I.

THEORY
1. What is the purpose of a financial statement audit?
a. Comply with regulatory and statutory requirements
b. Suggest operational improvements on inefficient areas
c. Assist those charged with governance in directing the entity
d. Enable auditor to express an opinion based on gathered evidence
2. An auditor selects a sample of official receipts and locates them in the cash receipt records. Which assertion is
addressed by this procedure?
a. Existence b. Completeness c. Rights and obligations d. Valuation
3. In making a decision to accept or continue with a client, the auditor should consider:
A B C D
Its own independence Yes Yes Yes Yes
Its ability to serve client properly Yes No Yes No
Integrity of a shareholder Yes Yes No No
4. Evaluate the following statements:
i. Setting a low-level peso materiality means more evidence to be gathered
ii. There is a direct relationship between materiality and audit risk
a. True, True b. True, False c. False, True d. False, False
5. The following substantive procedures for cash address the completeness assertion, except:
a. Send bank confirmations c. Examine interbank transfers
b. Test bank reconciliation d. Perform cash cutoff tests
6. What is the effect of not replenishing the petty cash fund at year-end and not making the appropriate adjusting
entry?
a. A detailed audit is necessary
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 understated
7. Which of the following describes the most effective preventive control to ensure proper handling of cash receipt
transactions?
a. Bank reconciliations are prepared by an employee not involved with cash collections and then are
reviewed by a supervisor
b. One employee issues a prenumbered receipt for all cash collections; another employee reconciles the
daily total of prenumbered receipts to the bank deposits.
c. Predetermined totals (hash totals) of cash receipts are used to control posting rules
d. The employee who receives customer mail receipts are used to preparing the daily bank deposit, which is
then deposited by another employee
8. The primary purpose of sending a standard confirmation request to financial institutions with which the client has
done business during the year, is to:
a. Corroborate information regarding deposit and loan balances
b. Provide the data necessary to prepare a proof of cash
c. Detect kiting activities that may otherwise not be discovered
d. Request information about contingent liabilities and secured transactions
9. An auditor who is engaged to examine the financial statements of a company will request cutoff bank statement
primarily to
a. Detect lapping c. verify reconciling items in bank reconciliation
b. Detect kiting d. verify the cash balance in confirmation reply
10. The information below was taken from the bank transfer schedule prepared during the audit of Khaye Ting
Company’s financial statements for the year ended December 31. Assume all checks are dated and issued on
December 30.
 No.______From_______To__________________________Disbursements____________________________Receipts_______________
Per Books Per Bank Per Books Per Bank
101 Pbcom HSBC 12/30 1/4 12/30 1/3
102 UCBP MBank 1/3 1/2 12/30 12/31
103 HSBC PSBank 12/31 1/3 1/2 1/2
104 MBank PNB 1/2 1/2 1/2 12/31

Which of the following checks might indicate kiting?

a. Check 101 & 103 c. Check 102 & 103
b. Check 101 & 104 d. Check 102 & 104

II. PROBLEM

1. In the audit of AGRABAH COMPANY’s cash account, you obtained the following information:
a. Balances taken from the company’s ledger:
Cash balance, Nov. 30, 2018 P 318,930
Cash balance, Dec. 31, 2018 289,620
Receipts, Dec. 1-31, 2018 153,110

b. Balances taken from the December bank statement:

Bank balance, Nov. 30, 2018 P 342,590
Bank balance, Dec. 31, 2018 318,610
Debits 178,040

c. Outstanding checks as of Nov. 30, 2018 totaled P32,070 (P13,070 was paid by bank in December)
d. Check no. 8113 dated December 20, 2018 was issued to replace a mutilated check (Check 7767 written in
November), which was returned by the payee. Both checks were recorded in the amount drawn, P5,000,
but no entry was made to cancel check no. 7767.
e. Deposits in transit for Nov. 30 and Dec. 31, 2018 were P7,630 and P8,070, respectively.
f. A bank credit memo for P750 was issued in December to correct an erroneous charge made in November.
g. A check for P1,010 (payable to a supplier) was recorded in the Check Register in December as P1,500.
h. The December bank statement included a check drawn by Ahgrabeh Company for P1,500.
i. Bank service charge for November amounting to P30 was recorded by the company in December. The
service charge for December was P150 but was charged by bank to another client.
j. The bank collected a note receivable of P1,030 on December 28,2018, but the collection was not received
on time to be recorded by Agrabah Company.
k. Agrabah Company issued a stop payment order to the bank in December. This pertains to a check
amounting to P390 written in December which was not received by the payee. A new check was written
and recorded in the Check Register in December. The old check was written off by a journal entry also in
December.
l. Checks written in December and still outstanding were:
Check No. 8856 – P7,300; Check No. 8910 – P2,640; and Check No. 8925 – P8,100

Required:
a. Determine the adjusted cash in bank as of November and December, respectively.
b. Compute the total outstanding checks on December 31, 2018.
 2. In connection with your audit of MITSA, INC. for the year ended December 31, 2018, you gathered the following
items that comprise the account “Cash and Cash Equivalents”:

Current account at BPI P 6,000,000

Current account at SECB (300,000)
Payroll account 1,500,000
Foreign bank account – restricted (in USD)* 60,000
Postage stamps 3,000
Employee’s postdated check 12,000
IOU from key officer 30,000
Credit memo from a vendor for a purchase return 60,000
Company’s unreleased check 150,000
Customer’s NSF check 45,000
Money orders 90,000
Petty cash fund (P12,000 in currency and expense 30,000
vouchers for P18,000)
Treasury bills, due 3/31/19 (purchased 12/31/18) 600,000
Treasury bills, due 1/31/19 (purchased 1/1/18) 900,000
Change fund 10,000
Bond sinking fund 1,000,000
*closing rate as of December 31, 2018 is at P50 for every USD1.

Required:
a. Determine the “Cash and Cash Equivalents” as of December 31, 2018.
b. Compute the amount of “Current Assets” to be reported at December 31, 2018.

3. Your audit of the petty cash (P10,000) of JULIET COMPANY as of December 31, 2006 revealed the following: (cash
count date is January 3, 2007 at 5:00 pm)

Bills: 10 – P500 bill; 15 – P100 bill; 18 – P50 bill; 15 – P20 bill; 5 – P10 bill.
Coins: P180 in P5.00 pieces; P42 in P1.00 pieces; P23 in P0.25 pieces.

IOUs submitted: Dec. 18 Nap R. – P750; Dec. 28 Ruel R. – P125; and Dec. 30 Sonny S. – P500

Checks:
Dec 28,2006 check drawn by the manager, P1,125 Dec 30, 2006 check drawn by a customer, P350
Dec 28,2006 check drawn by an employee, P500 Jan 1, 2007 check drawn by an employee, P1,250

The cashier informed you that owing to the lack of cash it was necessary for him to open certain payroll envelopes
unclaimed by employees and use the cash found therein. They were as follows:
Dec. 15, 2006 – Ed A., P1,250 Dec. 30, 2006 – Macky, P650
Dec. 30, 2006 – Andoy, P1,750 Dec. 30, 2006 – Paz, P1,000

The cashier also informed you that all cash sales receipts were passed through his fund and that cash sales tickets
Nos. 2059 to 2061 under dates of Dec. 30, Jan. 3 and Jan. 4 for P350, P500 and P545, respectively, had not yet
been turned over to the general cashier.
 The petty cash vouchers found in the petty cash box were as follows:
Dec. 30, 2006 Transportation, P515 Jan. 1, 2007 Freight for mdse. purchased, P125
Dec. 30, 2006 Token gifts to visitors, P650 Jan. 2, 2007 Freight for mdse. sold, P575
Dec. 30, 2006 Freight for office supplies purchased, P215

Required:
a. Determine the total cashier’s accountability.
b. Compute the cash shortage/overage, if any.
c. Compute the adjusted balance of the petty cash fund.