94-Final PB-AUD - Unlocked
94-Final PB-AUD - Unlocked
94-Final PB-AUD - Unlocked
Manila
1. When an auditor has a question concerning a client’s ability to continue as a going concern,
the auditor considers management’s plans for dealing with the situation. That consideration
is most likely to include consideration of management’s plans to
A. decrease ownership equity.
B. dispose of assets.
C. increase expenditures on key products.
D. invest in derivative securities.
3. Which of the following would cause an auditor of an entity’s financial statements to issue
either a qualified opinion or a disclaimer of opinion?
A. Scope limitation involving a recorded uncertainty.
B. Inadequate disclosure of an uncertainty.
C. The use of inappropriate accounting principle.
D. Unreasonable accounting estimate.
7. Which of the following procedures would an accountant least likely perform during an
engagement to review the financial statements of an entity?
A. Observing the safeguards over access to and use of assets and records.
B. Comparing the financial statements with anticipated results in budgets and forecasts.
C. Inquiring of management about actions taken at the board of directors’ meetings.
Page 1 of 13 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 94 / September 15, 2023 / 8:00am-11:00am
11. Operational audits generally have been conducted by internal auditors and governmental
audit agencies but may be performed by certified public accountants. A primary purpose of
an operational audit is to provide
A. a means of assurance that internal accounting controls are functioning as planned.
B. a measure of management performance in meeting organizational goals.
C. the results of internal examination of financial and accounting matters to a company’s top
level management.
D. aid to the independent auditor, who is conducting the examination of the financial
statements.
12. The least important element in the evaluation of a CPA firm’s system of quality management
would concern its policies and procedures with respect to
A. employment (hiring).
B. confidentiality of audit engagements.
C. assigning personnel to audit engagements.
D. determination of audit fees.
13. Which of the following statements is correct regarding an accountant’s working papers?
A. The accountant owns the working papers and generally may disclose them as the
accountant sees fit.
B. The client owns the working papers but the accountant has custody of them until the
accountant’s bill is paid in full.
C. The accountant owns the working papers but generally may not disclose them without
the client’s consent or a court order.
D. The client owns the working papers but, in the absence of the accountant’s consent, may
not disclose them without a court order.
Page 2 of 13 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 94 / September 15, 2023 / 8:00am-11:00am
14. If an audit firm discovers threats to independence with respect to an audit engagement, the
Code of Ethics indicates that the firm should
A. immediately resign from the engagement.
B. notify the appropriate regulatory body.
C. document the issue.
D. evaluate the significance of the threats and apply appropriate safeguards to reduce them
to an acceptable level.
15. The auditor’s understanding of the entity and its environment consists of an understanding of
the following aspects except
A. Industry, regulatory, and other external factors, including the applicable financial
reporting framework.
B. Nature of the entity, including the entity’s selection and application of accounting policies.
C. Measurement and review of the entity’s financial performance.
D. Entity’s selection and screening process of marketing and production personnel.
16. Which of the following would an auditor most likely use in determining the auditor’s
preliminary judgment about materiality?
A. The results of the initial assessment of control risk.
B. The anticipated sample size for planned substantive tests.
C. The entity’s financial statements of the prior year.
D. The assertions that are embodied in the financial statements.
18. Which of the following is correct concerning requirements abut auditor communications about
fraud?
A. Fraud that involves senior management should be reported directly to the audit committee
regardless of the amount involved.
B. Fraud with a material effect on the financial statements should be reported directly by the
auditor to the Securities and Exchange Commission.
C. Fraud with a material effect on the financial statements should ordinarily be disclosed by
the auditor through use of an “emphasis of a matter” paragraph added to the audit report.
D. The auditor has no responsibility to disclose fraud outside the entity under any
circumstances.
20. Assessing control risk at a low level most likely would involve
A. performing more extensive substantive tests with larger sample sizes than originally
planned.
B. reducing inherent risk for most of the assertions relevant to significant account balances.
C. changing the timing of substantive tests by omitting interim-date testing and performing
the tests at year-end.
D. identifying specific controls relevant to specific assertions.
21. Which of the following procedures would provide the most reliable audit evidence?
A. Inquiries of the client’s internal audit staff, held in private.
B. Inspection of prenumbered client purchase orders filed in the vouchers payable
department.
C. Analytical procedures performed by the auditor on the entity’s trial balance.
Page 3 of 13 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 94 / September 15, 2023 / 8:00am-11:00am
D. Inspection of bank statements obtained directly from the client’s financial institution.
22. Which of the following procedures would an auditor most likely perform in searching for
unrecorded liabilities?
A. Trace a sample of accounts payable entries recorded just before year-end to the
unmatched receiving report file.
B. Compare a sample of purchase orders issued just after year-end with the year-end
accounts payable trial balance.
C. Vouch a sample of cash disbursements recorded just after year-end to receiving reports
and vendor invoices.
D. Scan the cash disbursements entries recorded just before year-end for indications of
unusual transactions.
23. As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses
control risk higher than appropriate. The most likely explanation for this situation is that:
A. The deviation rate in the auditor's sample is less than the tolerable rate, but the deviation
rate in the population exceeds the tolerable rate.
B. The deviation rates of both the auditor's sample and the population exceed the tolerable
rate.
C. The deviation rates of both the auditor's sample and the population are less than the
tolerable rate.
D. The deviation rate in the auditor's sample exceeds the tolerable rate, but the deviation
rate in the population is less than the tolerable rate.
24. When auditing the client’s performance of control to accomplish the completeness objective
related to ensuring that all sales are recorded, auditors should draw sample items from:
A. the sales journal list of recorded sales invoices.
B. the file of shipping documents.
C. the file of customer order copies.
D. the file of receiving reports for inventory additions.
26. Which of the following statements regarding analytical procedures is not correct?
A. Analytical tests emphasize a comparison of client internal controls to PFRS.
B. Analytical procedures are required on all audits.
C. Analytical procedures can be used as substantive tests.
D. For certain accounts with small balances, analytical procedures alone may be sufficient
evidence.
27. The audit working paper that reflects the major components of an amount reported in the
financial statements is the
A. interbank transfer schedule.
B. carryforward schedule.
C. supporting schedule.
D. lead schedule.
28. The following are the benefits claimed for the practice of determining materiality in the initial
planning stage of starting an audit, except
A. avoiding the problem of doing too little work (underauditing).
B. avoiding the problem of doing more work than necessary (overauditing).
C. being able to decide early what kind of audit opinion to express.
D. being able to fine tune the audit work for effectiveness and efficiency.
Page 4 of 13 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 94 / September 15, 2023 / 8:00am-11:00am
B. may use either the terms “subject to” or “except for” in the opinion section, depending on
the nature of the qualification.
C. must use the term “except for” in the opinion section.
D. must not use the terms “subject to” or “except for” in the opinion section.
33. When the professional accountant has obtained sufficient appropriate evidence to conclude
that the subject matter conforms in all material respects with identified suitable criteria,
he/she can provide
A. limited level of assurance.
B. absolute assurance.
C. reasonable level of assurance.
D. no assurance.
34. Independent auditors of financial statements perform audits that reduce and control
A. the business risks faced by investors.
B. the information risk faced by investors.
C. the complexity of financial statements.
D. quality reviews performed by other CPA firms.
35. A CPA started to audit the financial statements of an entity. After completing certain audit
procedures, the client requested the CPA to change the engagement to a review because of
a scope limitation. The CPA concludes that there is reasonable justification for the change.
Under these circumstances, the CPA’s review report should include a
A. statement that a review is substantially less in scope than an audit.
B. reference to the scope limitation that caused the changed engagement.
C. description of the auditing procedures that were completed before the engagement was
changed.
D. reference to the CPA’s justification for agreeing to change the engagement.
36. An auditor expressed a qualified opinion on the prior year’s financial statements because of a
lack of adequate disclosure. These financial statements are properly restated in the current
year and presented in comparative form with the current year’s financial statements. The
auditor’s updated report on the prior year’s financial statements should
A. be accompanied by the auditor’s original report on the prior year’s financial statements.
B. continue to express a qualified opinion on the prior year’s financial statements.
C. make no reference to the type of opinion expressed on the prior year’s financial
statements.
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CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 94 / September 15, 2023 / 8:00am-11:00am
D. express an unmodified opinion on the restated financial statements of the prior year.
37. The most reliable procedure for an auditor to use to test the existence of a client's inventory
at an outside location would be to:
A. observe physical counts of the inventory items.
B. trace the total on the inventory listing to the general ledger inventory account.
C. obtain a confirmation from the client indicating inventory ownership.
D. analytically compare the current-year inventory balance to the prior-year balance.
38. When an auditor tests the internal controls of a computerized accounting system, which of
the following is true of the test data approach?
A. Test data are coded to a dummy subsidiary so they can be extracted from the system
under actual operating conditions.
B. Test data programs need not be tailor-made by the auditor for each client's computer
applications.
C. Test data programs usually consist of all possible valid and invalid conditions regarding
compliance with internal controls.
D. Test data are processed with the client's computer and the results are compared with the
auditor's predetermined results.
39. The risk that the audit will fail to uncover a material misstatement is eliminated
A. if client has good internal control.
B. if client follows Financial Reporting Standards.
C. when the auditor has complied with Standards on Auditing.
D. under no circumstances.
40. Proper segregation of duties reduces the opportunities in which a person could both
A. journalize entries and prepare financial statements.
B. record cash receipts and record cash disbursements.
C. establish internal control and authorize transactions.
D. perpetrate errors and irregularities and conceal them.
41. The most important benefit of having an annual audit by a CPA firm is to:
A. provide assurance to investors and other outsiders that the financial statements are
dependable.
B. enable officers and directors to avoid personal responsibility for any misstatement in the
financial statements.
C. meet the requirements of government agencies.
D. provide assurance that illegal acts, if any exist, will be brought to light.
42. An auditor reconciles the total of the accounts receivable subsidiary ledger to the general
ledger control account as of October 31, 20X1. By this procedure the auditor would be most
likely to learn which of the following?
A. An October invoice was improperly computed.
B. An October check from a customer was posted in error to the account of another
customer.
C. An opening balance in a subsidiary ledger account was improperly carried forward from
the previous accounting period.
D. An account balance is past due and should be written off.
43. Which of the following safeguards to eliminate or reduce threats to independence is provided
by the profession, legislation or regulation?
A. Policies and procedures that emphasize the assurance client’s commitment to fair financial
reporting.
B. Internal policies and procedures to implement compliance with firm policies and
procedures as they relate to independence.
C. Continuing professional development requirements.
D. Rotation of senior personnel.
Page 6 of 13 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 94 / September 15, 2023 / 8:00am-11:00am
44. The audit procedure that may be helpful in identifying the existence of unusual transactions
or events, and amounts, ratios and trends that may indicate matters that have financial
statement and audit implications is
A. Inquiries of management.
B. Observation and inspection.
C. Confirmation.
D. Analytical procedures.
45. During consideration of the internal control system in a financial statement audit, an auditor
is not obligated to
A. search for significant deficiencies in the operation of the internal control system.
B. understand the internal control environment and the accounting system.
C. determine whether the control procedures relevant to the audit planning have been placed
in operation.
D. perform procedures in order to understand the design of the internal control policies.
47. The Code of Ethics for Professional Accountants in the Philippines provides the categories of
threats that could compromise or could be perceived to compromise a professional
accountant’s compliance with the fundamental principles. The threat that the professional
accountant will not appropriately evaluate the results of a previous judgment made or service
performed on which the accountant will rely when forming a judgment as part of providing a
current service is called
A. advocacy threat.
B. familiarity threat.
C. self-review threat.
D. intimidation threat.
48. All activities related to a particular application in a manual system is recorded in a journal.
The name of the corresponding item in a computerized system is a
A. master file.
B. year-to-date file.
C. transaction file.
D. current balance file.
49. At the conclusion of an audit, an auditor is reviewing the evidence gathered in support of the
financial statements. With regard to the valuation of inventory, the auditor concludes that the
evidence obtained is not sufficient to support management's representations. Which of the
following actions is the auditor most likely to take?
A. Consult with the audit committee and issue a disclaimer of opinion.
B. Consult with the audit committee and issue a qualified opinion.
C. Obtain additional evidence regarding the valuation of inventory.
D. Obtain a statement from management supporting their inventory valuation.
50. Which of the following questions would most likely be included in an internal control
questionnaire concerning the completeness assertion for purchases?
A. Is an authorized purchase order required before the receiving department can accept a
shipment or the vouchers payable department can record a voucher?
B. Are purchase requisitions prenumbered and independently matched with vendor invoices?
C. Is the unpaid voucher file periodically reconciled with inventory records by an employee
who does not have access to purchase requisitions?
D. Are purchase orders, receiving reports, and vouchers prenumbered and periodically
accounted for?
Page 7 of 13 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 94 / September 15, 2023 / 8:00am-11:00am
SITUATIONAL
Situation 1
You are conducting an audit of the TRALALA COMPANY for the year ended December 31, 2023.
The company’s internal control procedures over cash transactions were not adequate. Elma
Noknok, the bookkeeper-cashier, handles cash receipts, maintains accounting records, and
prepares the monthly reconciliations of the bank account.
Elma Noknok prepared the following reconciliation at the end of the year:
a. At December 31, 2023, the bank statement and the general ledger showed balances of
P1,050,000 and P880,500, respectively.
b. The cut-off bank statement showed a bank charge on January 2, 2024 for P90,000
representing a correction of an erroneous bank credit.
1. A check payable to a supplier, dated December 30, 2023, in the amount of P44,250,
released on January 4, 2024.
2. A check representing advance payment to a supplier in the amount of P111,630, the date
of which is January 3, 2024, and released in December 2023.
d. On December 31, 2023, the company received and recorded a customer’s postdated check in
the amount of P150,000.
51. The adjusted cash to be shown in the statement of financial position as at December 31,
2023:
A. P931,380 B. P796,380 C. P751,380 D. P706,380
Page 8 of 13 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 94 / September 15, 2023 / 8:00am-11:00am
Situation 2
You are examining the records of ORLANDO COMPANY where internal control is found to be
weak. Part of your work includes reconciliation of cash for December 2023. You have determined
that the client’s cash reconciliation as of November 30, 2023, is correct. The following information
is available to you:
Cash receipts are summarized weekly. The cash receipts book for December is shown below:
Dec. 1 Balance from November 30 P 526,348
8 Received on accounts 5,154,960
15 Received on accounts 5,489,512
22 Received on accounts 931,964
29 Received on accounts 1,177,370
P13,060,154
The cash payments record for December shows the following details:
Dec. 1 November service charge P 1,800
3 Checks 1,047,300
5 Checks 729,042
8 Checks 3,278,978
10 Checks 3,174,684
12 Checks 969,778
19 Checks 724,566
22 Checks 738,418
31 Checks 1,531,540
31 Balance 862,248
P13,060,154
Cash on hand on December 31 amounted to P20,000. The transactions per the December bank
statement, which are correctly recorded by the bank, show that deposits amounted to
P12,574,184; checks paid amounted to P11,590,406; service charge for the month was P2,000;
and a charge of P20,000 was made against the account because of the return unpaid of
customer’s check. The service charge and the returned check were not recorded on the client’s
books. The total of outstanding checks as of December 31 was found to be P822,100.
Questions:
55. The adjusted bank receipts and disbursements for December are
Receipts Disbursements
A. P12,552,006 P12,236,306
B. 12,753,806 12,216,306
C. 12,552,006 12,214,306
D. 12,753,806 11,590,406
Page 9 of 13 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 94 / September 15, 2023 / 8:00am-11:00am
A depreciation schedule for semi-trucks of ISLA COMPANY was requested by your auditor soon
after December 31, 2023, showing the additions, retirements, depreciation, and other data
affecting the income of the company in the 4-year period 2020 to 2023, inclusive.
Transactions between January 1, 2020, and December 31, 2023, which were recorded in the
ledger, are as follows.
July 1, 2020 Truck No. 3 was traded for a larger one (No. 5), the agreed purchase price of
which was P400,000. Isla Company paid the automobile dealer P220,000 cash on
the transaction. The entry was a debit to Trucks and a credit to Cash, P220,000.
The transaction has commercial substance.
Jan. 1, 2021 Truck No. 1 was sold for P35,000 cash; entry debited Cash and credited Trucks,
P35,000.
July 1, 2022 A new truck (No. 6) was acquired for P420,000 cash and was charged at that
amount to the Trucks account. (Assume truck No. 2 was not retired.)
July 1, 2022 Truck No. 4 was damaged in a wreck to such an extent that it was sold as junk for
P7,000 cash. Isla Company received P25,000 from the insurance company. The
entry made by the bookkeeper was a debit to Cash, P32,000, and credits to
Miscellaneous Income, P7,000, and Trucks, P25,000.
Entries for depreciation had been made at the close of each year as follows: 2020, P210,000;
2021, P225,000; 2022, P250,500; 2023, P304,000.
56. What is the total depreciation expense for the year ended December 31, 2020?
A. P180,000 B. P198,000 C. P172,000 D. P228,000
58. What is the net book value of the Trucks on December 31, 2023?
A. P414,000 B. P348,000 C. P228,500 D. P894,000
59. The total depreciation expense recorded for the 4-year period (2020-2023) is overstated by
A. P185,500 B. P265,500 C. P287,500 D. P275,500
60. Assuming that the books have not been closed for 2023, what is the compound journal
entry on December 31, 2023, to correct the company’s errors for the 4-year period (2020-
2023)?
Page 10 of 13 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 94 / September 15, 2023 / 8:00am-11:00am
In testing the sales cut-off for the BIG LOVE COMPANY in connection with an audit for the year
ended October 31, 2023, you find the following information.
A physical inventory was taken as of the close of business on October 31, 2023. All customers
are within a three-day delivery area of the company’s plant. The unadjusted balances of Sales
and Inventories are P7,500,000 and P330,000, respectively.
Based on the foregoing information, compute the October 31, 2023, adjusted balances of the
following accounts:
61. Sales
A. P7,461,300 B. P7,455,900 C. P7,449,600 D. P7,487,100
62. Inventories
A. P354,000 B. P363,300 C. P348,000 D. P357,300
The December 31, 2022, statement of financial position of the UPAT COMPANY included the
following information:
Accounts receivable P672,000
Less: Allowance for doubtful accounts (42,300) P629,700
Notes receivable* 65,400
Total receivables P695,100
* The company is contingently liable for discounted notes receivable of P114,000.
Page 11 of 13 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 94 / September 15, 2023 / 8:00am-11:00am
During the year ending December 31, 2023, the following transactions occurred:
1. Sales on credit P2,623,800
2. Collections of accounts receivable 2,523,000
3. Accounts receivable written off as uncollectible 41,400
4. Notes receivable collected 87,000
5. Customer notes received in payment of accounts receivable 216,000
6. Notes receivable discounted that were paid at maturity 108,000
7. Notes receivable discounted that were defaulted, including interest
of P60 and a P15 fee. This amount is expected to be collected
during 2023 6,075
8. Proceeds from customer notes discounted with recourse
(principal P135,000, accrued interest, P600) 135,225
9. Collections on accounts previously written off 1,500
10. Sales returns and allowances (on credit sales) 6,000
11. Increase in allowance for doubtful accounts 39,357
Based on the preceding information, determine the balances of the following accounts at
December 31, 2023.
Myla Limpot is the cashier of the BUSTOS GLASS COMPANY. As representative of ARF & Co.,
CPAs, you were assigned to verify her cash on hand in the morning of January 4, 2024. You
began to count at 9:00 am in the presence of Miss Limpot. In the course of your counting you
found currencies in paper bills and coins together with checks, vouchers and other items, which
are listed below:
Bills
25 hundreds; 130 fifties; 142 twenties
Coins
P10 1 roll and 10 loose (20 pieces to a roll)
5 4 rolls (50 pieces to a roll)
1 2 rolls and 29 loose (50 pieces to a roll)
Checks
Maker Date Payee Amount
Josue Crisanto, Asst. Manager 12/22/23 Bustos Glass Company P1,200
Myla Limpot, Cashier 12/27/23 Bustos Glass Company 800
IOUs
A. Davide, Janitor 12/19/23 700
R. Tirador 12/21/23 500
Peter Mulach, Bookkeeper 12/23/23 300
Page 12 of 13 Pages
CPA REVIEW SCHOOL OF THE PHILIPPINES (CPAR) - MANILA FINAL PREBOARD EXAMINATION
AUDITING Batch 94 / September 15, 2023 / 8:00am-11:00am
2. Cash sales of January 2, 2024, amounted to P17,300 per sales records, while the Cash
Receipts book and deposit slips showed that only P15,300 was deposited in the bank on
January 3, 2024.
3. The following employees’ pay envelopes had been opened and the money removed. Each
envelope was marked “unclaimed.”
Norberto Sioson P1,665
Gloria Gorospe 2,495
Questions:
68. The following are appropriate procedures for controlling the petty cash fund, except
A. To monitor variations in different types of expenditures, the petty cash custodian files
petty cash vouchers by category of expenditure after replenishing the fund.
B. To replenish the fund, the general cashier issues a company check to the petty cash
custodian, rather than cash.
C. To determine that the fund is being accounted for satisfactorily, surprise counts of the
fund are made from time to time by the internal auditor or other responsible official.
D. Each individual to whom petty cash is paid is required to present signed receipts to the
petty cash custodian.
70. What is the effect of not replenishing the petty cash at year-end and not making the
appropriate adjusting entry?
A. A detailed audit is essential
B. The petty cash custodian should turn over the petty cash to the general cashier
C. Cash will be overstated and expenses understated
D. Expenses will be overstated and cash will be understated
---END OF EXAMINATION---
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