"? *
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A. Existence
B. Rights and Obligation
C. Valuation and Allocation
D. Presentation and Disclosure

2. Which of the following audit procedures addressed on the Audit of Shareholders’ Equity can
address the management’s assertion of validity of the shareholders’ equity? *
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A. Recalculation of Earnings per share.
B. Examination of the articles of incorporation.
C. Confirmation of equity balances with the Corporation’s in-house Stock Transfer Agent.
D. Confirmation of equity balances with the Corporation’s Corporate Secretary.

3. When examining the shareholders’ equity account of an audit client, an auditor expects all of the
following Other Comprehensive Items to be non-recyclable to the profit or loss except for which
one? *
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A. Revaluation surplus
B. Gains or losses on the sale of FVTOCI investments.
C. Remeasurement gain or loss on retirement plans
D. Changes in the fair value attributed to the credit risk of financial liabilities measured at fair value.
4. You are auditing XYZ Corp. as a continuing auditor for the calendar year-ended 31 December
2019. Based on your review of the prior year working papers, there were adjustments proposed by
the prior year audit team that were not accepted by the audit client. You were able to confirm that
these proposed adjustments were not material to the financial statements as a whole. You were
also able to determine that the opening amounts per trial balances differ from the opening amounts
per audit. As such, how will you document these findings? *
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a. Prepare a reconciliation to bridge the differences between the trial balance and the audited balance based the
audit on the audited balance.
b. Inquire from the prior year audit team the reason why differences arose.
c. Prepare an analytical procedure to determine the appropriateness of valuation on balance sheet accounts.
d. Ignore the differences and continue the audit based on the amounts per trial balance.

5. Which of the following procedures would you less likely do to obtain sufficient appropriate
evidence regarding the provisions and contingent liabilities of QT Joms Inc.? *
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a. Examine Minutes of BOD meetings for discussions in relation to provisions and contingencies.
b. Confirm with the Company’s legal counsel to identify the chances of winning cases
c. Examine bank confirmation for possible disclosures on contingencies.
d. Obtain schedule of accruals and provisions. Check balances per schedule if it matches with the control
accounts.

For questions 6 to 10 are based on the image below:

6. Determine the audited balance of Petty Cash Fund. *
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a. 30,000
b. 36,000
c. 10,000
d. 24,000

7. Determine the audited balance of Petty Cash shortage / overage. *

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a. 4,000 short
b. 10,000 short
c. 2,000 over
d. 500 over

8. Determine the audited balance of Cash on Hand. *

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a. 1,070,000
b. 1,170,000
c. 1,310,000
d. 1,410,000

9. Determine the audited balance of Cash in Bank - Metrobank current. *

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a. 4,000,000
b. 4,160,000
c. 4,200,000
d. 4,360,000

10. Determine the audited balance of Cash and cash equivalents to be reported in the 2026
balance sheet. *
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a. 8,594,000
b. 8,566,000
c. 10,560,000
d. 15,060,000

11. The main concern of an auditor who is testing the audit client’s contingent liabilities is?  *
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a. Accrual of Contingent Liabilities.
b. Disclosure of the nature, status and possible impact of contingencies to the entity.
c. If the contingencies were properly accounted for.
d. The chances of winning the cases.

12. You were assigned to audit the provisions of an audit client. Whom will you acquire primary
information regarding provisions and contingencies? *
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a. Legal Counsel
b. Management
c. Those charged with governance
d. Supreme Court

13. All of the following documents except one should be requested for your testing of the Accounts
Payable of QT Joms Inc.? *
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a. AP Journal Voucher
b. Vendor’s Invoice
c. Open purchase orders
d. Receiving report

14. One of the basic procedures that an auditor should do is to test the completeness of liabilities;
hence, the need for search for unrecorded liabilities. All except which one is a procedure to be
conducted in testing a search for unrecorded liabilities? *
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a. Test for all paid invoices for a short period following the balance sheet date.
b. Test for all unpaid invoices for a short period following the balance sheet date.
c. Test to determine if the listed open purchase order is validly tagged as open.
d. Analytical procedures to test the balances of liabilities at year-end and after the year-end.

15. When testing bonds payable, the auditor would normally check the reasonableness of the
interest expense recorded by: *
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a. Determining the nominal rate and effective rate and then reperforming the preparation of the amortization
table.
b. Recomputing the interest expense using the effective interest rate.
c. Inquiring of management if there were any retirements or treasury bonds.
d. Confirming from the bondholders how much was credited to them regarding the interest on their bond
holdings.

For QUESTIONS 16 to 20 are based on the image below:

16. Gross Sales. *

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a. 35,800,000
b. 37,400,000
c. 36,200,000
d. 37,000,000

17. Gross Purchases *

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a. 17,900,000
b. 18,200,000
c. 17,400,000
d. 17,000,000

18. Cost of Sales *

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a. 18,000,000
b. 18,400,000
c. 18,700,000
d. 18,900,000

19. Depreciation Expense *

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a. 100,000
b. 800,000
c. 900,000
d. 1,000,000

20. Net Income *

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a. 5,000,000
b. 5,150,000
c. 5,200,000
d. 5,900,000

21. You were engaged by RAIN, Inc. to audit its financial statements for the calendar year-ended 31
December 2019. When you were testing RAIN’s expenses, you were able to determine that there
were expenses amounting to PHP200,000 in 2018 that were recorded in 2019. There are no other
misstatements noted for the expenses. Overall materiality was set at PHP20M, haircut is 25% in
considering performance materiality and specific materiality allocated to expenses is 10% of
performance materiality. Based on the foregoing, what will be your conclusion for the misstatements
that were discovered? *
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a. Propose an adjusting journal entry, a debit to retained earnings and a credit to expenses to correct the error.
b. The misstatement is an under PAS 8; hence, regardless of materiality the financial statements must be
restated.
c. Propose an adjusting journal entry to the management. If the latter refuses to accept such adjustment,
consider the possible impact of the misstatement to the overall materiality.
d. None of the choices.

22. You were examining the intangible assets of KDM, Inc. and you were examining if the
capitalized intangible assets of the company. Which one of the following will not be considered?  *
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a. Technical Feasibility
b. Availability of funds
c. Measurable
d. Intention to buy and sell the product
23. Consider the following statements and choose the best answer: *
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a. Only one statement is correct.

b. Only one statement is wrong.
c. All statements are correct.
d. All statements are wrong.

24. The following are part of your general procedures in the audit of property, plant and equipment
except which one? *
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a. Obtain the PPE lapsing schedule and ensure that the balances per lapsing matches with the trial balance.
b. Obtain the accounting policy of PPEs and examine the Company’s policy as to the recognition, measurement,
disclosure and disposal of the fixed assets.
c. Obtain Minutes of BOD meetings and check if there are items involving acquisition or disposal of fixed assets
including any liens thereto.
d. Recalculate depreciation of all PPEs.

25. Generally, when testing depreciation expense, the auditor performs substantive analytics rather
than extensive vouching of sampled PPEs. Which of the following may be the best reason for
such? *
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a. It is more efficient to conduct substantive analytics for depreciation than to do extensive vouching.
b. The computation of depreciation is relatively straightforward and may be recalculated by the audit staff.
c. The better procedure for the test of Depreciation is substantive analytics than extensive vouching of sampled
PPEs.
d. The computation of depreciation is relatively easy and may be done by a non-CPA staff.

For QUESTIONS 26 to 29 are based on the image below:

26. What is the adjusted balance of the Company’s Retained earnings account at the end of the
year? *
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a. 26,400,000
b. 21,600,000
c. 18,400,000
d. 16,400,000

27. What is the balance of the ordinary shares account as of December 31, 2024? *
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a. 14,000,000
b. 16,000,000
c. 18,000,000
d. 20,800,000

28. What is the balance of the share premium account as of December 31, 2024? *
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a. 8,000,000
b. 10,800,000
c. 12,800,000
d. 14,800,000
29. What is the adjusted balance of the Company’s Shareholders’ equity account at the end of the
year? *
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a. 54,400,000
b. 55,200,000
c. 57,200,000
d. 60,400,000

For QUESTIONS 30 to 34 are based on the image below:

30. The accounts receivable under “61 to 90 days” category should be *
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a. 32,600
b. 44,320
c. 44,600
d. 42,000

31. The accounts receivable under “91 to 120 days” category should be *
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a. 38,320
b. 40,000
c. 29,400
d. 12,000

32. The allowance for bad debts to be reported in the statement of financial position at December
31, 2024 is *
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a. 9,699
b. 15,199
c. 4,199
d. 5,500

33. What is the net realizable value of accounts receivable at December 31, 2024? *
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a. 165,641
b. 171,241
c. 196,039
d. 186,340

34. How much is the bad debt expense during 2024? *

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a. 15,199
b. 5,500
c. 4,199
d. 9,699

35. Among the choices, which is not a document that will be obtained by an auditor when testing
additions of PPEs. *
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a. Vendor's Invoice
b. Receiving Report
c. Work orders of repaired fixed assets
d. Minutes of BOD meetings

36. Which engagement(s) is(are) required to have a written report regarding another party’s
assertion? *
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A
B
C
D

37. Which of the following is not an example of the application of professional skepticism?  *
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a. Designing additional auditing procedures to obtain more reliable evidence in support of a particular financial
statement assertion.
b. Obtaining corroboration of management's explanations through consultation with a specialist.
c. Inquiring of prior year engagement personnel regarding their assessment of management's honesty and
integrity.
d. Using third party confirmations to provide support for management's representations.

38. Which of the following statements concerning audit evidence is true? *

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a. To be appropriate, audit evidence should be either persuasive or relevant, but need not be reliable.
b. The measure of the quantity and quality of audit evidence lies in the auditor’s judgment.
c. The difficulty and expense of obtaining audit evidence concerning an account balance is a valid basis for
omitting the test.
d. A client’s accounting records can be sufficient audit evidence to support the financial statements.

39. Which of the following factors most likely would cause an auditor not to accept a new audit
engagement? *
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a. An inadequate understanding of the entity’s internal control structure.
b. The close proximity to the end of the entity’s fiscal year.
c. Concluding that the entity’s management probably lacks integrity.
d. An inability to perform preliminary analytical procedures before assessing control risk.

40. Which of the following is least likely to be included in the auditor’s engagement letter?  *
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a. Details about the preliminary audit strategy.
b. Overview of the objectives of the engagement.
c. Statement that management is responsible for the financial statements.
d. Description of the level of assurance obtained when conducting the audit.

41. In establishing the overall audit strategy, the auditor is required to do but which of the
following? *
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a. Identify the characteristics of the engagement.
b. Design further audit procedures that are responsive to risks of material misstatement.
c. Consider the results of preliminary engagement activities and, where applicable, whether knowledge gained
on other engagements performed by the engagement partner for the entity is relevant.
d. Ascertain the nature, timing and extent of resources necessary to perform the engagement.

42. As it relates to an audit, materiality is *

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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.

43. Which of the following statements is correct concerning materiality in a financial statement
audit? *
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a. Analytical procedures performed during an audit's review stage usually decrease materiality levels.
b. If the materiality amount used in evaluating audit findings increases from the amount used in planning, the
auditor should apply additional substantive tests.
c. The auditor's materiality judgments generally involve quantitative, but not qualitative, considerations.
d. Materiality levels are generally considered in terms of the smallest aggregate level of misstatement that could
be considered material to any one of the financial statements.

44. An auditor obtains knowledge about a new client's business and its industry in order to *
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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

45. Which of the following is not considered to be an analytical procedure? *

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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.

46. Which of the following factors would most likely influence an auditor's consideration of the
reliability of data when performing analytical procedures? *
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a. Whether the data were developed in a computerized or a manual accounting system.
b. Whether the data were prepared on the cash basis or in conformity with GAAP.
c. Whether the data were developed under a system with adequate controls.
d. Whether the data were processed in an online system or a batch entry system.

47. Which of the following is not considered one of the five major components of internal control?  *
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a. Risk assessment.
b. Segregation of duties.
c. Control activities.
d. Monitoring.

48. Which of the following is not one of the factors that make up the control environment? *
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a. accounting personnel
b. board of directors and audit committee
c. organizational structure
d. human resource policies and practices
49. Which of the following is true about the auditors' consideration of internal control in a financial
statement audit? *
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a. The auditors must assess control risk at a level lower than the maximum.
b. The auditors must prepare a flowchart description of internal control for their working papers.
c. The auditors must obtain an understanding of the steps in processing major types of transactions.
d. The auditors must perform tests of controls.

50. Which one of the following is not an auditor’s concern about a key authorization point in the
sales/collection cycle? *
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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.

51. For effective internal control, which of the following functions should not be assigned to the
company's accounting department? *
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a. Reconciling accounting records with existing assets.
b. Recording financial transactions.
c. Signing payroll checks.
d. Preparing financial reports.

52. For effective internal control, the accounts payable department generally should *
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a. Stamp, perforate, or otherwise cancel supporting documentation after payment is mailed.
b. Ascertain that each requisition is approved as to price, quantity, and quality by an authorized employee.
c. Obliterate the quantity ordered on the receiving department copy of the purchase order.
d. Establish the agreement of the vendor's invoice with the receiving report and purchase order.

53. One accounting issue that does not require management to use significant judgments is: *
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a. the allowance for doubtful accounts.
b. the useful life of equipment for tax purposes.
c. obsolete inventory.
d. the liability for warranty payments.

54. An auditor who audits a business cycle that has low inherent risk should: *
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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.

55. When an auditor encounters a scenario wherein the client entity’s control environment is
ineffective, which of the following is an inappropriate response? *
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a. Assigning more experienced audit staff.
b. Conducting more audit procedures at an interim date.
c. Obtaining more extensive audit evidence from substantive procedures.
d. Making changes to the nature, timing, or extent of audit procedures to be performed.

56. Auditors who prefer statistical sampling to non-statistical sampling may do so because statistical
sampling helps the auditor *
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a. Measure the sufficiency of the evidential matter obtained.
b. Eliminate subjectivity in the evaluation of sampling results.
c. Reduce the level of tolerable error to a relatively low amount.
d. Minimize the failure to detect a material misstatement due to non-sampling risk.

57. In testing accounts receivable, an auditor sends out positive confirmation requests to 100
randomly selected customers. A customer returns the confirmation indicating that the balance is
correct when, in fact, the balance is overstated. This is an example of: *
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a. Projected misstatement.
b. Sampling error.
c. Standard error.
d. Non-sampling error.

58. Which of the following statements correctly describes the auditor’s responsibilities in
accordance with PSA 240 The auditor's responsibilities relating to fraud in an audit of financial
statements? *
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a. The auditor is responsible for the prevention and detection of fraud and error
b. The auditor is not responsible for the prevention of fraud and error but is responsible for detection
c. The auditor is responsible for obtaining reasonable assurance that the financial statements are free from
material misstatement whether caused by fraud or error
d. The auditor is responsible for detecting all errors and should attempt to detect fraud where information comes
to light as a result of standard audit procedures

59. The most common technique used by management to misstate financial information, and is
always presumed to exist under PSA 315, is: *
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a. overstatement of expenses.
b. improper revenue recognition.
c. understatement of liabilities.
d. understatement of assets.

60. You are an audit senior of YHT & Co and have worked on the external audit of BJM Co (BJM),
an unlisted company, since your firm was appointed external auditor two years ago. BJM owns a
chain of nine restaurants and is a successful company. BJM has always been subject to national
hygiene regulations, especially in relation to the food preparation process. Non-compliance can
result in a large fine or closure of the restaurant concerned. Which of the following statements best
describes YHT & Co’s responsibility regarding BJM’s compliance with hygiene regulations, in line
with PSA 250 Consideration of laws and regulations in an audit of financial statements? *
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a. YHT & Co should actively prevent and detect non-compliance with the regulations.
b. YHT & Co should perform specific audit procedures to identify possible non-compliance.
c. YHT & Co should obtain sufficient appropriate audit evidence about BJM's compliance with the regulations as
they have a direct effect on the financial statements.
d. YHT & Co does not have any responsibility as the hygiene regulations do not have a direct effect on the
financial statements.

61. An auditor who discovers that client employees have committed an illegal act that has a
material effect on the client's financial statements most likely would withdraw from the engagement
if: *
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a. The illegal act is a violation of generally accepted accounting principles.
b. The client does not take the remedial action that the auditor considers necessary.
c. The illegal act was committed during a prior year that was not audited.
d. The auditor has already assessed control risk at a high level.

62. In assessing the objectivity of internal auditors, an independent auditor should: *

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a. Evaluate the quality control program in effect for the internal auditors.
b. Examine documentary evidence of the work performed by the internal auditors.
c. Test a sample of the transactions and balances that the internal auditors examined.
d. Determine the organizational level to which the internal auditors report.

63. The auditor being able to use computer-assisted audit techniques to screen every cash
disbursement and identify related-party transactions relates to the effect of electronic data
processing on: *
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a. the timing of audit tests.
b. the extent of audit tests.
c. the nature of audit tests.
d. audit staffing.

64. Which of the following would be least likely to diminish the validity of evidence obtained through
confirmation of accounts receivable? *
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a. The confirmations are sent on the client's letterhead.
b. The confirmations are mailed to customers by the internal auditors.
c. The client's mailroom personnel closely monitor and inspect confirmations during mailing.
d. The return address on the envelope used to send the confirmation request is that of the client.

65. Tracing recorded sales transactions in the sales journal to the shipping documents (bills of
lading) provides evidence about the: *
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a. Completeness of recording of sales transactions.
b. Occurrence of sales transactions.
c. Billing of all sales transactions.
d. Presentation of payables.

66. Which of the following statements is not true regarding the auditor's responsibility for
subsequent events? *
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a. The auditor has an active responsibility to make continuing inquiries between the date of the auditor's report
and the date on which the report is submitted.
b. The auditor has an active responsibility to make continuing inquiries between the date of the financial
statements and the date of the auditor's report.
c. The auditor has an active responsibility to make continuing inquiries between the date of the financial
statements and the date on which sufficient appropriate audit evidence has been obtained.
d. The auditor has no active responsibility to make continuing inquiries after the date of the auditor's report.

67. Which of the following is most likely considered a judgmental misstatement? *

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a. Error in recording near year-end inventory purchases
b. Prematurely recorded sales
c. Inadequate allowance for loans impairment
d. Failure to accrue for salaries liability

68. Which TWO of the following statements correctly describe the auditor’s responsibility in relation
to misstatements? *
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a. 1 and 2
b. 1 and 3
c. 2 and 3
d. 2 and 4

69. In the performance of an audit of financial statements, which of the following matters the auditor
does not need to communicate with those charged with governance? *
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a. Auditor’s responsibilities in relation to the financial statement audit
b. Details of planned scope and timing of the audit
c. Significant audit findings
d. Auditor independence
70. An auditor has been asked to report on the balance sheet of Kane 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: *
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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.

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