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2. Your firm as recently converted its purchasing cycle from a manual to an on-line computer system. You have been
placed in charge of the first post-implementation audit of the new system and have access to a generalized audit
software package. One of your objectives is to determine whether all material liabilities for trade accounts payable
have been recorded. Which of the following would most help you achieve this objective?
a. A listing of all purchase transactions processed after the cut-off date
b. A listing of all accounts payable ledger accounts with a post office given as the vendor mailing address
c. A listing of all duplicate purchase orders, receiving reports, and vendor invoices
d. A listing of all vendors with a debit balance in the accounts payable ledger
3. An auditor’s flowchart of a client’s accounting system is a diagrammatic representation that depicts the auditor’s
a. Assessment of control risk.
b. Identification of weaknesses in the system.
c. Assessment of the control environment’s effectiveness.
d. Understanding of the system.
4. Which of the following characteristics distinguishes computer processing from manual processing?
a. Computer processing virtually eliminates the occurrence of computational error normally associated with manual
processing.
b. Errors or fraud in computer processing will be detected soon after their occurrences.
c. The potential for systematic error is ordinarily greater in manual processing than in computerized processing.
d. Most computer systems are designed so that transaction trails useful for audit purposes do not exist.
5. A client is concerned that a power outage or disaster could impair the computer hardware’s ability to function as
designed. The client desires off-site backup hardware facilities that are fully configured and ready to operate within
several hours. The client most likely should consider a
a. Cold site
b. Cool site
c. Warm site
d. Hot site
7. Risk of fraud or error in on-line systems may be reduced in the following circumstances, except
a. If on-line data entry is performed at or near the point where transactions originate, there is less risk that the
transactions will not be recorded.
b. If invalid transactions are corrected and re-entered immediately, there is less risk that such transactions will not be
corrected and re-submitted on a timely basis.
c. If data entry is performed on-line by individuals who understand the nature of the transactions involved, the data
entry process may be less prone to errors than when it is performed by individuals unfamiliar with the nature of
the transactions.
d. On-line access to data and programs through telecommunications may provide greater opportunity for access to
data and programs by unauthorized persons.
8. An auditor anticipates assessing control risk at a low level in a computerized environment. Under these circumstances,
on which of the following procedures would the auditor initial focus?
a. Programmed control procedures
b. Output control procedures
c. Application control procedures
11. An auditor sends fictitious information through the system for processing. This is an example of
a. The test data approach
b. A tagging and tracing approach
c. Generalized audit software
d. Audit procedures using manual efforts
12. Which of the following involves developing and running fictitious data concurrently with real data?
a. Test data approach
b. Generalized audit software
c. Tagging and tracing
d. Integrated test facility
13. When auditing around the computer, the independent auditor focuses solely upon the source documents and
a. Test data
b. EDP processing
c. Compliance techniques
d. EDP output
14. Errors in data processed in a batch computer system may not be detected immediately because
a. Transaction trails in a batch system are available only for a limited period of time.
b. There are time delays in processing transactions in a batch system.
c. Errors in some transactions cause rejection of other transactions in the batch.
d. Random errors are more likely in a batch system that in an on-line system.
16. Old and new systems operating simultaneously in all locations is a test approach known as
a. Pilot testing
b. Integrative testing
c. Horizontal testing
d. Parallel testing
18. Which of the following computer-assisted auditing techniques allows fictitious and real transactions to be processed
together without client operating personnel being aware of the testing process?
a. Parallel simulation
b. Generalized audit software programing
c. Integrated test facility
d. Test data approach
19. Which of the following is not one of the three categories of testing strategies when auditing through the computer?
a. Pilot simulation
b. Parallel simulation
c. Test data approach
d. Embedded audit module
20. In an automated payroll processing environment, a department manager substituted the time card for a terminated
employee with a time card for a fictitious employee. The fictitious employee had the same pay rate and hours worked
as the terminated employee. The best control technique to detect this action using employee identification numbers
would be a
a. Batch total
b. Hash total
c. Record count
d. Subsequent check
Monthly bank reconciliation is prepared on a regular basis. Reconciling items are recorded in the general journal in the
month following the month covered by the bank reconciliation. Examination of bank statements and cash records
disclosed the following:
Nov. 30, 2015 Dec. 31, 2015
Cash account balance P10,000 P ?
Bank’ statement balance ? 103,500
Cash on hand 4,000 6,000
Checks outstanding 13,000 15,000
Bank service charges for month 100 400
N.S.F. checks 2,000 3,000
Collections by bank from HIRO Company customers 55,000 70,000
1. Merchandise inventory as stated in the trial balance represented the result of the count conducted on December 30,
2014 on inventories on hand. All sales were made at 40% gross profit on sales. The following information were found
to be relevant in your audit of inventories:
A shipment of goods invoiced at P225,000 to a customer on December 29, terms FOB destination was
recorded in 2015. The goods were received by the customer on January 4, 2015.
The invoice for goods costing P175,000 was received and recorded as purchase on December 31, 2014. The
related goods, shipped FOB Destination were received on January 4, 2015.
Goods valued at P612,800 are on consignment from a vendor. These goods were included from the physical
count.
Goods costing P275,000 are on consignment with a customer and were not included in the physical count.
Goods costing P217,500 were received from a vendor on January 4, 2015. The related invoice was received
and recorded on January 6, 2015. These goods were shipped by the vendor on December 31, 2014 under an
FOB shipping point terms.
Goods invoiced at P1,062,500 were shipped on December 31, 2014, and were received by the customer on
January 2, 2015. The terms of the invoice were FOB shipping point. The sales has been appropriately
recorded in 2014.
2. Collections for January 2015 of P654,600 were recorded in the December 2014 cash records. The receipts of
P360,100 represents cash sales with the balance representing collections from customers who paid within the 5% cash
discount period.
3. Accounts payable of P372,400 was paid in January 2015. The payments on which a P12,400 cash discount has been
taken were included in the December 31, 2014 check register.
4. The following accounts were extracted from the unadjusted trial balance of FISHER Corp. as of December 31, 2014:
Cash 963,200
Accounts receivable 2,254,000
Merchandise inventory 6,662,800
Accounts payable 4,201,000
Accrued expenses 17,900
26. Inventory
a. P5,010,000
b. P5,860,000
c. P6,040,000
d. P6,080,000
27. An auditor should trace shipping documents to sales invoice to provide assurance that
a. Payments are properly applied to customer accounts
b. All shipments are billed to customers
c. Unit prices billed are in accordance with sales contracts
d. All sales are supported by shipping documents
Questions 28-30 are based on the following information.
During your audit of the records of the MAKRO Corporation for the year ended December 31, 2015, the following facts
were disclosed:
c. Raw materials are issued at the beginning of the manufacturing process. During the year, no returns, spoilage, or
wastage occurred. Each unit of finished goods contains one unit of raw materials.
d. Inventories are stated at cost as follows:
Raw materials – according to the FIFO method
Direct labor – at an average rate determined by correlating total direct labor cost with effective production
during the period
Manufacturing overhead – at an applied rate of 150% of direct labor cost
Based on the above and the result of your audit, answer the following:
28. The work in process inventory as of December 31, 2015 is
a. P1,780,000
b. P1,751,294
c. P1,885,565
d. P1,776,000
30. The cost of goods sold for the year ended December 31, 2015 is
a. P16,897,000
b. P16,568,304
c. P15,857,000
d. P16,875,000
12/1-31/14 1/1-12/15
Receipts, cash records P963,230 P292,500
Credits, bank statement 941,010 321,490
Disbursements, cash records 1,008,480 177,570
Charges, bank statement 1,010,410 230,180
Based on the above and the result of your audit, compute for the following:
31. Deposit in transit as of December 31, 2014
a. P40,570
b. P40,490
c. P37,220
d. P57,220
1. Salaries and attached social security expenses for workers building the facility P32,600
2. Material expenses to build facility 200,000
3. Salary of officer who calculates wages of all employees 40,000
4. Invoices from construction companies performing certain building works (net of VAT) 80,000
5. Fees for professional construction supervision 15,000
6. Legal fees for building permits, local non-refundable taxes 3,400
7. Value-added tax on external services 16,000
8. Invoices for digital control unit (includes 20% VAT) 24,000
9. Invoices for installing the digital control unit net of VAT 3,000
10. Invoices for training 10 mechanics 4,000
SUBTOTAL P418,000
Add provision for dismantling of asset 26,000
TOTAL COSTS P444,000
In connection with your audit of the company, you gathered the following transactions during 2015 and other information
pertaining to the company’s note receivable:
On January 1, 2015, Biscocho sold a tract of land to three doctors as an investment. The land, purchased 10 years
ago, was carried on the companys books at P500,000. Biscocho received a non-interest bearing note for P880,000
from the doctors. There is no readily available market value for the land, but the current market rate of interest for
comparable note is 10%.
On January 1, 2015, Bisocho finished consultation services and accepted in exchange a promissory note with a
face value of P1,200,000, due on December 31, 2017, and with stated rate of 5% with such interest receivable at
the end of each year. The fair value of the services is not readily determinable and the note is not readily
marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest of
10%.
On January 1, 2015, Bisocho sold equipment with a carrying amount of P1,600,000 to X Company. As payment,
X gave Biscocho a P2,400,000 note. The note bears an interest rate of 4% and is to be repaid in 3 annual
instalments of P800,000 (plus interest on the outstanding balance). The first payment was received on December
31, 2015. The market price of the equipment is not readily determinable. The prevailing rate of interest for notes
of this type is 14%.
Based on the above and the result of your audit, answer the following:
37. The consultation service fee revenue that should be recognized in 2015 is
a. P901,600
b. P1,050,800
c. P1,095,800
d. P1,200,000
38. The gain on sale of equipment that should be recognized in 2015 is
a. P257,280
b. P331,600
c. P412,400
d. P800,000
40. The current portion of long-term notes receivable as of December 31, 2015 is
a. P800,000
b. P1,468,200
c. P1,600,000
d. P1,680,000
42. To provide for the greatest degree of independence in performing internal auditing functions, an internal auditor most
likely should report to the
a. Vice-president for Finance
b. Board of Directors
c. Corporate controller
d. Corporate stockholders
43. Which of the following activities is typically associated with operational auditing?
a. Determining whether the financial statements are an accurate representation of the entity’s operations.
b. Evaluating the feasibility of attaining the entity’s operational objectives.
c. Making recommendations for improving performance.
d. Reporting on the entity’s relative success in meeting profitability goals.
46. According to PSA 500, an audit involves ascertaining the degree of correspondence between assertions and
established criteria. In the case of financial statement audit, which of the following is not a valid criterion?
a. Accounting standards generally accepted in the Philippines
b. International Accounting Standards
c. Other authoritative financial reporting framework
d. Philippine Standards on Auditing
47. The prevailing Philippine Standards on Auditing issued by the AASC are not applicable
a. Whenever an independent examination of financial statements is conducted for the purpose of expressing an
opinion thereon
b. When special purposes audit are provided by an auditor
c. Whenever an independent examination of financial statements of not for profit enterprises is conducted for the
purpose of expressing an opinion thereof
d. When an auditor may judge that a departure leads to more effectively achieve the objective of an audit
49. Which of the following factors is most important concerning auditor’s responsibility to detect errors and fraud?
a. The susceptibility of the accounting records to intentional manipulations, alterations, and the misapplication of
accounting principles
b. The probability that unreasonable accounting estimates result from unintentional bias or intentional attempts to
misstate the financial statements
c. The possibility that management fraud, defalcation, and misappropriation of assets may indicate the existence of
non-compliance with laws and regulations
d. The risks that mistakes, falsifications, and omissions may cause the financial statements to contain material
misstatements
50. Which of the following criteria is unique to the independent auditor’s attest function?
a. General competence
b. Familiarity with the particular industry of each client
c. Due professional care
d. Independence
51. The following statements relate to RA 9298 and its IRRs. Which statement(s) is(are) true?
I. A meaningful experience shall be considered as satisfactory compliance if it is earned in Public Practice and
shall include at least one year as audit assistant and at least two years as auditor in charge of the audit
engagement covering full audit functions of significant clients.
II. Individual CPAs, Firms or Partnerships of CPAs, including partners and staff members thereof shall register
with the BOA and the PRC. If the application for registration of AB and Co., CPAs was approved on August
30, 2015, its registration will expire on September 30, 2017.
III. According to RA 9298 and its IRRs, a Professional Identification Card bearing the registration number, date
of issuance, expiry date, duly signed by the chairperson of the PRC, shall likewise be issued to every
registrant renewable every three years.
IV. Practice in Education shall constitute in a person when he or she is involved in teaching of accounting,
auditing, management advisory services, accounting aspect of finance, business law, taxation and other
technically related subjects.
54. The following statements relate to RA 9298 and its IRRs. Which statement is(are) false?
a. Under the IRR of RA 9298, if a partner in a two-member partnership dies, the surviving partner may continue to
practice as an individual under the existing firm title which includes the deceased partner’s name for a period of
time not to exceed five years.
b. Any candidate who fails in two (2) complete Certified Public Accountant Board Examinations shall be
disqualified from taking another set of examinations unless he/she submits evidence to the satisfaction of the
Board that he/she enrolled in and completed at least twenty-four (24) units of subjects given in the licensure
examination.
c. A registered professional who is working abroad shall be temporarily exempted from compliance with CPE
requirement during his/her stay abroad, provided that he/she has been out of the country for at least two years
immediately prior to the date of renewal.
d. All of the above.
55. The letters “CPA” shall be engraved in what part of the CPA’s seal?
a. Upper portion of the space between the bigger and smaller circle.
b. Lower portion of the space between the bigger and small circle.
c. Left and right portion of the space between the bigger and smaller circle and in the middle of the smaller circle.
d. Middle of the smaller circle.
56. The BOA shall not refuse the registration of any person who successfully passed the CPA examinations if
a. Convicted by a court of competent jurisdiction of a criminal offense involving moral turpitude
b. Convicted for a political offense.
c. Guilty of immoral and dishonorable conduct
d. None of the above.
57. Individual CPAs, Firms or Partnerships of CPAs, including partners and staff members thereof shall register with
the BOA and the PRC. If the application for registration of AB and Co., CPAs was approved on August 30, 2005, it
shall file for renewal on or before
a. September 30, 2007
b. December 31, 2007
c. September 30, 2008
d. August 30, 2008
58. Below are the names of three CPA firms and pertinent facts relative to each firm. Unless otherwise indicated, the
individuals named are CPAs and partners, and there are no other partners. Which firm name and related facts
indicates a violation of the IRR of RA 9298?
a. Joyce, Ara and Angela, CPAs (Joyce died about 10 years ago, Ara and Angela are continuing the firm)
b. Lupin and Fujico, CPAs ( the name of Goymon a third active partner is omitted in the firm name)
c. Hugo and Pugo, CPAs (Hugo died 25 months ago, Pugo is continuing the firm as a sole proprietor)
d. Bubu and Bibi, CPAs (Bibi died 3 years ago, Bobot was admitted into the partnership 2 months after Bibi’s
death.)
59. Which of the following is not one of the grounds for proceedings against a CPA?
a. Gross negligence or incompetence in the practice of his profession.
b. Engaging in public practice while being employed in a private enterprise.
c. Insanity.
d. Immoral or dishonorable conduct.
60. The creation of FRSC and AASC is intended to assist the BOA in carrying out its function to
a. To monitor the conditions affecting the practice of accountancy and adopt such measures, rules and
regulations and best practices as may be deemed proper for the enhancement and maintenance of high
professional, ethical, accounting and auditing standards.
b. To supervise the registration, licensure and practice of accountancy in the Philippines.
c. To prescribe and adopt the rules and regulations necessary for carrying out the provisions of RA 9298.
d. To prepare, adopt, issue or amend the syllabi of the subjects for examinations.
61. Gerard, CPA has audited the financial statements of Subic Bay Sales for several years and had always been paid
promptly for services rendered. Last year’s audit invoices have not been paid because of its cash flow difficulties, and
the current year’s audit is schedule to commence in a week. With respect to the past-due audit fees, Gerard should:
a. Perform the scheduled audit and allow Subic to pay when the cash flow difficulties are alleviated
b. Perform the scheduled audit only after arranging a definite payments schedule and securing notes signed by Subic
c. Inform Subic’s management that the past-due audit fees are considered an impairment of auditor’s independence,
therefore, it must be paid prior to the issuance of the auditor’s report
d. Inform Subic’s management that the past-due audit fees may be considered a loan on which interest must be
imputed for financial statement purposes
62. Warning signs that cause the auditor to question management integrity must be taken seriously and pursued
vigorously. Which of the following may lead the auditor to suspect management dishonesty?
a. The president and chief executive officer of the client corporation has held numerous meeting with the controller
for the purpose of discussing accounting practices that will maximize reported profits
b. The client has been named as a defendant in a product liability suit
c. The client has experienced a decrease in revenue from increase import competition
d. A new government regulation making customer licenses more difficult to obtain may adversely affect the client’s
operations
64. A professional accountant has a professional duty or right to disclose confidential information in each of the
following, except
a. To comply with technical standards and ethics requirements.
b. To disclose to BIR fraudulent scheme committed by the client on payment of income tax.
c. To comply with the quality review of a member body or professional body
d. To respond to an inquiry or investigation by a member body or regulatory body.
65. Professional accountants may encounter problems in identifying unethical behavior or in resolving an ethical conflict.
When faced with significant ethical issues, professional accountants should do the following, except
a. Follow the established policies of the employing organization to seek a resolution of such conflict.
b. Review the conflict problem with the immediate superior if the organization’s policies do not resolve the ethical
conflict.
c. If the problem is not resolved with the immediate superior and the professional accountant determines to
go to the next higher managerial level, the immediate superior need not be notified of the decision.
d. Seek counseling and advice on a confidential basis with an independent advisor or the applicable professional
accountancy body or regulatory body to obtain an understanding of possible courses of action.
66. A CPA-lawyer, acting as a legal counsel to one of his audit client, is an example of
a. Self-interest threat
b. Advocacy threat
c. Self-review threat
d. Familiarity threat
67. When the safeguards available are insufficient to eliminate the threats to independence or to reduce them to an
acceptable level, or when a firm chooses not to eliminate the activities or interest creating the threat, the only course
of action available will be the
a. Issuance of an adverse opinion.
b. Issuance of qualified opinion or disclaimer of opinion.
c. Issuance of unqualified opinion with explanatory paragraph.
d. Refusal to perform, or withdrawal from, the assurance engagement.
68. Fees calculated on a predetermined basis relating to the outcome or result of a transaction or the result of the work
performed.
a. Contingent fees
b. Flat sum fees
c. Retainer fees
d. Per diem fees
70. Which statement is incorrect regarding long association of senior personnel with audit clients that are listed entities?
a. Using the same lead engagement partner on an audit over a prolonged period may create a familiarity threat.
b. The lead engagement partner should be rotated after a pre-defined period, normally no more than seven (7) years.
c. A partner rotating after a pre-defined period should not resume the lead engagement partner role until a further
period of time, normally two years, has elapsed.
d. When audit client becomes a listed entity the length of time the lead engagement partner has served the audit
client in that capacity should be considered in determining when the partner should rotated.