Mindanao State University

College of Business Administration and Accountancy

DEPARTMENT OF ACCOUNTANCY
Marawi City

MODULE 10

TESTS OF CONTROLS AND SUBSTANTIVE PROCEDURES

REVENUE AND RECEIPTS CYCLE

Test of Controls

1. Which of the following business functions is associated with the revenue/receipts cycle?

A. Obligations are paid to vendors and employees.

B. Resources are distributed to outsiders in exchange for promises of future payments.
C. Resources are used, held, or transformed.
D. Capital funds are received from investors and creditors.

2. Which of the following is not a common activity in the revenue/receipt cycle?

A. Order entry
B. Receiving
C. Inventory control
D. Cash collection

3. The cash account is involved in which cycle?

A. Revenue and collection.

B. Acquisition and expenditure.
C. Production and conversion.
D. All of the given choices.

4. Which of the following is an appropriate audit procedure to test cancelled checks for
authorized signatures?

A. Compare the check date with the first cancellation date.

B. Determine that all checks are to be signed by individual officers who are authorized
by the board.
C. Examine a representative sample of signed checks and trace their signatures to the
specimen signature book of authorized signatories.
D. Confirm the signatures from a sample of checks directly with the bank.

5. Which of the following is not likely a source of information about the accounting system
in the revenue area?

A. Direct inquiry of customers.

B. Prior experience with the client.
C. Systems flowcharts prepared by the EDP department.

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College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

D. Financial reporting manuals.

6. Which of the following gives an indication of a potential fraudulent activity?

A. Numerous credit memoranda have been issued to the company’s biggest customer.
B. Internal auditor cannot locate several credit memoranda to support reductions of
customers’ balances.
C. The year-end bank reconciliation has no outstanding checks or deposit older than 15
days.
D. No one was absent the day the auditors handed out the paychecks.

7. Which of the following procedures could prevent or detect errors or frauds arising from
shipments made to unauthorized parties?

A. Document policies and procedures for scheduling the shipments of goods.

B. Establish procedures for reviewing and approving the prices and sale terms before
sale.
C. Prenumber the bills of lading and assure that the related billings are made on a
periodic basis.
D. Prepare and periodically update the lists of authorized customers.

8. Which of the following control procedures would most likely assure that access to
shipping, billing, inventory control, and accounting records is restricted to personnel
authorized by management?

A. Segregate the responsibilities for authorization, execution, and recording, and

prenumber and control the custody of documents.
B. Establish the cash receipts function in a centralized location and require a daily
reconciliation of cash receipts records and deposit slips.
C. Establish policy and procedures manuals, organization charts, and supporting
documents.
D. Periodically substantiate and evaluate the recorded account balances.

9. An entity has implemented a control procedure which requires that authorized personnel
reconcile the total of individual customer accounts receivable of the following control
objectives?

A. Sales, cash receipts, and related transactions should be recorded at the correct
amounts, in the proper period, and should be properly classified.
B. Recorded accounts receivable balances should reflect underlying transactions and
events.
C. Billings, collections, and related adjustments transactions should be posted
accurately to individual customer accounts.
D. Access to cash and cash-related records should be restricted to personnel authorized
by management.

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

10. Which of the following internal control procedures most likely would deter lapping of
collections from customers?

A. Independent internal verification of dates of entry in the cash receipts journal with
dates of daily cash summaries.
B. Authorization of writeoffs of uncollectible accounts by a supervisor who is
independent of credit approval.
C. Segregation of duties between receiving cash and posting collections to the accounts
receivable.
D. Supervisor’s comparison of the daily cash summary with the sum of cash receipts
journal entries.

11. What sequence of steps does an auditor undertake when identifying control procedures
that are potentially reliable in assessing control risk below the maximum?

A. Consider the error or frauds that might occur, determine control procedures, identify
control objectives, and design tests of controls.
B. Determine control procedures, design tests of controls, consider the errors or frauds
that might occur identify control objectives.
C. Identify control objectives, consider the errors or frauds that might occur, determine
control procedures, and design tests of controls.
D. Design tests of controls, determine control procedures, consider the errors or frauds
that might occur, and identify control objectives.

12. Assuming cash receipts from credit sales have been misappropriated, which of the
following is likely to conceal the misappropriation and unlikely to be detected?

A. Understanding the sales journal.

B. Overstating the accounts receivable control account.
C. Overstating the account receivable subsidiary ledger.
D. Overstating the cash receipts journal.

13. Which of the following is most likely to provide management with incentives to overstate
earnings?

A. Projected quarterly dividends.

B. Issuance of preferred stock.
C. Unbudgeted increase in materials prices.
D. A projected stock split.

14. Under which of the following of the following circumstances does management have
some discretion in timing the recognition of revenue?

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

A. The timing of revenues is not reasonably determinable and the earnings process is
not complete.
B. The amount and timing of revenue is reasonably determinable.
C. The earning process is complete or reasonably complete.
D. The transaction is at arm’s length.

15. After preparing a flowchart of internal control for sales and cash receipts transactions
and evaluating the design of the system, the auditor would perform tests of controls on
all control procedures

A. That are documented in the flowchart

B. That is considered to be deficiencies that might allow errors to enter the accounting
system.
C. That are considered to be strengths that the auditor plans to rely on in assessing
control risk.
D. That would help in preventing irregularities.

16. Which of the following would the auditor consider to be an incompatible operation if the
cashier receives remittances from the mail room?

A. The cashier posts the receipts to the accounts receivable subsidiary ledger.
B. The cashier makes the daily deposit at a local bank.
C. The cashier makes the daily deposit of cash collections.
D. The cashier endorses the checks.

17. Which of the following is not a universal rule for achieving control over cash?

A. Separate the cash-handling and record-keeping functions.

B. Decentralize the receiving of cash as much as possible.
C. Deposit each day’s cash receipts by the end of the day.
D. Have bank reconciliation prepared by employees who do not handle cash.

18. On conducting an audit in which point in an ordinary sales transaction of a wholesaling

business is a lack of specific authorization of least concern of the auditor?

A. Granting of credit.
B. Shipment of goods.
C. Determination of discounts.
D. Selling of goods for cash.

19. A company has computerized sales and cash receipts journals. The computer peograms
for theses journals have been properly debugged. The auditor discovered that the total
of the accounts receivable subsidiary accounts differs materially from the accounts
receivable control account. This discrepancy could indicate

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

A. Lapping of receivables.
B. Credit memoranda being improperly recorded.
C. Receivables not being properly aged.
D. Statements being intercepted prior to mailing.

20. To achieve control when there is no billing department, the billing function should be
performed by

A. Accounting department.
B. Sales department.
C. Shipping department.
D. Credit and collection department.

21. The person who opens the mail commonly prepares a remittance advice when a
customer fails to return one with the payment. Consequently, mail should be opened by

A. Credit manager.
B. Receptionist.
C. Sales manager.
D. Accounts receivable clerk.

22. Which of the following control procedures will likely prevent the concealment of a cash
shortage that was perpetrated by improperly writing off a trade account receivable?

A. Write off must be approved by a responsible officer after reviewing the credit
department’s recommendation and supporting evidence.
B. Write off must be supported by an aging schedule showing that only receivables that
are several months overdue have been written off.
C. Write off must be approved by the cashier.
D. Write off must be authorized by field sales representatives.

23. Which of the following would unlikely improve control over an entity’s cash?

A. Separate cash record keeping from the custody of cash.

B. Preparing the monthly bank reconciliation.
C. Processing of check in batches, rather than intermittently.
D. Separating cash receipts from cash disbursements.

24. Which of the following would best protect a company that wishes to prevent lapping?

A. Segregating duties so that accounting staff has no access to an incoming mail.

B. Segregating duties so that no employee has access both to checks from customers
and money from money from daily cash receipts.
C. Arrange that customer’s send payments directly to the company’s bank.

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

D. Requesting that customer checks be made payable to the company and be

addressed to the treasurer.

25. Which of the following is the greatest drawback of using subsequent collections that are
evidenced only by a deposit slip as an alternative procedure when responses to positive
accounts receivable confirmations are not received?

A. Checking of subsequent collections can never be used an alternative auditing

procedure.
B. A deposit slip is not received directly by the auditor.
C. A customer may not have made a payment on a timely basis.
D. By examining a deposit slip only, the auditor does not know whether the payment is
for the receivable at the balance sheet date or a subsequent transaction.

26. In considering internal control within the revenue/receipt cycle, what is the purpose of a
transaction walk through?

A. To gain an assurance that employees are performing assigned functions accurately.

B. To confirm the results of the auditor’s understanding of the internal control structure.
C. To select documents for detailed tests of controls.
D. To verify the results of the auditor’s sampling plan.

27. Which of these assignments of duties would least likely lead to an embezzlement or
theft?

A. Inventory warehouse manager has responsibility for making the physical inventory
observation and reconciling the discrepancies to the perpetual inventory records.
B. The cashier prepares the bank deposit, endorses the checks with the company
stamp, takes the cash and checks to the bank for deposit, and reconciles the bank
statement.
C. Accounts receivable clerk opens customer payments so he could make entries in the
customers’ accounts receivable subsidiary accounts.
D. Financial vice president receives the checks payable to suppliers and the supporting
invoices, signs the checks, and mails them to the payees.

28. Standard control procedures over customer remittances received through the mail
include the policy that requires the mailroom personnel to

A. Forward the remittances, unopened, directly to the cashier.

B. Open the mail, restrictively endorses the checks, and then prelists each remittance in
triplicate copies.
C. Forward the remittances, unopened, directly to the account receivable clerk.
D. Open the mail, restrictively endorses the checks, then, forwards the remittances
directly to the accounts receivable clerk.

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

29. After making the deposit, the daily cash summaries and the validated deposit slips
should be forwarded by the cashier directly to the:

A. Treasurer.
B. Accounts receivable clerk.
C. General accounting.
D. Internal auditor.

30. The accounting and the cash receipts functions should be handled by which
department(s)?

A. Both functions should be under the control of the company Treasurer.

B. Both functions should be under the control of the company Controller.
C. The Controller should have control of accounting functions and the treasurer should
have control of cash receipt functions.
D. The Treasurer should have control of accounting functions and the Controller should
have control of cash receipt functions.

31. When auditing cash, the auditor should mostly be concerned with:

A. Detective risk.
B. Inherent risk.
C. Adjunct risk.
D. Nonsampling risk.

32. Which of the following is most likely to indicate fraud?

A. Several overpayments are made for goods received from a supplier.

B. The year-end cash balance cash balance does not include cash in transit to the
company at year-end.
C. A check received after year end is inadvertently recorded as if received before year-
end.
D. A documented loan to an officer of the company.

33. Jolas embezzled P50,000 from the company’s account in Bank A. At year-end he
concealed the shortage by drawing a check in Bank B and deposited it in Bank A. He has
not recorded the transaction on the books. This is an example of:

A. Lapping.
B. Kiting.
C. An effective cash management.
D. Related-party transactions.

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

34. A client maintains two bank accounts. One of the accounts, Bank A, has an overdraft of
P10,000. The other account, Bank B, has a positive balance of P5,000. To conceal the
overdraft from the auditor, the client may decide to

A. Draw a check for at least P10,000 on Bank A for deposit in Bank B. Record the receipt
but not the disbursement and list the receipt as a deposit in transit. Record the
disbursement at the beginning of the following year.
B. Draw a check for P10,000 on Bank B for deposit in Bank A. Record the disbursement
but not the receipt. List the disbursement as an outstanding check, but do not list the
receipt as a deposit in transit. Record the receipt at the beginning of the following
period.
C. Draw a check for at least P10,000 on Bank B for deposit in Bank A. Record the receipt
but not the disbursement and list the receipt as a deposit in transit. Record the
disbursement at the beginning of the following year.
D. Draw a check for at least P10,000 on Bank A for deposit in Bank B. Record the
disbursement but not the receipt and list the disbursement as an outstanding check.
Record the receipt at the beginning of the following year.

35. A company has a policy of rotating employees’ assigned duties. This policy is most
important for employees who:

A. Are not bonded.

B. Maintain the detailed accounting records.
C. Handle cash receipts.
D. Have access to the general ledger.

36. Alpha company uses its sales invoices for posting to perpetual inventory records.
Inadequate internal control procedures over the invoicing function allow goods to be
shipped that are not yet invoiced. The inadequate controls could cause an

A. Understatement of revenues, receivables, and inventory.

B. Overstatement of revenues and receivables, and an understatement of inventory.
C. Understatement of revenues and receivables, and an overstatement of inventory.
D. Overstatement revenues, receivables, and inventory.

37. Which of the following control procedures may prevent the failure to bill customer for
some shipments?

A. Each shipment should be supported by a pre-numbered sales invoice that is

accounted for.
B. Each sales order should be approved by authorized personnel.
C. Sales journal entries should be reconciled to daily sales summaries.
D. Each sales invoice should be supported by a shipping document.

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

38. The most effective control for ensuring that customers are billed only for goods shipped
is to

A. Require that carriers sign properly completed bills of lading.

B. Implement a policy that prevents the mailing of sales invoices to the customers in
the absence of a properly approved shipping order and a bill of lading signed by the
carrier.
C. Require that all shipments be approved by an accounting personnel.
D. Prevent goods from leaving the warehouse without being accompanied by a signed
bill of lading and a properly approved shipping order.

39. A company policy should clearly indicate that defective merchandise returned customers
is to be delivered to the

A. Sales clerk
B. Receiving clerk.
C. Inventory control clerk.
D. Accounts receivable clerk.

40. During a review of a small business client’s internal control system, the auditor
discovered that the accounts receivable clerk approves credit memos and has access to
cash. Which of the following would be most effective in offsetting this weakness?

A. The owner reviews errors in billing to customers and postings to the subsidiary
ledgers.
B. The controller receives the monthly bank statement directly and reconciles the
checking accounts.
C. The owner reviews credit memos after they are recorded.
D. The controller reconciles the total of the detailed accounts receivable to the amount
shown in the ledger.

41. The most effective control, to prevent unbilled and unrecorded shipments to finished
goods is to

A. Require all outgoing shipments to be accompanied by a prenumbered shipping order

and bill of lading (signed by the carrier). Forward a copy of these documents to
accounting, to be placed in an open file awaiting receipt of the customer invoice
copy.
B. Forward a copy of the shipping order and bill of lading to billing.
C. Implement a policy that prevents sales invoices from being mailed to customers in
the absence of a properly approved shipping order and bill of lading signed by the
carrier.
D. Forward a copy of the signed bill of lading to the store’s manager.

42. Controls over approving credit relate to the:

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

A. Completeness assertions.
B. Rights and obligation.
C. Valuation or allocation.
D. Occurrence.

43. To determine whether internal control operates effectively to minimize errors of failure
to bill a customer for a shipment, the auditor would select a sample of transactions from
the population represented by the

A. Customer order file.

B. Shipping records file.
C. Subsidiary customer accounts ledger.
D. Sales invoice.

44. To verify that all sales transactions have been recorded, a test of transactions should be
completed on a representative sample drawn from

A. Entries in the sales journal.

B. The billing clerk’s file of sales orders.
C. A file of duplicate copies of sales invoices for which all prenumbered forms in the
series have been accounted for.
D. The shipping clerk’s file of duplicate copies of shipping documents.

45. To gather audit evidence about the proper credit approval of sales, the auditor would
select sample of documents from the population represented by the

A. Customer order file.

B. Bill of lading file.
C. Subsidiary customers’ account ledger.
D. Sales invoice file.

46. The purpose of tests of controls over sipping is to determine whether

A. Billed goods have been shipped.

B. Shipments are billed.
C. Shipping department personnel are competent.
D. Credit is approved before goods are shipped.

47. The purpose of the tests of controls over billing is to determine whether

A. Billed goods have been shipped.

B. Shipments are billed.
C. Shipping department personnel are competent.
D. Credit is approved before goods are shipped.

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

48. An effective procedure to test for unbilled shipments is to trace from the

A. Sales journal to the shipping documents.

B. Shipping documents to the sales journal.
C. Sales journal to the accounts receivable ledger.
D. Sales journal to the general ledger sales account.

49. To determine whether refunds granted to customers were properly approved, the auditor
should trace accounts receivable entries to:
A. Sales invoices.
B. Remittance advices.
C. Shipping documents.
D. Credit memos.

51. The following are four steps that an auditor undertakes in assessing control risk:

A) Determine what control procedures are used by the entities

B) Identify the system’s control objectives
C) Design tests of controls
D) Consider the potential errors or irregularities that could result

In what order would an auditor perform these steps?

A. DBAC
B. BCDA
C. BDAC
D. DCAB

51. In order for the auditors to be able to recognize potential fraud, they must be aware of
the basic characteristics of fraud. Which of the following is a characteristic of fraud?

A. Unintentional deception.
B. Taking unfair or dishonest advantage of uniformed individuals.
C. Lack of training.
D. Negligence on the part of executive management.

52. Which of the following statements bout “window dressing is correct?”

A. Window dressing involves an intentional overstatement of receivables and sales

through decreases in the percentage of completion of long-term construction
projects.
B. An audit is not intended t provide assurance of detecting any forms of window
dressing.

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

C. A number of window dressing practices represent proper and appropriate business

practices.
D. Window dressing ordinarily involves the intentional overstatement of liability and
equity accounts.

SUBSTANTIVE TESTS

53. As one of the year-end audit procedures, the auditor instructed the client’s personnel to
prepare a standard bank confirmation request for a bank account that had been closed
during the year. After the client’s treasurer had signed the request, it was mailed by the
assistant treasurer. What is the major flaw in this audit procedure?

A. The confirmation request was signed by the treasurer.

B. Sending the request was meaningless because the account was closed.
C. The request was mailed by the assistant treasurer.
D. The CPA did not sign the confirmation request before it was mailed.

54. A proof of cash is normally used

A. For all engagements

B. To test the transactions process when controls over cash are weak.
C. When control risk for cash is low.
D. When lapping is suspected.

55. To gather evidence regarding the balance per bank in a bank reconciliation, an auditor
would examine all of the following except:

A. Cut-off bank statement

B. Year-end bank statement.
C. Bank confirmation.
D. General ledger.

56. An auditor requests a cut-off bank statement primarily to:

A. Verify the cash balance reported on the bank confirmation.

B. Verify reconciling items on the client’s bank reconciliation.
C. Detect lapping.
D. Detect kiting.

57. An auditor gathers evidence regarding the validity of deposits in transit by examining the

A. Bank confirmation
B. Cut-off bank statement.
C. Year-end bank statement.

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

D. Bank reconciliations.
58. Which of the following audit procedures is most likely to detect a cash balance that is
restricted as to withdrawal?

A. Review the cut-off bank statement.

B. Prepare an interbank transfer schedule.
C. Make inquiries of management.
D. Compare cash balance with cash budget.

59. An auditor should trace bank transfers for the last part of the audit period and the first
part of the subsequent period to detect whether

A. The cash receipts journal was held open for a few days after the year-end.
B. Cash balances were overstated because of kiting.
C. The last checks recorded before the year-end were actually mailed by the year-end
D. Any unusual payments to or receipts from related parties occurred.

60. An unrecorded check issued during the last week of the year would most likely be
discovered by the auditor when the

A. Check register for the last month is received.

B. Cut-off bank statement is reconciled.
C. Bank confirmation is received.
D. Search for unrecorded liabilities is performed.

61. An auditor compares information on cancelled checks with information contained in the
cash disbursement journal. The objective of this test is to determine that

A. Recorded cash disbursement transactions are properly authorized.

B. Proper cash purchase discounts have been recorded.
C. Cash disbursements are for goods and services actually received.
D. No discrepancies exist between the date on the checks and the data in the journal.

62. Working papers ordinarily would not include

A. Initials of the in-charge auditor indicating a review of the staff assistant’s work.
B. Cut-off bank statements received directly from the banks.
C. A memo describing the preliminary review of the internal control structure.
D. Copies of the client’s inventory count sheets.

63. Which of the following auditing procedures would the auditor not apply to a cut-off bank
statement?

A. Trace year-end outstanding checks and deposits in transit to the cut-off bank
statement.

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

B. Compare dates, payees and endorsement on returned check with the cash
disbursement record.
C. Determine that the year-end deposit in transit was credited by the bank on the first
working day of the following accounting period.
D. Reconcile the bank account as of the end of the cut-off period.

64. Which of the following would be the most appropriate audit procedure to test the
processing of interbank transfers?

A. Analyze a sample of interbank transfers throughout the period including period-end

reconciliations.
B. Obtain cut-off bank statements for each bank account and reconcile them to
accounting records.
C. Send bank confirmation requests to each bank in which accounts are maintained and
reconcile the completed forms to accounting records.
D. Trace all bank deposits recorded in the accounting records near the end of the fiscal
period to their supporting documentation and to the bank statements.

65. While performing audit cash, an auditor begins to suspect kiting. Which of the following
is the best evidence that the auditor could obtain concerning whether kiting is taking
place?

A. Documentary evidence obtained by vouching entries in the cash account to

supporting documents.
B. Documentary evidence obtained by vouching credits on the latest bank statement to
supporting documents.
C. Evidence obtained by preparing a schedule of interbank transfers.
D. Oral evidence obtained through discussions with controller personnel.
66. The auditor uses of a cut-off bank statement to compare:

A. Deposits in transit on the year-end bank reconciliation to deposits in the cash

receipts journal.
B. Checks dated prior to year-end to the outstanding checks listed on the year-end bank
reconciliation.
C. Deposits listed on the cut-off statement to disbursements in the cash disbursement
journal.
D. Checks dated subsequent to year-end to the outstanding check listed on the year-
end bank reconciliation.

67. An auditor who examines check disbursements discovers a missing check number. Upon
inquiry to the person responsible for disbursements and reconciliation of the cash
account, he is told that the check number is missing because the check was voided.
What i the auitor’s next step?

A. Prepare a bank transfer schedule to identify the check.

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

B. Examine the bank confirmation t determine whether the check cleared.

C. Since the person responsible for disbursement procedures are necessary.
D. Examine the voided checks file to determine whether the checks are in the life.

68. Of the following, which procedure or documents is most effective for detecting kiting?

A. A bank cut-off statement

B. A bank statement
C. A bank kiting statement
D. Confirmation of bank balance

69. Which of the following is confirmed on the standard form used for cash balances at
financial institution?

A. Factored accounts receivable.

B. Loss contingencies.
C. Loans payable.
D. Safe deposit boxes controlled by the entity.

70. When counting cash on hand, the auditor must exercise control over all casg and other
negotiable assets to prevent

A. Theft.
B. Irregular endorsement.
C. Substitution.
D. Deposits in transit.

71. Which of the following is not a primary objective of the auditor in the tests of accounts
receivable?

A. Determining the approximate realizable value.

B. Determining the adequacy of internal control.
C. Establishing the validity of the receivables.
D. Determining the approximate time of collectability of the receivables.

72. The negative form of accounts receivable confirmation request is particularly useful
except when

A. Control procedures surrounding accounts receivable are considered to be effective.

B. A large number of small balances are involved.
C. The auditor has reason to believe the persons receiving the requests are likely to
give them consideration.
D. Individual account balances are relatively large.

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

73. A sales cut-off test complements tests of

A. Sales returns
B. Cash
C. Accounts receivable
D. Sales allowances.

74. Most part of the audit sales and collection cycle

A. Cannot be performed until the audit of cash is complete.

B. Can be performed independently of the audit of other cycles.
C. Must be performed simultaneously with the audit of the purchases and
disbursements cycle.
D. Must be performed first so that the audit of the other cycles can rely on the data.

75. The audit objective: “The accounts receivable balance represents gross claims on
customers and agrees with the sum of the accounts receivable subsidiary ledger” is
derived from the assertion of

A. Presentation and disclosure

B. Completeness.
C. Valuation or allocation.
D. Existence.

76. A shipping documents used in vouching will primarily meet the

A. Completeness assertion.
B. Valuation or allocation assertion.
C. Rights and obligation assertion.
D. Occurrence assertion.

77. A shipping documents used in tracing will primarily meet the

A. Completeness assertion.
B. Valuation or allocation assertion.
C. Rights and obligation assertion.
D. Occurrence assertion.

78. An auditor is examining accounts receivable. Which one is the most competent type of
evidence in this situation?

A. Interviewing the personnel who records accounts receivable.

B. Verifying that posting to the receivable account from journals have been made.
C. Receipt by the auditor of a positive confirmation.
D. No response received for a request for a negative confirmation.

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

79. Negative confirmation of accounts receivable is less effective than positive confirmations
of accounts receivable because

A. A majority of receipts usually lack the willingness to respond objectively.

B. Some recipients may report incorrect balances that require extensive follow-up.
C. The auditor cannot infer that all nonrespondents have verified their account
information.
D. Negative confirmations do not produce evidential matter that is statistically
quantifiable.

80. Although most substantive testing is performed during the final audit, some substantive
tests may be done during the interim period. Which of the following statements
concerning the timing of substantive test is true?

A. When internal control is weak, extensive substantive testing should be performed

during the interim audit.
B. Substantive testing should be performed during the interim audit only under
conditions of excellent internal control.
C. As a general rule, the auditor performs substantive tests of balances as of the
balance sheet date and tests of transactions during the interim as well as the year-
end audit.
D. If internal control is weak, the auditor should confirm accounts receivable as of a
point in time at least one month prior to the client’s fiscal year.

81. Before applying principal substantive tests to the detail of asset and liability accounts at
an interim date, the auditor should

A. Assess the difficulty in controlling incremental audit risk.

B. Investigate significant fluctuations that have occurred in the asset and liability
accounts since the previous balance sheet date.
C. Select only those accounts which can effectively be sampled during year-end.
D. Consider the control tests that must be applied at balance sheet date to extend the
audit conclusions reached at the interim date.

82. Confirming account receivable is required whenever:

A. They are material and it is practicable and reasonable do so.

B. They are material in amount.
C. It is practicable to do so.
D. It is reasonable to do so.

83. In the processing of accounts receivable confirmations, the auditor would not normally
be expected to:

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Marawi City

A. Reconcile the information to the corresponding customer’s account.

B. Personally deposit the requests in the mail.
C. Include his own return address envelope.
D. Personally prepare the confirmation letter.

84. The auditor should ordinarily mail confirmation requests to all banks which the client has
conducted any business during the year, regardless of the year-end balance, since

A. The confirmation form also seeks information about indebtedness to the bank.
B. This procedure will detect kiting activities which would otherwise not be detected.
C. The mailing of confirmation forms to all clients’ depository bank is required by
Philippine standards on auditing.
D. This procedure relieves the auditor of any responsibility with respect to non-detection
of forged checks.

85. An analysis of the aged accounts receivables is most directly related to which
substantive test objective?

A. Existence and occurrence.

B. Presentation and disclosure.
C. Rights and obligations.
D. Valuation.

86. The tests of balances to evaluate the adequacy of the allowance for uncollectible
account do not involve which of the following?

A. Considering the evidence concerning the collectability of past due amounts.

B. Testing the aging of the amounts shown in the aging categories on the aged trial
balance.
C. Considering the evidence concerning the collectability of current amounts.
D. Assessing the reasonableness of the percentage used to compute the allowance
component required for each aging category and the adequacy of the overall
allowance.
87. When scheduling audit work, the auditors are most likely to confirm accounts receivable
balances at interim date if:

A. Negative confirmations are being used.

B. Internal control is weak.
C. Internal control is strong.
D. There is simultaneous examination of cash and accounts payable.

88. Which of the following is the best argument against the use of negative accounts
receivable confirmations?

A. The cost-per-response is extensively high.

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DEPARTMENT OF ACCOUNTANCY
Marawi City

B. There is no way of knowing if the intended recipients actually receive them.

C. The recipients are likely to feel that in reality the confirmation is a subtle request for
payment.
D. The inference drawn from receiving no reply may not be correct.

89. Which of the following procedures least likely helps the auditors to assess the adequacy
of management’s accounting estimate of the allowance for doubtful accounts?

A. Investigate confirmation exceptions for any indication of amounts in dispute.

B. Review the accounts which have been written-off as uncollectible prior to year-end.
C. Investigate credit ratings for large accounts receivable.
D. Discuss with the credit manager the current status of the doubtful accounts.

90. Which of the following is a proper alternative audit procedure for no responses to
positive accounts receivable confirmation requests?

A. Examination of subsequent cash receipts in payment of the receivable.

B. Mailing of negative confirmation requests to nonrespondents.
C. Expansion of sample by the number of nonrespondents.
D. Reduction of accounts receivable by the amount of the responses.

91. Which of the following might be detected by an auditor’s review of the clients’ sales cut-
off?

A. Excessive gods returned for credit.

B. Unrecorded sales discounts.
C. Lapping of year-end accounts receivable.
D. Inflated sales for the year.

92. During the process of confirming receivables as of December 31, 2009, a positive
confirmation was returned indicating that the “balance owed as of December 31 was
paid by a customer on January 9, 2010.” The auditor would most likely

A. Determine whether there were any changes in the account between January 1 and
January 9, 2010.
B. Determine whether a customary discount was taken by the customer.
C. Reconfirm the zero balance as of January 10, 20101.
D. Verify that the amount was received.

93. Which of the following analytical audit findings would most likely indicate a possible
problem?

A. A material decrease in the receivables turnover.

B. A material increase in inventory turnover.
C. A material decrease in days of sales outstanding.

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Marawi City

D. A material increase in the acid test ratio.

94. When the objective of the auditor is to evaluate the appropriateness of adjustments to
sales, the best available evidence would normally be

A. Oral evidence obtained by discussing adjustment-related procedures with controller

personnel.
B. Analytical evidence obtained by comparing sales adjustments to gross sales for a
period of time.
C. Physical evidence obtained by inspection of goods returned for credit.
D. Documentary evidence obtained by inspecting documents supporting entries to
adjustment accounts.

95. Two types of accounts receivable confirmation requests are used in practice- positive
and negative. Negative confirmations are used

A. when internal control over sales and account receivable is weak.

B. only when the auditor has assessed inherent risk and control risk as low, the auditor
believes that the recipients will review the request, and a large number of small
balances are involved.
C. only when internal control over sales and accounts receivable is strong.
D. only when the auditor has assessed inherent risk and control risk as low, the auditor
believes that the recipients will review the request, and a small number of large
balances is involved.

96. In which type of evidential matter would an auditor primarily rely upon when evaluating
the collectability of accounts receivable?

A. Positive confirmation.
B. Negative confirmation.
C. Aged accounts receivable listing.
D. Management’s representations.

97. A client who wishes to inflate earnings decides to hold the sales record open beyond
year-end and record 2011 sales in 2010. Although the invoices are dated as of year-end,
the shipments were made in the following period. Moreover, the goods were included in
the ending inventory of the period under audit. Which of the following auditing
procedures would not assist in detecting this form of fraudulent financial reporting?

A. The auditor confirms accounts receivable on a positive basis as of year end.

B. The auditor examines shipping documents relating to sales recorded during the last
few days of the year.
C. The auditor examines shipping documents relating to sales recorded during the first
few days of the year following the period under audit.
D. The auditor applies analytical procedures that compare gross profit rates and sales
volume by month for the current and preceding years.

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College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

98. Which of the following substantive field work procedures provides the best evidence
about the completeness of recorded revenues?

A. Reconciling the sales journal to the general ledger control account.

B. Vouching charges made to the accounts receivable subsidiary ledgers to supporting
shipping records.
C. Vouching shipping records to the customer order files.
D. Reconciling shipping records to recorded sales.

99. Which source document should an auditor use to verify the correct sales date for an item
sold FOB shipping point?

A. Carrier’s bill of lading.

B. Customer’s payment document.
C. Customer’s purchase order.
D. Sales invoice.

100. Which of the following procedures would an auditor most likely rely on to verify
management’s assertion of completeness?

A. Review standard bank confirmations for indications of kiting.

B. Compare a sample of shipping documents to related sales invoices.
C. Observe the client’s distribution of payroll checks.
D. Confirm a sample of recorded receivables by direct communication with the debtors.

101. Which account balance is most likely to be misstated if an aging of accounts receivable
is not performed?

A. Sales revenue.
B. Sales returns and allowances.
C. Accounts receivable.
D. Allowance for bad debts.

102. Confirmation is most likely to be a relevant form of evidence with regard to assertions
about accounts receivable when the auditor has concerns about the receivables’

A. valuation.
B. classification.
C. existence.
D. completeness.

103. An auditor confirms a representative number of open accounts receivable as of

December 31, 2010, and investigates respondents’ exceptions and comments. By this
procedure, which of the following would the auditor most likely learn of?

A. One of the cashiers has been covering a personal embezzlement by lapping.

B. One of the sales clerks has not been preparing charge slips for credit sales to family
and friends.

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Marawi City

C. One of the computer department’s staff has been removing all sales invoices
applicable to his account from the data file.
D. The credit manager has misappropriated remittances from customers whose
accounts have been written off.

104. Which of the following audit objectives is not served by confirming customers’ accounts
receivable?

A. Valuation of accounts receivable as of the balance sheet date.

B. Existence of customers represented in the account receivable trial balance.
C. Completeness of customers represented in the accounts receivable trial balance.
D. Sales and accounts receivable cutoff.

105. For customers who are not responding to a first request for positive confirmation
requests, the auditor should next

A. contact the customer by telephone and attempt to confirm the balance orally.
B. analyze the subsequent remittances from the customer to see if the year end
balance has been paid.
C. send a second request for confirmation.
D. examine underlying documentation supporting the year end balance.

106. An aged trial balance of accounts receivable is usually used by the auditor to

A. verify the validity of recorded receivables.

B. ensure that all accounts are promptly credited.
C. evaluate the results of compliance tests.
D. evaluate the provision for bad debt expense.

107. An auditor reconciles the total of the accounts receivable subsidiary ledgers to the
general ledger account balance, as of December 31, 2008. Which of the following would
the auditor most likely learn?

A. An October invoice was improperly computed.

B. An October check from a customer was posted in error to the account of another
customer with a similar name.
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.

108. An auditor’s preliminary analysis of account receivable revealed the following turnover
rates:

2010 2009 2008

4.3 6.2 7.3
Which of the following is the most likely cause of the decrease in accounts receivable
turnover?

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Marawi City

A. Increase in the cash discount offered.

B. Liberalization of credit policy.
C. Shortening of due date terms.
D. Increased sales.

109. The auditor should use positive confirmation of accounts receivable:

A. When variables estimation sampling technique is not used.

B. For individual account balances that are immaterial in amount.
C. When internal controls over receivables are believed to be strong.
D. When the possibility of disputes in various accounts is greater than usual.

110. When there are a large number of relatively small account balances, negative
confirmation of accounts receivable is acceptable if internal control is

A. strong, and the individuals receiving the confirmation requests are unlikely to give
them adequate consideration.
B. weak, and the individuals receiving the confirmation requests are likely to give them
adequate consideration.
C. weak, and the individuals receiving the confirmation requests are unlikely to give
them adequate consideration.
D. strong, and the individuals receiving the confirmation requests are likely to give them
adequate consideration.

111. In the confirmation of accounts receivable, the auditor would most likely

A. request confirmation of a sample of the inactive accounts.

B. seek to obtain positive confirmations for at least 50% of the total amount of the
receivables.
C. require confirmation of all receivables from government agencies.
D. require that confirmation requests be sent a month before year-end.

112. An auditor would perform alternative procedures to substantiate the existence of

accounts receivable when

A. no reply to a positive confirmation request is received.

B. No reply to a negative confirmation request is received.
C. Collectability of the receivables is doubtful.
D. Pledging of the receivable is probable.

113. The auditors may use positive and/or negative forms of confirmation requests for
accounts receivable. An auditor most likely will use

A. the positive form to confirm al balances, regardless of size.

B. a combination of the two forms, with the positive form used for large balances and
the negative form for small balances.

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Marawi City

C. a combination of the two forms, with the positive form used for trade receivables and
the negative form for the other receivables.
D. the positive form when the control structure related to receivables are satisfactory,
and the negative form when controls are unsatisfactory.

114. Which of the following statement is correct concerning the use of negative confirmation
requests?

A. Unreturned negative confirmation requests rarely provide significant explicit

evidence.
B. Negative conformation requests are elective when detection risk is low.
C. Unreturned negative confirmation requests indicate that alterative procedures are
necessary.
D. Negative confirmation requests are effective when understatements of account
balances are suspected.

115. Which of the following might be detected by sales cutoff tests?

A. Understated receivables
B. Overstated sales
C. Kiting
D. Misappropriated inventory

116. An auditor’s purpose in reviewing credit ratings of customers with delinquent accounts
receivable most likely is to obtain evidence concerning management’s assertions about

A. valuation or allocation.
B. presentation and disclosure.
C. existence or occurrence.
D. rights and obligations.

117. In auditing accounts receivable, which of the following questions would add value to an
audit?

A. Are accounts receivables pledged?

B. Are customers satisfied with your billing procedures?
C. Are any accounts receivables due from related parties?
D. Is there a separation of duties between the recording of cash receipts and the
handling of cash?

118. Which is the most persuasive evidence to support accounts receivable (not including
the allowance for doubtful accounts)?

A. Sales invoices held by the client.

B. Written confirmation of the balances sent by the customers directly to the auditor.
C. Shipping documents held by the client, showing the peso amount of merchandise
sent to the customers.

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Marawi City

D. Deposit slips held by the client, showing the amount of cash received from customers
during the month after year-end.

119. Which of the following procedures could reveal unrecorded sales as of balance sheet
date?

A. Comparing shipping documents with sales records.

B. Applying gross profit percentages to inventory shipped during the period.
C. Tracing payments received after the balance sheet date to accounts receivable
records.
D. Sending accounts receivable confirmations.

120. Once an auditor has determined that accounts receivable have increased due to slow
collections in a “tight money” environment, the auditor would likely

A. propose an increase in the balance in the allowance for bad debts account.
B. review the going concern ramifications.
C. review the credit and collection policy
D. expand tests of collectability.

121. Customers with substantial due balances have failed to reply after a second request
had been mailed to them directly. Which of the following audit procedures is most
appropriate?

A. Examining shipping documents.

B. Reviewing cash collections during the year being audited.
C. Intensifying the study of internal controls for receivables.
D. Increasing the balance in the accounts receivable allowance account.

122. An auditor’s primary concern when performing tests of controls over purchasing is to
determine whether:

A. purchases are properly authorized.

B. purchases are properly recorded.
C. purchase orders agree to purchase requisitions.
D. purchasing personnel are performing their assigned functions properly.

123. A client erroneously recorded a large purchase twice. Which of the following control
procedures would most likely detect this error in a timely and efficient manner?

A. Footing the purchase journal.

B. Reconciling vendors’ monthly statements with subsidiary payable ledger accounts.
C. Tracing totals from the purchases journal to the ledger accounts.
D. Sending written quarterly confirmations to all vendors.

124. The accounts payable department receives a purchase order form to accomplish all of
the following except

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College of Business Administration and Accountancy
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Marawi City

A. comparing invoice price to purchase order price.

B. ensuring that the purchase had been properly authorized.
C. ensuring that the goods had been received by the party requesting the goods.
D. comparing quantity ordered to quantity purchased.

125. For effective internal control purposes, which of the following individuals should be
responsible for mailing signed checks?

A. Receptionist
B. Accounts payable clerk
C. Treasurer
D. Payroll check

126. Which of the following is a primary function of the purchasing department?

A. Authorizing the acquisition of goods.

B. Ensuring the acquisition of goods of a specified quality.
C. Verifying the propriety of goods of a specified quality.
D. Reducing expenditures for goods acquired.

127. How can an auditor determine whether the Receiving Department procedures are
applied properly?

A. Test a sample of receiving documents.

B. Observe receiving procedures on a surprise basis.
C. Review procedures manuals.
D. Interview Receiving personnel.

128. Which of the following control procedures could prevent or detect payment for goods
that have been received?

A. Counting goods when received.

B. Matching the purchase order, receiving report, and vendor’s invoice.
C. Comparing goods received with goods requisitioned
D. Verifying vouchers for accuracy and approval.

129. An internal control questionnaire indicates that an approved receiving report

accompanies every check request. To test this control, an auditor should select and
examine:

A. receiving reports, to determine that the related canceled checks are dated no earlier
than the receiving reports.
B. receiving reports to determine that the related canceled checks are dated no later
than the receiving reports.
C. canceled checks, to determine that the related receiving reports are dated no earlier
than the checks.

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Marawi City

D. canceled checks, to determine that the related receiving reports are dated no later
than the checks.

130. Omitting quantities from copies of purchase orders sent to the receiving department is
a control procedure intended mainly to

A. ensure that goods received are physically counted by receiving department

personnel.
B. identify and return damaged goods as soon as they are received.
C. provide a cross-check for verifying the accuracy of perpetual inventory records.
D. prevent theft goods by receiving department personnel.

131. Which of the following is not an appropriate activity for the treasurer’s department?

A. Prepares checks.
B. Cancels vouchers.
C. Forwards checks to vendors.
D. Prepares vouchers.

132. As a senior auditor, you are reviewing a write-up of internal control in cash receipts and
disbursements procedures. Which of the following deficiencies alone should cause you
the least concern?

A. Checks are signed by only one person.

B. Signed checks are distributed by the controller to approved payees.
C. The treasurer fails to establish bona fide names and addresses of check payees.
D. Cash disbursements are made directly out of cash receipts.

133. Matching the suppliers’ invoice, the purchase order, and the receiving report normally
should be the responsibility of the

A. receiving department.
B. accounts payable department.
C. purchasing department.
D. treasury function.

134. To avoid potential errors and irregularities, well-designed controls in the accounts
payable area should include a separation of which of the following functions?

A. Cash disbursements and vendor invoice verification.

B. Vendor invoice verification and merchandise ordering.
C. Physical handling of merchandise received and preparation of receiving reports.
D. Check signing and cancellation of payment documentation.

135. Which of the following is a necessary control procedure for cash disbursements?

A. Checks should be signed by the controller and at least one other employee of the
employee.

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Marawi City

B. Checks should be sequentially numbered, and the numerical sequence should be

accounted for by the person preparing the bank reconciliation.
C. Checks and supporting documents should be marked “paid” immediately after the
check is returned with the bank statement.
D. Checks should be sent directly to the payee by the employee who prepares
documents that authorizes check preparation.

136. Which of the following functions is not appropriate for the accounts payable
department?

A. Comparing purchase requisitions, purchase orders, receiving reports, and vendors’

invoices.
B. Preparing purchase orders.
C. Preparing voucher and daily summary.
D. Filing voucher package by due date.

137. The accounts payable department generally should

A. cancel supporting documentation after a cash payment is mailed.

B. approve the price and quantity of each purchase requisition.
C. assure that the quantity ordered is omitted from the receiving department’s copy of
the purchase order.
D. agree the vendor’s invoice with the receiving report and purchase order.

138. When goods are received, the receiving clerk should match the goods with the

A. purchase order and requisition.

B. vendor’s invoice and the receiving report.
C. vendor’s shipping document and the purchase order.
D. receiving report and the vendor’s shipping documents.

139. To improve control over merchandise purchases, a company’s receiving department

should

A. accept merchandise only if an approved purchase order is on hand.

B. accept and count all merchandise received from known vendors.
C. rely on shipping documents to prepare receiving reports.
D. be responsible for handling merchandise but not for preparing receiving reports.

140. To assure that disbursements are neither improper nor inaccurate, an entity should
require that all checks be

A. signed by an officer after supporting documentation has been examined.

B. reviewed by the treasurer before mailing.
C. numbered sequentially and accounted for by internal auditors.
D. canceled when they are returned with the bank statement.

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College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

141. The mailing of disbursement checks and remittance advices should be controlled by the
employee who

A. signs the checks last.

B. approves the vouchers for payment.
C. matches the receiving reports, purchase orders, and vendor invoices.
D. verifies the mathematical accuracy of the vouchers and remittance advice.

142. Expenditure/disbursement cycle begins with requisitions from user departments and
ends with the receipt of materials and the recognition of a liability. An auditor’s primary
objective in reviewing the cycle is to:

A. obtain an understanding of the client’s prescribed policies and procedures sufficient

to plan the audit.
B. investigate the handling and recording of unusual acquisitions.
C. consider the need to increase substantive tests of purchases and accounts payable.
D. assure that the materials orders, received, and paid for are actually on hand.

143. Which of the following control questions relates to the existence and occurrence
objective in purchasing and accounts payable?

A. Are the purchase order forms prenumbered and the numerical sequence checked for
missing documents?
B. Does the accounting department check invoices for mathematical accuracy?
C. Does the chart of accounts and accounting manual give instructions for classifying
debit entries?
D. Are receiving reports prepared for each item received?

144. The purchasing department:

A. Should obtain competitive bids from vendors.

B. Should inspect incoming goods and forward them to the receiving department.
C. Should inspect vendor invoices and forward them to the accounting department.
D. All of the given choices are correct.

145. To adequately provide for the segregation of duties, the purchase requisitions for
regular inventory stock should be initiated by which of the following departments?

A. Purchasing department.
B. Sales department.
C. Warehouse.
D. Shipping.

146. In a properly designed accounts payable system, a voucher is prepared after the
invoice, purchase order, requisition, and receiving report are verified. The next step in
the system is to

A. Cancel the supporting document.

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DEPARTMENT OF ACCOUNTANCY
Marawi City

B. Enter the check amount in the check register.

C. Approve the voucher for payment.
D. Post the voucher amount to the expense ledger.

147. Which of the following is an internal control procedure that would prevent a paid
disbursement voucher from being presented for payment a second time?

A. Vouchers should be prepared by individuals who are responsible for signing

disbursement checks.
B. Disbursement vouchers should be approved by at least two responsible management
officials.
C. The date on a disbursement voucher should be within a few days of the date the
voucher is presented for payment.
D. The official signing the check should cancel the paid voucher after examining the
documentation supporting the disbursement.

148. Which of the following may be considered an appropriate means for further testing
controls over vendor payments?

A. Confirm year-end balances with vendors.

B. Search for unrecorded invoices at year-end.
C. Develop a set of hypothetical transactions designed to test existing controls over
vendor payments (e.g., introduce into the system, a voucher containing an invoice
for raw materials but lacking a purchase order and/or receiving report.
D. Construct an internal control flowchart covering the payment processing function.

149. Which of the following would be the best procedure to determine whether purchases
were properly authorized?

A. Discuss authorization procedures with personnel in the controller’s and purchasing

functions.
B. Review and evaluate a flowchart of purchasing procedures.
C. Determine whether a sample of entries in the purchase journal is supported by
properly executed purchase orders.
D. Vouch payments for selected purchases to supporting receiving reports.

150. In examining liabilities of a company, what is the auditor’s primary concern?

A. Completeness.
B. Presentation.
C. Rights.
D. Valuation.

151. Purchase cutoff procedures should be designed to test that merchandise is included in
the inventory of the client when the client:

A. Has paid for the merchandise.

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Marawi City

B. Has physical possession of the merchandise.

C. Holds legal title to the merchandise.
D. Holds the shipping documents for the merchandise issued in the company’s name.

152. When the auditors discover an overstatement of accounts payable, they would most
likely expect to find an overstatement of:

A. Accrued liabilities.
B. Inventory.
C. Retained earnings.
D. Revenues.

153. An auditor usually examines receiving reports that support entries in the:

A. Voucher register and sales returns journal.

B. Sales journal and sales returns journal.
C. Voucher register and sales journal.
D. Check register and sales journal.

154. For which of the following transactions would an auditor most likely propose an
adjustment to the financial statements?

A. Inventory is included on the balance sheet at year-end, but the check for payment
has not been paid until January 12.
B. An order for office supplies that has not been recorded because the goods have
neither been received nor paid for by year-end.
C. Purchase of P5,000 of office furniture that was ordered on December 22 with a
P1,000 deposit being made with an entry debiting “deposit on furniture” for P1,000
and a credit to cash for P1,000. The office furniture was received on January 5.
D. Shop supplies are included on the balance sheet at year-end, but the payable and
subsequent cash disbursements are not recorded until after year-end.

155. Only one of the following four statements which compare confirmation of accounts
payable with suppliers and confirmation of accounts receivable with customers is true.
The true statement is that

A. confirmation of accounts payable with suppliers is a more widely accepted auditing

procedure than is confirmation of accounts receivable with customers.
B. it is less likely that the confirmation request sent to the supplier will show the amount
owed him or her than that the request sent to the customer will show the amount
due from him or her.
C. statistical sampling techniques are more widely accepted in the confirmation of
accounts payable than in the confirmation of accounts receivable.
D. compared to the confirmation of accounts payable, the confirmation of accounts
receivable will tend to emphasize accounts with zero balances at the balance sheet
date.

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Marawi City

156. Confirmation of accounts payable balances is

A. usually performed at interim dates rather than at year-end.

B. not effective in testing for unrecorded liabilities.
C. particularly useful when the auditor suspects liabilities may be materially
understated.
D. required by generally accepted auditing standards.

157. Which of the following is true about the audit procedure of confirming accounts
payable?

A. Confirmation of payables is most appropriate when the auditor expects

understatement errors.
B. It is not productive to mail second requests.
C. The auditor is not required by current professional pronouncements to justify his or
her opinion on financial statements when payables are not confirmed.
D. Payables are usually confirmed as of an interim date.

158. Which of the following best explains why accounts payable confirmation procedures are
not always used?

A. Inclusion of representations on accounts payable in the client representation letter

eliminates the need in most situations.
B. Accounts payable generally are immaterial and may be audited through using
analytical procedures.
C. Creditors will press for payment when they receive the confirmation.
D. Confirmations are better at identifying overstatements than understatements, and
overstatements are not typically the major concern with accounts payable.

159. Which of the following audit procedures is not designed primarily to test for the
correctness of purchases and sales cutoff?

A. Observe shipping and receiving areas during physical inventory observation and
relate goods to the last receipt and shipment for the year. Determine that these are
the final entries in the purchases and sales records for the year.
B. Examine sales and purchases invoices for a few days before and after year end.
Compare with dates of receipt and shipment with freight terms to determine that the
transactions were recorded in the proper accounting period.
C. Record last document numbers (sales invoice, voucher, check, receiving report) for
the year and relate to goods in shipping and receiving areas at year end.
D. Trace client’s unit costs to the auditor’s copies of audited price lists.

160. Which of the following procedures relating to the audit of accounts payable could the
auditor delegate entirely to the client’s employee?

A. Testing footings in the accounts payable ledger.

B. Reconciling unpaid invoices to vendor’s statements.

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College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

C. Preparing a schedule of accounts payable.

D. Mailing confirmations for selected account balances.

161. Assume an auditor’s interim consideration of internal control in the

expenditure/disbursement cycle reveals that control risk can be assessed below the
maximum and detection risk above the minimum for some assertions. Based on the
foregoing, which of the following is true about the substantive tests applied to accounts
payable?

A. The auditor is more apt to confirm payable balances.

B. The auditor is less apt to perform substantive tests at the balance sheet date.
C. The auditor is more apt to increase the extent of substantive tests.
D. The auditor is more apt to ignore the risk of incorrect acceptance when sampling
accounts payable.

162. Which of the following procedures would help an auditor test for overstatements of
accounts payable at the balance sheet date?

A. Trace entries in the cash disbursements records to items in the accounts payable trial
balance.
B. Agree items in the file of unmatched receiving reports to the accounts payable
balance.
C. Trace items in the accounts payable trial balance to documentation contained in
canceled voucher packages.
D. Coordinate cutoff tests performed for receiving and for shipping.

163. In testing cutoff for purchases and payables as December 31, an auditor is confronted
with the following four scenarios. Which of the four most likely represents a cutoff error,
requiring that the auditor propose an adjusting journal entry?

A. Shipping terms are FOB shipping point. Goods were shipped on December 31. The
purchase was recorded on December 31.
B. Shipping terms are FOB destination. Goods were shipped on December 31. The
purchase was recorded on December 31.
C. Shipping terms are FOB shipping point. Goods were shipped on January 2. The
purchase was recorded on January 4.
D. Shipping terms are FOB destination. Goods were shipped on December 31. The
purchase was recorded on January 2.

164. When an auditor selects a sample of items form the vouchers payable register for the
last month of the period being audited and traces the items to underlying documents,
the auditor is gathering evidence primarily in support of the assertion that

A. Recorded obligations were paid.

B. Incurred obligations were recorded in the correct period.
C. Recorded obligations were valid.
D. Cash disbursements were recorded as incurred obligations.

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College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

165. Which of the following audit procedures is the most efficient for detecting unrecorded
liabilities at the balance sheet date?

A. Confirming large accounts payable balances at the balance sheet date.

B. Comparing cash disbursements in the subsequent period with the accounts payable
trial balance at year end.
C. Examining purchase orders issued for several days prior to the close of the year.
D. Obtaining a letter from the client’s attorney.

166. Unrecorded liabilities are most likely to be found during the review of which of the
following documents?

A. Unpaid bills
B. Bills of lading
C. Shipping records
D. Unmatched sales invoices

167. Which of the following is not a step in the search for unrecorded liabilities?

A. Examine the open purchase order file.

B. Examine disbursements for the period immediately before the end of the period.
C. Examine the unmatched receiving reports.
D. All of the given choices are steps searching unrecorded liabilities.

168. To determine whether accounts payable are complete, an auditor performs a test to
verify that all merchandise received is recorded. The population of documents for this
test consists of all:

A. Vendor’s invoices.
B. Receiving reports.
C. Purchase orders.
D. Canceled checks.

169. Which of the following audit procedures is best for identifying unrecorded trade
accounts payable?

A. Reviewing cash disbursements recorded subsequent to the balance sheet date to

determine whether the related payables apply to the prior period.
B. Investigating payables recorded just prior to and just subsequent to the balance
sheet date to determine whether they are supported by receiving reports.
C. Examining unusual relationships between monthly accounts payable balances and
recorded cash payments.
D. Reconciling vendors’ statements to the file of receiving reports to identify items
received just prior to the balance sheet date.

170. Which of the following procedures is least likely to alert the auditors to unrecorded
accounts payable?

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College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

A. Confirmation of accrued liabilities.

B. Reconcile recorded liabilities with monthly statements from creditors.
C. Examine disbursement transactions recorded following year end.
D. Analytical procedures involving year-end accounts payable.

171. An audit procedure applicable to testing the year-end cutoff of liabilities is

A. Tracing recorded liabilities to supporting documents.

B. Preparing an aging schedule for accounts payable.
C. Receiving the general journal for unusual entries recorded immediately after year-
end.
D. Examining vendor invoices received subsequent to year-end for shipment date and
terms of shipment.

172. The audit procedures applied to accrued liabilities differ from those applied to accounts
payable because

A. Accrued liability balances are less material than accounts payable balances.
B. Evidence supporting accrued liabilities is nonexistent, whereas evidence supporting
accounts payable is readily available.
C. Accrued liabilities usually pertain to services of a continuing nature, whereas
accounts payable are the result of completed transactions.
D. Accrued liabilities at year-end will become accounts payable during the following
year.

173. Accrued liabilities generally differ from accounts payable in that accrued liabilities:

A. Accumulate over time.

B. Are usually confirmed at year-end.
C. Can be found by a review of unpaid invoices.
D. Are never included in cost of goods sold.

174. Which of the following best describes the auditors’ approach to the audit of accrued
liabilities?

A. Confirmation.
B. Observation.
C. Plan a low assessed level of control risk.
D. Test computations.

175. Inventory should be recorded when

A. The company has title to it.

B. When it is received.
C. When the related revenue is recognized.
D. When it is shipped from the vendor.

176. The overall production authorization starts with a

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College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

A. Purchase order.
B. Production plan.
C. Sales forecast.
D. Bill of materials.

177. The source of authorization for preparation of materials requisitions is

A. Bill of materials.
B. Purchase order.
C. Production plan.
D. Sales forecast.

178. Comparing material usage reports to raw material stores issue slips is a control to help
insure which assertion?

A. Existence and occurrence.

B. Completeness.
C. Rights and obligations.
D. Valuation or allocation.

179. Client’s inventory instructions should include all the following except

A. Names of client personnel responsible for the count.

B. Instructions for recording accurate descriptions.
C. Instructions for auditors’ test counts.
D. Plans for controlling movement of goals.

180. Tracing a test count to the inventory compilations provides evidence for which
assertion?

A. Existence and occurrence.

B. Completeness.
C. Valuation or allocation.
D. Presentation and disclosure.

181. Which of the following least likely serves as a substitute for performing other audit
procedures?

A. The physical observation of the counting of company inventory.

B. Sending letters to debtors or creditors of the company to confirm amount the
company owes or is owed, respectively.
C. Tracing an amount on the financial statements back through the accounting system
to the underlying supporting documentation.
D. Obtaining a representation letter signed by top management.

182. Which of the following is an internal control weakness for a company whose inventory
of supplies consists of a large number of individual items?

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

A. Supplies of relatively little value are expensed when purchased.

B. The cycle basis is used for physical counts.
C. The storekeeper is responsible for maintenance of perpetual inventory records.
D. Perpetual inventory records are maintained only for items of significant value.

183. An auditor would most efficiently test for the misclassification of capital acquisitions as
expenses by

A. Taking a physical tour of plant facilities before starting an audit.

B. Reviewing company capital acquisition policies with purchasing personnel.
C. Tracing capital additions back to source documents.
D. Scanning repair and maintenance records and investigating large peso-value entries.

184. Ordinarily, are auditors more concerned with an under- or overstatement of ending
inventory? And why?

A. Overstatement, because net income would be overstated also.

B. Understatement, because net income would be overstated.
C. Overstatement, because this would indicate that liabilities are likely to be
understated.
D. Understatement, because this would indicate that liabilities are likely to be
understated.

185. In conjunction with the observation of the client’s physical inventory, the auditors
should:

A. Plan the physical inventory.

B. Segregate damaged and obsolete goods.
C. Supervise the client’s personnel.
D. Evaluate the adequacy of the client’s counting procedures.

186. An auditor has accounted for a sequence of inventory tags and is now tracing
information on a representative number of tags to the inventory summary sheets.
Which assertion does this procedure relate to most directly?

A. Completeness.
B. Existence.
C. Presentation.
D. Valuation.

187. An inventory turnover analysis most likely helps the auditors to detect:

A. inadequacies in inventory pricing.

B. methods of avoiding cyclical holding cost.
C. optimum automatic reorder points.
D. obsolete merchandise.

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

188. During an audit of a non-public entity, which of the following is primarily an overall
audit approach to audit plant assets and equipment by a continuing auditor?

A. Analysis and inquiry.

B. Direct tests of year-end ending balances.
C. Tests of controls.
D. Tests of transactions during the year.

[Link] of the following is the legitimate reason why a responsible party would have
difficulty estimating environmental cleanup costs?
A. Possible as yet unknown contamination.
B. Possible future legislation.
C. Possible insurance recoveries.
D. Possible preexisting contamination.

[Link] of the following statements concerning plant assets is not correct?

A. Few transactions ordinarily occur.
B. Typically there is little change in accounts from year to year
C. Plant assets need to be tightly controlled to prevent defalcation.
D. Year-end cutoff of plant assets has no effect net income.

[Link] auditor has found many new assets on the plant floor, which coincides with an
increase in the equipment subsidiary ledger. However, the auditor has noticed that
lease payments are being made to an equipment leasing company. The auditor
should primarily be concerned with which financial statement assertion?
A. Few transactions ordinarily occur.
B. Typically there is little change in accounts from year to year
C. Plant assets need to be tightly controlled to prevent defalcation
D. Year-end cutoff of plant assets has no effect net income.

[Link] accuracy of perpetual inventory records may be established in part by

comparing perpetual inventory records with
A. Purchase requisitions
B. Receiving reports
C. Purchase orders
D. Vendor payments

[Link] auditing merchandise inventory at year end, the auditor performs a purchase
cutoff test to obtain evidence that
A. All goods purchased before year end are received before the physical inventory
count
B. No goods held on consignment for customers are included in the inventory
balance.
C. No goods observed during the physical count are pledged or sold.

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College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

D. All goods owned at year end are included in the inventory balance.

194.A client’s physical count of inventories was higher than the inventory quantities per
the perpetual records. This situation could be the result of the failure to record:
A. Sales
B. Sales discounts
C. Purchases
D. Purchase returns
[Link] of the following audit procedures is not appropriate for addressing the
assertion of valuation?
A. Verifying accounts payable trial balance
B. Confirming with creditors
C. Testing for unrecorded liabilities
D. Performing analytical procedures

[Link] there are few property and equipment transactions during the year, the
continuing auditor usually makes a
A. Complete review of the related internal controls and assesses control risk relative
to them.
B. Complete review of the related internal controls and performs analytical review
tests to verify current year additions to property and equipment.
C. Preliminary review of the related internal controls and performs a thorough
examination of the balances at the beginning of the year.
D. Preliminary review of the related internal controls and performs extensive tests of
current year property and equipment transactions.

[Link] analyzing the plant assets, account, why is the examination of repairs and
maintenance records important?
A. Rights
B. Existence
C. Valuation
D. Presentation and disclosure.

[Link] examining the miscellaneous revenue account, an auditor discovers income from
plant assets. What should be a primary audit concern?
A. That such assets have been removed from the ledger of property owned.
B. That such assets are not available for physical examination
C. That the assets sold were fully depreciated prior to the decision to sell them.
D. That such assets have been replaced by comparable equipment.

[Link] of the following statements is not correct concerning intangible assets?

A. Auditors review the reasonableness of the client’s amortization program.
B. A lack of physical substance.
C. Valuation is a primary audit concern.
D. Proper presentation as current assets.

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

[Link] performing an audit of the property, plant, and equipment accounts, an

auditor should expect which of the following to be most likely to indicate a departure
from generally accepted accounting principles?
A. A gain was recognized when a new asset was acquired at a price lower than its
listed retail price.
B. Interest has been capitalized for self-constructed equipment.
C. Assets have been acquired from affiliated corporations with the related
transactions recorded and described in the financial statements.

[Link] auditors are least likely to learn of retirements of equipment through which of
the following?
A. Review of the purchase returns and allowances account
B. Review of depreciation
C. Analysis of the debits to the accumulated depreciation account
D. Review of insurance policy riders.

202.A weakness in internal accounting control over the recording of retirements of

equipment may cause the auditor to
A. Inspect certain items of equipment in the plant and trace those items to the
accounting records
B. Review the subsidiary ledger to ascertain whether depreciation was taken on
each item of equipment during the year.
C. Trace additions to the “other assets” account to search for equipment that is still
on hand but no longer being used.
D. Select certain items of equipment from the accounting records and locate them in
the plant.

[Link] auditing inventories of raw materials, purchased parts, and/or merchandise

inventory, the auditor’s most effective means for evaluating the valuation assertion
is to
A. Examine recent invoices from vendors, along with freight bills and compare with
client’s unit costs, as adjusted for freight and discount.
B. Compare purchases with prior year and with industry averages and account for
significant fluctuations
C. Trace quantities from tags or count sheets to final inventory listings.
D. Scan inventory listings for large extended amounts, and trace related quantities
to auditor’s copy of the inventory tag or listing.

[Link] auditor tests the quantity of materials charged to work in process by tracing
these quantities to
A. Cost ledgers
B. Perpetual inventory records
C. Receiving reports
D. Material requisitions.

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

[Link] of the following accounts would most likely be reviewed by the auditor to gain
reasonable assurance that additions to the equipment account are not understated?
A. Repairs and maintenance expense
B. Depreciation expense
C. Gain on disposal of equipment
D. Accounts payable.

[Link] most significant audit step in substantiating additions to the office furniture
account balance is
A. Examination of vendors’ invoices and receiving reports for current year’s
acquisitions
B. Review of transactions near the balance sheet date for proper period cutoff.
C. Calculation of ratio of depreciation expense to gross office equipment cost.
D. Comparison to prior year’s acquisition.

[Link] of taking a physical inventory count on the balance sheet date, the client
may take physical counts prior to the year-end of internal controls are adequate and
A. Computerized records of perpetual inventory are maintained
B. Inventory is slow moving
C. CBIS error reports are generated for missing pre-numbered inventory tickets.
D. Obsolete inventory items are segregated and excluded.

[Link] of the following is not one of the independent auditor’s objectives regarding
the audit of inventories?
A. Verifying that inventory counted is owned by the client
B. Verifying that the client has used proper inventory pricing
C. Ascertaining the physical quantities of inventory on hand
D. Verifying that all inventory owned by the client is on hand at the time of the
count.

[Link] auditor is verifying the existence of newly acquired fixed assets recorded in the
accounting records. Which of the following is the best evidence to help achieve this
objective?
A. Documentary support obtained by vouching entries to subsidiary records and
invoices.
B. Physical examination of a sample of newly recorded fixed assets.
C. Oral evidence obtained by discussions with operating management.
D. Documentary support obtained by reviewing titles and tax returns

[Link] of the following procedures is most relevant to testing the completeness

assertion for prepaid insurance?
A. Testing whether insurance coverage exceeds the replacement value of insured
tangible property
B. Confirming insurance policies with carriers

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

C. Reconciling premium payments with cash disbursement records

D. Agreeing total expense and unexpired premiums with the general ledger.

[Link] a manufacturing company, which of the following audit procedures would give the
least assurance of the valuation of inventory at the audit date?
A. Testing the computation of standard overhead rates.
B. Examining paid vendor’s invoices.
C. Reviewing direct labor rates
D. Obtaining confirmation of inventories pledged under loan agreements

[Link] perpetual inventory records are maintained in quantities and in pesos, and
internal accounting control over inventory is weak, the auditor would probably
A. Want the client to schedule the physical inventory count at the end of the year
B. Insist that the client perform physical counts of inventory items several times
during the year
C. Increase the extent of tests for unrecorded liabilities at the end of the year
D. Have to disclaim an opinion on the income statement for that year.

[Link] auditing plant assets and accumulated depreciation for proper valuation, the
auditor should do all of the following except:
A. recalculate depreciation expense on a test basis
B. Physically inspect major plant assets additions
C. Vouch major additions by reference to underlying documentation
D. Vouch repairs and maintenance on a test basis

214. To verify the proper value of costs charged to real property records for
improvements to the property, the best source of evidence would be:
A. Inspection by the auditor of real property improvements
B. A letter signed by the real property manager asserting the propriety of costs
incurred
C. Original invoices supporting entries into the accounting records
D. A comparison of billed amounts to contract estimates.

[Link] auditor has accounted for a sequence of inventory tags and is now going to trace
information on a representative number of tags to the physical inventory sheets. The
purpose of this procedure is to obtain assurance that
A. The final inventory is valued at cost
B. All inventory represented by an inventory tag is listed on the inventory sheets
C. All inventory represented by an inventory tag is bona fide
D. Inventory sheets do not include untagged inventory items.

[Link] auditor analyzes repairs and maintenance accounts primarily to obtain evidence
in support of the audit assertion that all
A. Non-capitalizable expenditures for repairs and maintenance have been properly
charged to expense

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College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

B. Expenditures for property and equipment have not been charged to expense
C. Non-capitalizable expenditures for repairs and maintenance have been recorded
in the proper period.
D. Expenditures for property and equipment have been recorded in the proper
period.
[Link] auditor may conclude that depreciation charges are insufficient by noting
A. Large amounts of fully depreciated assets.
B. Continuous trade ins of relatively new assets.
C. Excessive recurring losses on assets retired.
D. Insured values greatly in excess of book values.

[Link] test the accuracy of the current year’s depreciation charges, an auditor should
rely most heavily on
A. Vouching of the current year’s fixed asset acquisitions
B. Comparison of depreciation schedule detail with schedules supporting the income
tax returns.
C. Tracing of totals from the depreciation schedule to properly approved journal
entries and ledger postings.
D. Recomputation of depreciation for a sample of plant assets.

[Link] performing an audit on the existence of inventory contained in a warehouse, an

auditor is primarily concerned with
A. Observing and testing the number of units on hand.
B. Determining if the value of the inventory is reasonable.
C. Identifying the ownership of the inventory.
D. Locating slow moving items contained in inventory.

[Link] of the following audit procedures would provide the least reliable evidence
that the client has legal title to inventories?
A. Confirmation of inventories at locations outside the client’s facilities.
B. Analytical review of inventory balances compared to purchasing and sales
activities.
C. Observation of physical inventory counts.
D. Examination of paid vendor’s invoices.

[Link] auditor wants to develop an audit test to evaluate the reasonableness of the
quantity of scrap material resulting from a certain production process compared to
industry standards. Which would be the most competent type of evidence available
to satisfy this objective?
A. Documentary
B. Indirect testimony
C. Physical
D. Analytical

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

[Link] of the following controls would be the most appropriate means to ensure that
terminated employees had been removed from the payroll?
A. Mailing checks to employees’ residents
B. Establishing direct-deposit procedures with employees’ banks.
C. Reconciling payroll and time-keeping records.
D. Establishing computerized limit checks on payroll rates.

[Link] of the following departments should have the responsibility for authorizing
payroll rate changes.
A. Human Resources
B. Payroll
C. Treasurer
D. Timekeeping

[Link] internal control over the payroll function should include which of the
following?
A. Total time recorded on time clock cards should be reconciled to job reports by
employees responsible for those specific jobs.
B. Payroll department employees should be supervised by the management of the
human resources department
C. Payroll department employees should be responsible in maintaining the
personnel records.
D. Total time spent on jobs should be compared to the total number of hours
indicated on time clock cards.

[Link] purpose of segregating the duties of hiring personnel and distributing payroll
checks is to separate the
A. Administrative controls from the internal accounting controls.
B. Human resources function from the controllership function.
C. Operational responsibility from the record keeping responsibility.
D. Authorization of transactions from the custody of related assets.

[Link] auditor would consider internal control procedures relating to a client’s payroll
procedures to be ineffective if the payroll department supervisor is responsible for
A. Hiring subordinate payroll department employees.
B. Having custody over unclaimed paychecks.
C. Updating employee earnings records.
D. Applying pay rates to time tickets.

[Link] human resources department receives an edit listing of payroll changes

processed at every payroll cycle. If they do not verify the changes processed, this
could result in:
A. Undetected errors in payroll rates for new employees
B. Inaccurate social security deductions
C. Labor hours charged to the wrong account in the cost reporting system

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

D. Employees not being asked if they want to contribute to the company pension
plan.

[Link] in the finance and investment cycle include

A. Probability of a correlated hedge
B. Classification of equity investments
C. Actuarial assumptions for pension costs
D. All of the given choices are correct.

[Link] marketable securities provides primary evidence about the assertion of

A. Existence
B. Rights and obligations
C. Valuation
D. All of the above.

[Link] market prices are not readily available for fair value measurements, management
should use
a. Auditor’s best estimates
b. Historical cost
c. Their own assumptions as long as there are no contrary data
d. The previous year’s value

[Link] impairment refers to

A. Loss of trust from customers
B. The amount of amortization
C. A permanent decline in value of recorded goodwill.
D. A need for increased professional skepticism.

[Link] over making estimates include all of the following except

A. Management communication of the need for proper accounting estimates
B. Comparison of prior estimates with subsequent results
C. Consideration of whether estimates are consistent with the company’s
operational plans.
D. Ensuring the effects of the estimates are in line with analysts forecasts.

[Link] of the following is least likely to be included in the audit program for
debenture bonds?
A. Examine security pledged relating to the loan
B. Confirm
C. Review bonds paid during the period
D. Perform analytical procedures.

[Link] auditor has calculated the interest paid on a company’s recorded bonds and
found the interest paid was 10%, in examining the bonds he notes that they are 8%
bonds sold without a premium or a discount. Which of the following is most likely?

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 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

A. Understand debt outstanding

B. Understated interest expense
C. Overstated common stock
D. Overstated accrued interest receivable.

[Link] audit found that P10,000,000 of long term debt on the financial statement
assertion that must be addressed in determining that the proper amount of debt is
included as current is:
A. Existence
B. Completeness
C. Rights
D. Presentation

[Link] of capital stock and large debt financing transactions are usually authorized by
A. The transfer agent
B. The shareholders
C. The board of directors
D. Management

[Link] a large publicly traded client the auditor’s examination of capital stock account
will not ordinarily include:
A. Analysis of capital stock accounts
B. Confirmation of shares issued with the independent registrar
C. Accounting for the proceeds of a major stock issuance
D. Reconciliation of a stock certificate book with the general ledger

[Link] audit program for the examination of the retained earnings account should
include a step that requires the verification of the:
A. Market value used to charge retained earnings to account for a two-for-one stock
split
B. Approval of the adjustment of the beginning balance as a result of a write-down
of an account receivable
C. Authorization for both cash and stock dividends
D. Gain or loss resulting from disposition of treasury shares.

[Link] verifying dividend amounts paid, an auditor will typically do all except which
of the following?
A. Determine dates and amounts of dividends paid
B. Send confirmations to shareholders to verify payments
C. Examine arrearages of preferred stock dividends
D. Examine treatment of unclaimed dividends.

[Link] a corporation has convertible debentures or stock options, which of the

following procedures should the auditory perform?
A. Verify that dividends paid are being held in a secured account

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College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

B. Determine that enough shares are held in reserve to fulfill the obligations
C. Determine that all stock options and convertible debentures have been recorded
in the stockholder ledger
D. Confirm options and debentures with stock transfer agent.

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