Mcqs Audit - PRTC2

8/18/2019 Mcqs Audit - PRTC2

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1 Auditing Theory

Chapter 9

1. Which of the following pairs of accounts would an auditor most likely analyze on

the same working paper?a. Notes receivable and interest income.b. Accrued interest receivable and accrued interest payable.c. Notes payable and notes receivable.d. Interest income and interest epense.

!. With well"developed internal control# employees in the same department most

likely would approve purchase orders# and alsoa. $econcile the open invoice %le. c. Authorize re&uisition

of goods.b. Inspect goods upon receipts. d. Negotiate terms with

vendors.

'. (o strengthen the system of internal accounting control over the purchase of

merchandise# a company)s receiving department should

a. Accept merchandise only if a purchase order or approval granted by thepurchasing department is on hand.

b. Accept and count all merchandise received from the usual company

vendors.c. $ely on shipping documents for the preparation of receiving reports.d. *e responsible for the physical handling of merchandise but not for the

preparation of receiving reports

+. Alpha ,ompany uses its sales invoices for posting perpetual inventory records.

Inade&uate controls over the invoicing function allow goods to be shipped that

are not invoiced. (he inade&uate controls could cause an

a. -nderstatement of revenues# receivables# and inventory.b. verstatement of revenues and receivables# and an understatement of

inventory.c. -nderstatement of revenues and receivables# and an overstatement of

inventory.d. verstatement of revenues# receivables# and inventories.

/. (o determine whether the system of internal accounting control operated

e0ectively to minimize errors of failure to invoice a shipment# the auditor would

select a sample of transactions from the population represented by thea. ,ustomer order %le. c. pen invoice %le.

b. *ill of lading %le. d. ales invoice %le.

2. Which of the following audit procedures would an auditor most likely perform to

test controls relating to management)s assertion concerning the completeness

of sales transactions?a. 3erify that etensions and footings on the entity)s sales invoices and

monthly customer statements have been recomputed.


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b. Inspect the entity)s reports of prenumbered shipping documents that

have not been recorded in the sales 4ournal.c. ,ompare the invoiced prices on prenumbred sales invoices to the entity)s

authorized price list.d. In&uire about the entity)s credit granting policies and the consistent

application of credit checks.

5. An auditor tests an entity)s policy of obtaining credit approved before shipping

goods to customers in support of management)s %nancial statement assertion

of a. 3aluation or allocation. c. 6istence or occurrence.b. ,ompleteness. d. $ights and obligations

7. An auditor observes the mailing of monthly statements to a client)s customers

and reviews evidence of follow"up on errors reported by the customers. (his

test of controls most likely is performed to support management)s %nancial

statement assertion8s9 of

a. b. c. d.

:resentation and

disclosure

;es ;es No No

6istence or occurrence ;es No ;es No

ranting credit.

b. elling goods for cash. d. hipping goods.

1.:roper authorization of write"o0s of uncollectible accounts should be approved

in which of the following departments?a. Accounts receivable. c. Accounts payable.b. ,redit. d. (reasurer.

Chapter 10

1. If internal control is well designed# two tasks that should be performed by

di0erent persons area. Approval of bad debt write"o0s# and reconciliation of the accounts

payable subsidiary ledger and controlling account.b. =istribution of payroll checks and approval of sales returns for credit.c. :osting of amounts from both the cash receipts 4ournal and cash

payments 4ournal to the general ledger.d. $ecording of cash receipts and preparation of bank reconciliations.


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!. Internal control should follow certain basic principles to achieve its ob4ectives.

ne of these principles is the segregation of functions. Which one of the

following eamples does not violate the principle of segregation of functions?a. (he treasurer has the authority to sign checks but gives the signature

block to the assistant treasurer to run the check"signing machine.

b. (he warehouse clerk# who has the custodial responsibility over inventoryin the warehouse# may authorize disposal of damaged goods.

c. (he sales manager has the responsibility to approve credit and the

authority to write o0 accounts.d. (he department time clerk is given the undistributed payroll checks to

mail to absent employees.

'. Audit risk consists of inherent risk# control risk# and detection risk. Which of the

following statements is true?a. ,ash is more susceptible to theft than an inventory of coal because it has

a greater inherent risk.b. (he risk that material misstatement will not be prevented or detected on

a timely basis by internal control can be reduced to zero by e0ective

controls.c. =etection risk is a function of the e@ciency of an auditing procedure.d. (he eisting levels of inherent risk# control risk# and detection risk can be

changed at the discretion of the auditor+. apping is

a. Baking the %nancial statements indicate a more favorable position by

giving e0ect to transactions is a period other than that in which these

actually occurred.b. =one to inCate the cash position or cover the theft of cash by depositing

at the end of the accounting period a check drawing on one bank account

in another bank account without making the necessary deduction in the

balance of the %rst bank.c. An irregularity that conceals cash shortages by a delay in recording cash

collections# retaining a customerDs payment on credit sales and covering

up the shortage with subse&uent cash receipts.d. A kind of fraud committed by making entry of %ctitious payments or

failure to enter receipts.

/. In general# material fraud perpetrated by which of the following are most

di@cult to detect?a. ,ashier. c. Internal auditor.b. Eeypunch operator. d. ,ontroller.

2. Which of the following information discovered during an audit most likely would

raise a &uestion concerning possible illegal acts?a. $elated party transactions# although properly disclosed# were pervasive

during the year.b. (he entity prepared several large checks payable to cash during the year.


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+ Auditing Theory

c. Baterial internal control weaknesses previously reported to management

were not corrected.d. (he entity was a campaign contributor to several local political

candidates during the year.5. Which of the following circumstances most likely would cause an auditor to

believe that material misstatements may eist in an entity)s %nancialstatements?

a. Accounts receivable con%rmation re&uests yield signi%cantly fewer

responses than epected.b. Audit trails of computer"generated transactions eist only for a short"

time.c. (he chief %nancial o@cer does not sign the management representation

letter until the last day of the auditor)s %eldwork.d. Banagement consults with other accountants about signi%cant

accounting matters.

7. (hose procedures speci%cally outlined in an audit program are primarily

designed toa. >ather evidence.b. =etect errors or irregularities.c. (est internal systems.d. :rotect the auditor in the event of litigation.


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a. (he inventory eists at the balance sheet dateb. (he inventory is owned by Batterhornc. Footnote disclosures concerning inventory are not re&uired given the

ob4ective nature of this accountd. (he inventories are properly valued

'. In a properly designed accounts payable system# a voucher is prepared after the

invoiceG purchase order# re&uisition# and receiving report are veri%ed. (he net

step in the system is toa. ,ancel the supporting documentsb. 6nter the check amount in the check registerc. Approve the voucher for paymentd. :ost the voucher amount to the epense amount

+. Which of the following would prevent a paid disbursement from being paid a

second time?a. Individuals responsible for signing checks should prepare vouchers

b. =isbursements should be approved by at least two responsible o@cialsc. (he disbursement date should be within a few days of the date the

voucher is presented for payment.d. (he o@cial signing the check should cancel the supporting documents

/. For appropriate segregation of duties# 4ournalizing and posting summary payroll

transactions should be assigned toa. (he treasurer)s departmentb. >eneral accountingc. :ayroll accountingd. (he timekeeping department

2. Appropriate control over obsolete materials re&uires that they bea. orted# treated# and packaged before disposition takes place# in order to

obtain the best selling priceb. =etermine by an approved authority to be lacking in regular usabilityc. $etained with the regular storage aread. ,arried at cost in the accounting records until the actual disposition takes

place

5. Which of the following assertions is the primary assertion that is satis%ed by

physically observing the client)s count of inventorya. $ights. c. ,ompleteness

b. 3aluation. d. 6istence

7. An auditor most likely would make in&uiries of production and sales personnel

concerning possible obsolete or slow"moving inventory to support

management)s %nancial statement assertion of a. 3aluation c. 6istence.b. $ights d. :resentation.


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a. Inspecting documents and physically eamining assets.b. $e"computing calculations and obtaining written management

representations.c. bserving operating activities and comparing balances to prior period

balances.d. ,on%rming ownership and corroborating transactions through in&uiries of

client personnel.

2. If an auditor tours a production facility# which of the misstatements or

&uestionable practices is most likely to be detected by the audit procedures

speci%ed?a. =epreciation epense on fully depreciated machinery has been

recognized.b. verhead has been over"applied.c. Necessary facility maintenance has not been performed.d. Insurance coverage on the facility has lapsed.

5. In testing for uncorrected retirements of e&uipment# an auditor is most likely toa. elect items of e&uipment from the accounting records and then locate

them during the plant tour.b. ,ompare depreciation 4ournal entries with similar prior"year entries in

search of fully depreciated e&uipment.c. Inspect items of e&uipment observed during the plant tour and then trace

them to the e&uipment subsidiary ledger.d. can the general 4ournal for unusual e&uipment additions and ecessive

debits to repairs and maintenance epense.

7. (he auditor is least likely to learn of retirements of e&uipment through which of

the following?a. $eview of the purchase return and allowances account.b. $eview of depreciation.c. Analysis of the debits to the accumulated depreciation account.d. $eview of insurance policy.

ain on disposal of e&uipment

d. $epair and maintenance epense

1.In violation of policy# ,oat ,ompany erroneously capitalized the cost of painting

its warehouse. An auditor would most likely detect this whena. =iscussing capitalization policies with controller.b. 6amining maintenance epense accounts.c. bserving that the warehouse has been painted.


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d. 6amining construction work orders that support items capitalized during

the year.

Chapter 13

1. (he auditor will most likely perform etensive tests for possible understatement

ofa. $evenuesb. Assetsc. iabilitiesd. ,apital

!. A registrartransfer agent system relating to capital stock is most likely used byHa. A small# nonpublic company.b. A large# publicly traded company.c. All companies must use this type of system.d. No companies use this system anymore

'. A company holds bearer bonds as a short"term investment. $esponsibility forcustody of these bonds and submission of coupons for periodic interest

collections probably should be delegated to thea. ,hief accountantb. Internal auditorc. ,ashierd. (reasurer

+. Internal control over bonds payable is best whenHa. (he company utilizes the services of a bond trustee.b. (he company segregates approval from issuance of the bonds.c. *onds are countersigned by two [email protected]. *onds are serially numbered.

/. (he audit approach for ac&uired treasury stock will normally includeHa. ,on%rmation with shareholders.b. Inspection of certi%cates.c. Inspection of cash receipts entries.d. $ecomputation of all gains and losses

2. ,hanges in capital stock accounts should normally be approved byHa. (he board of directors.b. (he audit committee.

c. (he stockholders.d. (he president.

5. An auditor should trace corporate stock issuances and treasury stock

transactions to theHa. Numbered stock certi%cates.b. Articles of incorporation.c. (ransfer agentDs records.


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< Auditing Theory

d. Binutes of the board of directors

7. For audit purposes# a corporationDs articles of incorporation are normallyHa. ,opied and placed on the ownersD e&uity lead schedule.b. ,opied and placed in the permanent %le.c. ,on%rmed with the transfer agent.d. Ignored since they are not normally considered to be related to the

internal control structure.


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d. $eview of compliance with terms of debt agreements.'. An auditor should consider which of the following when evaluating the ability of

a company to continue as a going concern?a. Audit fees.b. Future assurance services.c. BanagementDs plans for disposal of assets.d. A lawsuit for which 4udgment is not anticipated for 17 months.

+. Which of the following matters is most likely to be included in a management

representation letter as a speci%c representation?a. ength of a material contract with a new customer.b. Information concerning fraud by the ,F.c. $eason for a signi%cant increase in revenue over the prior year.d. (he competency and ob4ectivity of the internal audit department.

/. Which of the following procedures most likely would assist an auditor to identify

litigation# claims# and assessments?

a. Inspect checks included with the clientDs cuto0 bank statement.b. btain a letter of representations from the clientDs underwriter of

securities.c. Apply ratio analysis on the current"yearDs liability accounts.d. $ead the %le of correspondence from taing authorities.

2. Which of the following is an analytical procedure that an auditor most likely

would perform during the %nal review stage of an audit?a. ,omparing each individual epense account balance with the relevant

budgeted amounts and investigating any signi%cant variations.b. (esting the e0ectiveness of internal control procedures that appear to be

suitably designed to prevent or detect material misstatements.c. $eading the %nancial statements and considering whether there are any

unusual or unepected balances that were not previously identi%ed.d. ,alculating each individual epense account balance as a percentage of

total entity epenses and comparing the results with industry averages.

5. A ,:A %rm is completing the %eldwork for an audit of wenson ,o. for the

current year ended =ecember '1. (he manager in charge of the audit is

performing the %nal steps in the evidence accumulation phase of the audit and

notes that there have been several changes in wenson during the year under

audit. Which of the following items would indicate there could be substantial

doubt about wensonDs ability to continue as a going concern for a reasonable

period of time?a. ,ash infusion by a venture capital %rm.b. $ecurring working capital shortages.c. A lack of signi%cant contracts with new customers.d. (erm debt re%nanced with a new bank.

7. Which of the following statements is correct regarding accounting estimates?


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1 Auditing Theory

a. (he auditorDs ob4ective is to evaluate whether accounting estimates are

reasonable in the circumstances.b. Accounting estimates should be used when data concerning past events

can be accumulated in a timely# cost"e0ective manner.c. An important accounting estimate is managementDs listing of accounts

receivable greater than


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d9 Issue a disclaimer of opinion/. (he opinion paragraph of the audit report for chnook ,o. states that the

%nancial statements Kdo not present fairlyL. Which type of audit report is this?a9 Improper c9 =isclaimerb9 Adverse d9 Juali%ed

2. In which one of the following instances would an auditor most likely issue a

disclaimer of opinion?a9 Banagement will not sign a management representation letterb9 Banagement declines to provide a statement of cash Cowc9 (he auditor is independent of the clientd9 (he auditor is unable to con%rm receivables but performs alternative

procedures5. When an auditor lacks independence with respect to a client# the auditor should

issuea9 =isclaimer of opinionb9 An adverse opinionc9 A &uali%ed opinion with eplanatory paragraph

d9 An un&uali%ed opinion7. When there is uncertainty about a company)s ability to continue as a going

concern# the auditor)s concern is the possibility that the client may not be able

to continue its operations or meet its obligations for a Kreasonable period of

time.L For this purpose# a reasonable period of time is considered not to eceedHa9 i months from the date of the %nancial statementsb9 ne year from the date of the %nancial statementsc9 i months from the date of the audit reportd9 ne year from the date of the audit report


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d. 6valuating the company)s internal control

!. Which statement is correct regarding auditing fair value measurements and

disclosures?a. Bany measurements based on estimates# including fair value

measurements# are inherently precise.b. Assumptions used in fair value measurements are similar in nature to

those re&uired when developing other accounting estimates.c. -nderlying the concept of fair value measurements is a presumption that

the entity will be li&uidated.d. (he measurement of fair value may be relatively comple for assets that

are bought and sold in active and open markets.

'. Which statement is incorrect regarding fair value measurements?a. -nderlying the concept of fair value measurements is a presumption that

the entity is a going concern.b. Fair value is normally the amount that an entity would receive or pay in a

forced transaction# involuntary li&uidation# or distress sale.c. (he measurement of fair value may be relatively simple for assets that

are bought and sold in active and open markets.d. (he estimation of fair value may be achieved through the use of a

valuation model or through the assistance of an epert# such as an

independent appraiser.

+. ,omple 4udgments are found in what types of accounts?i. Asset accounts.ii. iability accounts.iii. Income statement accounts

a. I only.b. II only.c. I and II.d. I# II# and III.

/. Which of the following statements is true about accounts re&uiring management

estimates?a. *ecause these amounts are estimates# the auditor likely 4ust accepts

whatever management determines to be appropriate.b. nly a limited number of accounts on the balance sheet re&uire

management estimates.c. Net accounts receivable is an account that does not re&uire a

management estimate.d. None of the above is true.

2. Which of the following statements is not correct about materiality?a. (he concept of materiality recognizes that some matters are important

for fair presentation of %nancial statements in conformity with >AA:#

while other matters are not important.


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b. An auditor considers materiality for planning purposes in terms of the

largest aggregate level of misstatements that could be material to any

one of the %nancial statements.c. Bateriality 4udgments are made in light of surrounding circumstances and

necessarily involve both &uantitative and &ualitative 4udgments.

d. An auditorDs consideration of materiality is inCuenced by the auditorDsperception of the needs of a reasonable person who will rely on the

%nancial statements.

5. For which of the following 4udgments may an independent auditor share

responsibility with an entityDs internal auditor who is assessed to be both

competent and ob4ective?Bateriality of misstatements 6valuation of accounting

estimatesa. ;es Nob. No ;esc. No Nod. ;es ;es

7. For which of the following 4udgments may an independent auditor share

responsibility with an entityDs internal auditor who is assessed to be both

competent and ob4ective?Bateriality of misstatements 6valuation of accounting

estimatesa. ;es ;esb. ;es Noc. No ;esd. No No


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d. Bateriality thresholds may change between the planning and review

stages of the audit. (hese changes may be due to &uantitative andor

&ualitative factors.

Chapter 17

1. Which statement is incorrect regarding the general principles of a reviewengagement?

a. (he auditor is not re&uired to comply with the K,ode of :rofessional 6thicsfor ,erti%ed :ublic AccountantsL promulgated by the *oard of Accountancy.

b. (he auditor should conduct a review in accordance with :A


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c. (ransmittal of the compilation report.d. (he latest subse&uent event referred to in the notes to the %nancial

statements.

5. (he following are special purpose audit engagements# ecepta. Financial statements prepared in accordance with a comprehensive basis

of accountingb. other than generally accepted accounting principles in the :hilippines.c. peci%ed accounts# elements of accounts# or items in a %nancial

statement.d. ,ompliance with contractual agreements.e. ,ompiled %nancial statements.

7. When the auditor believes that the presentation and disclosure of the

prospective %nancial information is not ade&uate# the auditor shoulda. 6press a &uali%ed or adverse opinion in the report on the prospective

%nancial information.

b. Withdraw from the engagement.c. =isclaim the opinion in the report on the prospective %nancial

information.d. 6ither a or b.

Mcqs Audit - PRTC2

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