Annotation by Jan, CPA
Page 1 of 12 | First Preboards
AUDITING (AUD)
MAY 2025 BATCH
REO CPA REVIEW
AUDITING
FIRST PREBOARDS – MAY 2025 BATCH
AT Answer Key:
1 D 11 B 21 A 31 B 41 C 51 D 61 D
2 B 12 D 22 D 32 B 42 D 52 A 62 B
3 C 13 C 23 A 33 A 43 D 53 B 63 C
4 D 14 B 24 B 34 D 44 C 54 C 64 A
5 B 15 C 25 D 35 D 45 A 55 B 65 A
6 A 16 C 26 B 36 D 46 C 56 C 66 D
7 B 17 B 27 A 37 C 47 C 57 B 67 C
8 C 18 B 28 D 38 C 48 C 58 D 68 D
9 A 19 A 29 D 39 A 49 B 59 D 69 C
10 C 20 A 30 C 40 D 50 B 60 C 70 B
1. Statement 1: The members are appointed by the Commission. FALSE, president.
Statement 2: The Board submits 3 recommendees to the Commission based on a list of
nominees. FALSE, APO submits 5 nominees to the Commission
Statement 3: The APO will submit five nominees for each position to the Board.
FALSE, submit to PRC
A. Only one statement is correct
B. Only two statements are correct
C. All statements are correct
D. All statements are incorrect
2. All of the following are qualifications to be appointed to the Board. Which one is
not?
A. Filipino citizenship (natural-born) and residence
B. Must not be a member (not an officer or director) of the APO at the time of
appointment
C. Ten (10) years of experience as a CPA in any scope of practice
D. Must not be convicted of crimes involving moral turpitude
3. All of the following are grounds for suspension or removal of members of the board,
except
A. Neglect of duty or incompetence
B. Final judgment of crimes involving moral turpitude
C. Having a pecuniary interest, directly or indirectly, in any school, college or
university. This is not a ground for suspension, but for DISQUALIFICATION
D. Violation or tolerance of any violation of RA 9298 and its implementing rules and
regulations or the Certified Public Accountant’s Code of Ethics and the technical
and professional standards of practice for certified public accountants
4. All of the following bodies comprise a chairperson and 6 members. Which one is not?
A. Board of Accountancy
B. Quality Review Committee
C. Education Technical Council
D. Auditing and Assurance Standards Council (18 members)
5. How many members of AASC are needed to approve the exposed draft or Philippine
standards in Auditing as Philippine Standards on Auditing?
A. At least eight
B. At least ten
C. Majority of the regular members (this is the 2nd correct answer, since 10 is same
to majority)
D. At least twelve
6. Which of the following statements is correct?
A. The Board shall be under the administrative supervision of the Commission.
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B. The Board shall submit an annual report to the President of the Philippines through
the Securities and Exchange Commission (PRC) at the close of each calendar year.
C. All records of the Board, including applications for examination, examination
questions, answer sheets, and other records and documents pertaining to the CPA
licensure examination, and administrative and other investigative cases conducted
by the Board shall be under the custody of the Board. Custody of the PRC
D. The Accredited National Professional Organization (PRC) of CPAs shall provide
the secretariat and other support services to implement the provision of R.A.
No. 9298.
7. When a threat to independence arises, an auditor should consider
A. Alternative threats to a lack of independence.
B. Available safeguards to independence.
C. Global independence rules.
D. Required lack of independence approaches.
Annotation by Jan, CPA
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8. Contingency fee-based pricing of accounting services is:
A. Always strictly prohibited in public accounting practice.
B. Never restricted in public accounting practice.
C. Prohibited for clients for whom attestation services are provided.
D. Considered an act discreditable to the profession.
9. Comfort letters ordinarily are signed by the client's:
A. Independent auditor Signatory
B. Audit committee
C. Top management
D. Underwriter of securities Addressee
10. Which of the following attributes most clearly differentiates a CPA who audits
management's financial statements as contrasted to management?
A. Integrity
B. Competence
C. Independence
D. Keeping informed on current professional developments
11. A violation of the profession’s ethical standards most likely would have occurred
when a CPA
A. Compiled the financial statements of a client that employed the CPA’s spouse as a
bookkeeper. Independence not required under compilation
B. Received a fee for referring audit clients to a company that sells limited
partnership interest.
C. Purchased the portion of an insurance company that performs actuarial services for
employee benefit plans.
D. Arranged with a financial institution to collect notes issued by a client in
payment of fees due.
12. Examples of close business relationships that may create self-interest and
intimidation threat least likely include:
A. Having a material financial interest in a joint venture with the assurance client
or a controlling owner, director, officer, or other individual who performs senior
managerial functions for that client.
B. Arrangements to combine one or more services or products of the firm with one or
more services or products of the assurance client and to market the package with
reference to both parties.
C. Distribution or marketing arrangements under which the firm acts as a distributor
or marketer of the assurance client’s products or services, or the assurance client
acts as the distributor or marketer of the products or services of the firm.
D. The purchase of goods and services from an assurance client by the firm (or from
an audit client by a network firm) or a member of the assurance team, provided the
transaction is in the normal course of business and on an arm’s length basis.
13. Statement 1: The risk that information is misstated is referred to as information
risk. TRUE
Statement 2: The risk associated with a company's survival and profitability is
referred to as business risk. TRUE
Statement 3: In an attestation engagement, a subject matter may be historical or
prospective. TRUE
A. Only one statement is correct
B. Only two statements are correct
C. All statements are correct
D. All statements are incorrect
14. The attest function:
A. Requires a consideration of internal control.
B. Includes the preparation of a report of the CPA's findings.
C. Requires a complete review of all transactions during the period under examination.
Impractical to review all transactions
D. Is an essential part of every engagement by the CPA, whether performing auditing,
tax work, or other services.
15. Which of the following is/are true?
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MAY 2025 BATCH
AUDITING (AUD)
15. Which of the following is/are true?
Statement 1: Responsible parties and intended users may be from the same entity.
Statement 1: Responsible parties and intended users may be from the same entity.
TRUE
Statement 2: Responsible parties and intended users may be from different entities.
TRUE
Statement 3: Responsible parties may also be one of the intended users of the assurance
report. TRUE
A. Only one statement is correct
B. Only two statements are correct
C. All statements are correct
D. All statements are incorrect
16. Evidence can come in different forms with different degrees of persuasiveness. Which
of the following is the least persuasive type of evidence?
A. Correspondence between the practitioner and vendors.
B. Documents mailed by outsiders to the practitioner.
C. Sales invoices inspected by the practitioner. Since source is internal
D. Computations made by the practitioner.
17. Statement 1: The auditors are primarily responsible for preparing the financial
statements and expressing an opinion on whether they follow generally accepted
auditing standards. FALSE, management prepares the FS.
Statement 2: Partners in CPA firms usually have the responsibility for signing the
audit report. TRUE
A. Only Statement 1 is correct
B. Only Statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect
18. Which of the following types of services is generally provided only by CPA firms?
A. Tax audits.
B. Financial statement audits.
C. Compliance audits.
D. Operational audits.
19. The auditor’s best defense when material misstatements are not uncovered is to have
conducted the audit:
A. in accordance with auditing standards.
B. as effectively as reasonably possible.
C. in a timely manner.
D. only after an adequate investigation of the management team.
20. Statement 1: The audit of financial statements relieves the management and/or those
charged with governance of their responsibilities with the financial statements.
FALSE
Statement 2: Auditing is frequently only a portion of the practice of local CPA firms.
TRUE
Statement 3: More procedures are performed by a practitioner in a review than in an
audit. FALSE, baliktad
A. Only one statement is correct
B. Only two statements are correct
C. All statements are correct
D. All statements are incorrect
21. Which of the following is not one of the assertions made by management about an
account balance? (PACER C)
A. Relevance.
B. Existence.
C. Valuation.
D. Rights and obligations.
22. A proposed auditor is required to attempt communication with the previous auditor
prior to:
A. Performing test of controls.
B. Testing beginning balances for the current year.
C. Making a proposal for the audit engagement.
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Annotation by Jan, CPA
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15. Which of the following is/are true?
Statement 1: Responsible parties and intended users may be from the same entity.
D. Accepting the engagement.
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23. Which of the following factors would most likely cause a CPA to decide not to accept
a new audit engagement?
A. Management's disregard for internal control.
B. The existence of related party transactions.
C. Management's attempt to meet earnings per share growth rate goals.
D. Lack of understanding of the potential client's internal auditors' computer-
assisted audit techniques.
24. An auditor who, before the completion of the engagement, is requested to change the
engagement to one which provides a lower level of assurance, should
A. Consider the change reasonable if it relates to information that is incorrect,
incomplete, or otherwise unsatisfactory.
B. Not agree to a change of engagement where there is no reasonable justification for
doing so.
C. Withdraw and consider whether there is any obligation to report to other parties
the circumstances necessitating the withdrawal.
D. Issue a report that includes reference to the original engagement and any
procedures that may have been performed in the original engagement.
25. The auditors will not ordinarily initiate a discussion with the audit committee
concerning the:
A. Extent to which the work of internal auditors will influence the scope of the
examination.
B. Extent to which change in the company's organization will influence the scope of
the examination.
C. Details of potential problems which the auditors believe might cause a qualified
opinion.
D. Details of the procedures which the auditors intend to apply.
26. Statement 1: The auditor is not expected to have a particular knowledge of the economy
and the industry in which the entity operates. TRUE
Statement 2: The auditor is expected to know more about the client’s operations and
business strategies as compared to the client’s top management. FALSE
Statement 3: Materiality considers quantitative considerations during planning and
evaluation phases of the audit. TRUE
A. Only one statement is correct
B. Only two statements are correct
C. All statements are correct
D. All statements are incorrect
27. Statement 1: In planning an audit, the auditor may decide that it is appropriate to
perform a substantive approach to an audit for many small businesses. TRUE
Statement 2: Audit committees should be made up of the most qualified directors
regardless of whether they are part of the management of the company. FALSE, the
best practice is to put directors who is not actively managing the company in the
audit committee.
A. Only Statement 1 is correct
B. Only Statement 2 is correct
C. Both statements are correct
D. Both statements are incorrect
28. In an audit area that has a lower inherent risk, it would be prudent to:
A. expand planning procedures.
B. assign more experienced staff to that area.
C. increase the amount of audit evidence gathered.
D. increase the tolerable misstatement for the area.
29. Which of the following statements is correct concerning materiality in a financial
statement audit?
A. Analytical procedures performed during an audit's review stage usually decrease
materiality levels.
B. The auditor's materiality judgments generally involve quantitative, but not
qualitative, considerations.
C. If the materiality amount used in evaluating audit findings increases from the
amount used in planning, the auditor should apply additional substantive tests.
D. Materiality levels are generally considered in terms of the smallest aggregate
level of misstatement that could be considered material to any one of the financial
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Annotation by Jan, CPA
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statements.
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30. Which of the following ratios is best used to assess a company’s ability to meet its
long-term debt obligations?
A. Quick ratio.
B. Current ratio.
C. Debt to equity.
D. Return on common equity.
31. The audit plan would require a modification if
A. There is a key audit matter to be communicated in the auditor’s report
B. Results of the test of controls differ from the initial assessment
C. A material misstatement has been identified in the accounts
D. The company has a share-based compensation plan
32. In the assessment of control risk, the auditor is concerned that the client's internal
control provides reasonable assurance that
A. Management cannot override the system.
B. Errors and fraud have been prevented or detected.
C. Controls have not been circumvented by collusion.
D. Operational efficiency has been achieved in accordance with management plans.
33. Internal controls can never be considered as absolutely effective because:
A. their effectiveness is limited by the competency and dependability of employees.
B. not all organizations have internal audit departments.
C. controls are designed to prevent and detect only material misstatements.
D. internal controls prevent separation of duties.
34. In understanding the control environment, which of the following is not explicitly
considered? (I AM CPA HO)
A. Integrity and ethical values
B. Commitment to competence
C. Assignment of authority
D. Information processing
35. Which of the following is most likely to be considered a risk assessment procedure
relating to internal control?
A. Confirm accounts receivable. Substantive Procedure
B. Take test counts of the year-end inventory. Substantive Procedure
C. Perform a test of a control relating to payroll. Test of Control
D. Trace a transaction through the information system relevant to financial reporting.
36. Statement 1: The relatively low number of types of transactions incurred by small
firms makes the segregation of duties impossible. FALSE, not impossible, but
impractical.
Statement 2: The auditors' tests of controls are designed to substantiate the fairness
of specific financial statement accounts. FALSE, this refers to substantive testing
Statement 3: In a financial statement audit, CPAs are required to assess the operating
effectiveness of most significant accounting-oriented controls. FALSE, Required to
obtain understanding, not perform TOC
A. Only one statement is correct
B. Only two statements are correct
C. All statements are correct
D. All statements are incorrect
37. Which of the following is true about the auditors' consideration of internal control
in a financial statement audit?
A. The auditors must assess control risk at a level lower than the maximum.
B. The auditors must prepare a flowchart description of internal control for their
working papers.
C. The auditors must obtain an understanding of the steps in processing major types
of transactions.
D. The auditors must perform tests of controls.
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Annotation by Jan, CPA
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MAY 2025 BATCH
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38. What aspect of IT processing may make it challenging to trace inputs and outputs
without specific logging mechanisms?
A. Ease of access to data
B. Consistency of performance
C. Lack of visible transaction trails
D. Single transaction update of multiple files
39. Which of the following computer system risks would be increased by the installation
of a database system?
A. Improper data access.
B. Programming errors.
C. Data entry errors.
D. Loss of power.
40. Which of the following is least likely to be a general control over computer
activities?
A. Procedures for developing new programs and systems.
B. Requirements for system documentation.
C. A change request log.
D. A control total. Control over input
41. Auditing by testing the input and output of a computer system instead of the computer
software itself will
A. Provide the auditor with the same type of evidence.
B. Detect all program errors, regardless of the nature of the output.
C. Not detect program errors that do not appear in the output sampled.
D. Not provide the auditor with confidence in the results of the auditing procedures.
42. Which of the following is a computer-assisted audit technique that permits an auditor
to insert the auditor's version of a client's program to process data and compare the
output with the client's output?
A. Test data module.
B. Frame relay protocol.
C. Remote node router.
D. Parallel simulation.
43. The auditor’s tests of controls vary depending on whether audit evidence generated
by the computer. If the audit evidence is external to the computer, and therefore
directly observable, the following approaches may be used by the auditor, except:
A. Inquiry and observation
B. Auditing around the computer technique
C. Inspection of documents
D. White box approach
44. Which of the following statements is incorrect?
A. Information systems must maintain both detailed and summary information.
B. Business processes may vary from one company to another.
C. Business processes categorized as expenditure processes are not intended to be
processes that serve customers.
D. Regardless of the extent of computerization, all information systems must capture
data from the transactions within business processes.
45. Which of the following controls would be most effective to ensure that all credit
sales transactions of an entity are recorded?
A. The supervisor of the billing department matches prenumbered shipping documents
with entries recorded in the sales journal.
B. The supervisor of the accounting department investigates any account balance
differences reported by customers.
C. Monthly, the accounting department supervisor reconciles the accounts receivable
subsidiary ledger to the accounts receivable control account.
D. The supervisor of the billing department sends copies of approved sales orders to
the credit department for comparison of authorized credit limits and current
customer balances.
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46. Which of the following fraudulent activities most likely could be perpetrated due to
the lack of effective internal controls in the revenue cycle?
A. Merchandise received is not promptly reconciled to the outstanding purchase order
file.
B. Obsolete items included in inventory balances are rarely reduced to the lower cost
or market value.
C. The write-off of receivables by personnel who receive cash permits the
misappropriation of cash.
D. Fictitious transactions are recorded that cause an understatement of revenue and
overstatement of receivables.
47. For effective internal control, which of the following functions should not be
assigned to the company's accounting department?
A. Reconciling accounting records with existing assets.
B. Recording financial transactions.
C. Signing payroll checks.
D. Preparing financial reports.
48. Which of the following activities relates to the “acquire to retire process”?
I. obtain approval for the purchase of capital assets from the user department FALSE,
BOD approves the purchase of capital asset
II. issue a purchase order to a vendor TRUE
III. record the related liability TRUE
IV. account for depreciation, gains or losses from disposal, and impairment of fixed
assets TRUE
A. I, II, and III
B. I, III, and IV
C. II, III, and IV
D. I, II, III, and IV
49. Which of the following are typical components of FP&A?
I. Budgeting
II. Forecasting
III. Risk management Normally, another department
IV. Financial reporting
A. I, II, and III
B. I, II, and IV
C. II, III, and IV
D. I, II, III, and IV
50. The auditor's program for testing long-term debt should include steps that require
A. Verifying the existence of the bondholders.
B. Examining any bond trust indenture.
C. Inspecting the accounts payable subsidiary ledger.
D. Investigating credits to bond interest income.
PROBLEM NO. 1
You are engaged in the audit of the financial statements of Rodolfo Corporation for the
year ended December 31, 2021. The following information was prepared by the bookkeeper.
Cash receipts:
Collection on accounts receivable ₱1,513,000
Less: Cash discounts taken 13,000 ₱1,500,000
Cash sales of merchandise 160,000
Sale of warehouse equipment 12,000
Insurance proceeds from boiler explosion 42,000
Sale of land on November 3 20,000
Cash disbursements:
Payments to trade creditors ₱1,206,000
General and administrative expenses 204,000
Cash purchases of merchandise 120,000
Repairs made on warranty contracts 6,400
Purchase of land on May 1 16,000
Purchase on November 10 of 100 shares of Tommy Co. stock 24,000
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Annotation by Jan, CPA
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Supplementary information:
1) The following account balances were taken from the general ledger:
December December
31, 2020 31, 2021
Accounts receivable ₱ 124,000 ₱ 146,000
Inventory 186,000 190,000
Prepaid gen. and admin. Expenses 9,600 8,400
Accrued gen. and admin. Expenses 7,000 9,000
Accounts payable 382,000 410,000
2) Accounts written off in 2021 were ₱6,000.
3) Depreciation for 2021 was ₱84,000.
4) The warehouse equipment sold during 2021 was acquired in 2014 at a cost of ₱25,000.
The double-declining method of depreciation was used and accumulated charges were
₱16,000 at date of sale. If the straight-line method had been used, the accumulated
depreciation at date of sale would have been ₱10,000.
5) An explosion occurred on January 15, 2021 in which a boiler, not the structural
component of a building, was completely destroyed. It was purchased in January 2013
at a cost of ₱48,000, depreciation was recorded by the straight-line method and
₱20,000 had accumulated at the date of the explosion.
Questions:
Based on the above information, compute the adjusted balances of the following accounts
as of December 31, 2021:
51. Gross sales
a. ₱1,535,000 c. ₱1,522,000
b. ₱1,695,000 d. ₱1,701,000
AR
Beg 124,000 End 146,000
Credit sales 1,541,000 (squeezed) WO 6,000
SD 13,000
Collection 1,500,000
1,665,000
Credit sales 1,541,000
Cash sales 160,000
Gross sales 1,701,000
52. Cost of sales
a. ₱1,350,000 c. ₱1,174,000
b. ₱1,230,000 d. ₱1,358,000
53. General and administrative expenses
a. ₱204,000 c. ₱211,200
b. ₱207,200 d. ₱204,800
54. When an item of revenue is collected and recorded in advance, it is normally called
a. Accrued revenue
b. Prepaid revenue
c. Unearned revenue
d. Cash
PROBLEM NO. 2
Presented below are unaudited balances of selected accounts of Drenz Corporation as of
December 31, 2021. During the course of your audit of Drenz’s books, you obtained
additional information affecting these accounts.
Inventories ₱6,000,000
Property, plant and equipment, at cost 6,000,000
Accumulated depreciation ₱ 300,000
Franchises 300,000
Investment in associate 8,000,000
Accounts payable 3,000,000
Interest payable -
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Additional information:
1) A physical inventory of merchandise as of December 31, 2021 amounted to ₱6,000,000.
The inventories are before any necessary year-end adjustments relating to the
following:
a) Included in the physical count were goods billed to a customer FOB shipping point
on December 30, 2021. These goods had a cost of ₱125,000 and were picked up by the
carrier on January 7, 2022.
b) Goods shipped FOB shipping point on December 28, 2021, from a vendor to Drenz were
received on January 4, 2022. The invoice cost was ₱300,000.
2) The Property, plant and equipment account of the company is composed of the following:
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Land and Building ₱4,000,000
Furniture and Fixtures 1,500,000
Leasehold Improvements 500,000
Total ₱6,000,000
At the beginning of 2021, the company acquired a land and building for ₱4,000,000,
which included ₱180,000 of realty tax in arrear for prior years. A mortgage of
₱800,000 was assumed by the company on the purchase. Twenty percent of the purchase
price should be allocated to the land and the balance to the building. In order to
make the building suitable for the use of the company, remodeling costs in the amount
of ₱300,000 were incurred and this was charged to Repairs and Maintenance Expense.
Such remodeling necessitates demolition of a portion of the building which resulted
in recovery of salvage materials, sold for ₱20,000 cash and recorded as Scrap Income.
No depreciation has been recognized on the building for 2021 which has an estimated
useful life of 50 years and salvage value of ₱120,000.
On April 1, 2021, costs of ₱500,000 were incurred to improve leased office premises.
The leasehold improvements have a useful life of 8 years. The related lease, which
terminates on April 1, 2031 is renewable for an additional 6-year term. The decision
to renew will be made in 2021 based on office space needs at that time. No depreciation
has been recorded yet on the leasehold improvements for 2021.
Depreciation expense for furniture and fixtures is properly recorded at ₱150,000 per
year.
3) A franchise agreement was acquired at the beginning of 2021 for ₱500,000. No
amortization has been recorded for 2021. A ten-year amortization period is to be
used.
4) In January 2021, Drenz Company acquired 20% of the outstanding ordinary shares of
Josiah Company for ₱8,000,000. This investment gave Drenz the ability to exercise
significant influence over Josiah. The carrying amount of the acquired shares was
₱6,000,000. The excess of cost over carrying amount was attributed to a depreciable
asset which was undervalued on Josiah’s statement of financial position and which had
a remaining life of ten years. For the year ended December 31, 2021, Josiah reported
net income of ₱1,800,000 and paid cash dividends of ₱400,000 and therefore issued 5%
stock dividend.
Questions:
Based on the above data, compute for the adjusted balance of the following as of December
31, 2021:
55. Inventories
a. ₱5,875,000 c. ₱6,000,000
b. ₱6,300,000 d. ₱6,175,000
56. Building (at cost)
a. ₱4,120,000 c. ₱4,140,000
b. ₱3,840,000 d. ₱4,160,000
57. Leasehold Improvement (net)
a. ₱437,500 c. ₱450,000
b. ₱453,125 d. ₱462,500
58. Investment in associate
a. ₱7,720,000 c. ₱8,000,000
b. ₱7,800,000 d. ₱8,080,000
59. When auditing merchandise inventory at year end, the auditor performs a purchase a
purchase cutoff test to obtain evidence concerning whether
a. all goods purchased before year-end are received before the physical inventory
count.
b. any goods hold in consignment for customers are included in the inventory balance.
c. any goods observed during the physical count are pledged or sold.
d. all goods owned at year-end are included in the inventory balance.
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60. To improve accountability for fixed asset retirements, management most likely would
implement an internal control structure that includes
a. Continuous analysis of the repairs and maintenance account.
b. Periodic inquiry of plant executives by internal auditors as to whether any plant
assets have been retired.
c. Continuous utilization of serially numbered retirement work orders.
d. Periodic inspection of insurance policies by internal auditors.
61. A company holds bearer bonds as a short-term investment. Responsibility for custody
of these bonds and submission of coupons for periodic interest collections probably
should be delegated to the
a. Chief accountant.
b. Internal auditor.
c. Cashier.
d. Treasurer.
62. To establish the existence and ownership of a long-term investment in the common
stock of a publicly traded company, an auditor ordinarily performs a security count
or
a. Relies on the client’s internal controls if the auditor has reasonable assurance
that the control procedures are being applied as prescribed.
b. Confirms the number of shares owned that are held by an independent custodian.
c. Determine the market price per share at the reporting date from published
quotations.
d. Confirms the number of shares owned with the issuing company.
PROBLEM NO. 3
Whole-Hearted Commitment, Inc. is a calendar-year corporation. Its financial statements
for the years 2015 and 2016 contained errors as follows:
2015 2016
Ending Inventory P 6,000 ₱10,000
understated overstated
Depreciation 11,000 overstated 7,000 overstated
Expense
Accrued Expenses 4,500 understated 7,500 understated
Prepaid Expenses 5,000 understated 12,000
understated
Accrued Revenues --- 3,000 understated
Deferred Revenues 1,200 understated ---
Advances from 20,000 70,000
customers
recorded as sales
but the goods
were delivered in
the following
year
Questions:
Based on the above data, answer the following (ignore effect of taxes):
63. What is the total effect of the errors on the 2015 net income?
a. 3,700 understated c. 3,700 overstated
b. 16,300 overstated d. 16,300 understated
64. What is the total effect of errors on the 2016 net income?
a. 50,800 overstated c. 50,800 understated
b. 28,200 overstated d. 28,200 understated
65. What is the total effect of the errors on the balance of the company’s working capital
at December 31, 2016?
a. 72,500 overstated c. 72,500 understated
b. 26,500 understated d. 26,500 overstated
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MAY 2025 BATCH
AUDITING (AUD)
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MAY 2025 BATCH
AUDITING (AUD)
PROBLEM NO. 4
Your audit senior instructed you to prepare a four-column proof of cash receipts and
disbursements for the month of December 2021.
The bank reconciliation prepared by Character Company at November 30 is reproduced
below:
Unadj. bank balance ₱ 69,000 Unadj. book balance ₱ 66,000
Add: Deposit in transit 11,000 Add: CM for note collected 8,800
Total ₱ 80,000 Total ₱ 74,800
Less: Outstanding checks: Less: Bank service charge 1,800
No. 143 ₱1,000
144 1,500
145 2,000
146 2,500 7,000 -
Adjusted balance ₱73,000 ₱73,000
The bank statement, which has a beginning balance of ₱69,000, is reproduced below:
May Bank
Account Name: CHARACTER Company
Date Debits Credits
1-Dec ₱ 1,000 ₱ 11,000
4-Dec 25,000 10,000
5-Dec 3,000 CM 1
6-Dec 2,000 20,000
8-Dec 10,000 DM 1 5,000
9-Dec 2,500 40,000
17-Dec 30,000 7,000
19-Dec 40,000 DM 2
20-Dec 500 E 500 EC
26-Dec 40,000
31-Dec 2,000 DM 3 35,000 CM 2
₱113,000 ₱171,500
DM 1 Customer's DAIF check
DM 2 Customer's DAIF check
DM 3 Service charges
CM 1 Account collected by the bank
CM 2 Note collected by the bank
E Error
EC Error Correction
The debit memo on December 8 and December 19 were customer NSF checks returned by the
bank. The check on December 19 was redeposited on December 26 without entry. The
company made a journal entry when the check returned on December 8 was received. This
check was redeposited by the client in the bank on January 3 without entry.
The company’s cash receipts and cash disbursements journals for the month of December
2021 are provided below:
Cash Disbursements
Cash Receipts Journal Journal
OR Check
Date No. Amount Date No. Amount
Dec.
Dec. 03 555 ₱ 10,000 03 147 ₱ 25,000
5 556 20,000 15 148 30,000
7 557 5,000 30 149 800
8 558 40,000 31 150 12,000
18 559 7,000
30 560 18,000
31 561 200 -
₱102,000 ₱ 75,000-
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MAY 2025 BATCH
AUDITING (AUD)
The company’s Cash in Bank Ledger appears below:
Cash in Bank
Balance ₱ 66,000 12/31/2021 GJ (DM 1) ₱10,000
12/1/2021 GJ (CM) 8,800 12/31/2021 CDJ 75,000
12/8/2021 GJ (CM 1) 3,000
12/31/2021 CRJ 102,000
Questions:
Based on the application of the necessary audit procedures and appreciation of the above
data, you are to provide the answers to the following:
66. How much is the adjusted book receipts for December 2021?
a. ₱140,000 c. ₱180,500
b. ₱140,500 d. ₱138,200
67. How much is the adjusted book disbursements for December 2021?
a. ₱78,000 c. ₱79,800
b. ₱87,000 d. ₱127,500
68. How much is the adjusted cash balance as of December 31, 2021?
a. ₱127,800 c. ₱147,500
b. ₱126,000 d. ₱131,400
69. The following specific scenarios are normally uncovered using proof of cash. Select
the exception:
a. Cash receipts and disbursements recorded in the accounting records, but not on the
bank statement.
b. Cash deposits and disbursements recorded on the bank statement, but not on the
accounting records.
c. Cash receipts and disbursements not recorded in the accounting records and on the
bank statement.
d. Cash receipts and disbursement recorded at different amounts by the bank than in
the accounting records.
70. This document shows the dates of all transfers of cash among the various bank accounts.
Its primary purpose is to help auditors detect kiting.
a. Cut-off bank statement
b. Bank transfer schedule
c. Bank reconciliation
d. Proof of cash
“For with Him, nothing shall be impossible.”
- END OF EXAMINATION -
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Annotation by Jan, CPA
