Auditing

C 1. As used in PSA, which of the following statements best describes "assertions"?

Assertions are the representations of management as to the reliability of the information system
b. Assertions are the auditor's findings to be communicated in the audit report
c. Assertions are the representations of management as to the fairness of the financial statements
d. Assertions are found only in the footnotes to the financial statements

D 2. Reasonable assurance means

a. Gathering of all available corroborating evidence for the auditor to conclude that there are no
material misstatements in the financial statements, taken as a whole
b. Gathering of the audit evidence necessary for the auditor to conclude that the financial statements,
taken a s a whole, are free from any misstatements
C. Gathering of the audit evidence necessary for the auditor to conclude that the financial statements
are free of material unintentional misstatements
d. Gathering of the audit evidence necessary for the auditor to conclude that there are no material
misstatements in the financial statements, taken as a whole

B 3. Which of the following statements is not adistinction between independent auditing and internal auditing?
a. Independent auditors represent third party users external to the auditee entity whereas internal
auditors report directly to management
b. Although independent auditors strive for both validity and relevance of evidence, internal auditors
are concerned almost exclusively with validity
C Internal auditors are employer of the auditee, whereas independent auditors are independet
contractors
d. The internalauditor's span of coverage goes beyond financial auditing to encompass operational and
performance auditing

A 4. Assurance engagement risk is the risk

a. That the practitioner expresses an inappropriate conclusion when the subject matter information is
materially misstated
b. Of expressing an inappropriate conclusion when the subject matter information is not materially
misstated
Through loss from litigation, adverse publicity,or other events arising in connection with the subject
matter reported on
d. Of expressing an inappropriate conclusion when the subject matter information is either materially
misstated or not materially misstated

A 5. Independence is not a requirement for which of the following engagements

.
Compilation
Review
Agreed-upon Procedures
a. I-No, I| - Yes, Il| No
b. |-No, Il - No, |l| - No
C. I-Yes, Il - No, ll Yes
d. I-Yes, ll - Yes, I|-Yes
C 6. Which of the following best describes why an independent auditor is asked to express an opinion on the fair
presentation of financial statements?
a. It is difficult to prepare financial statements that fairly present a company's financial position, cash
flow, and operations without the expertise of an independent auditor
b. It is management's responsibility to seek available independent aid in the appraisalof the financial
information shown in its financial statements
C. The opinion of an independent party is needed because a company may not be objective with
respect to itsown financial statements
d. Itis a customary courtesy that all stockholders of a company receive an independent report on
management's stewardship in managing the affairs of the business

B 7. Which of the following statements is incorrect?

a. Unlike consulting services, assurance services report on the quality of information
b. Audit engagements encompasses assurance engagements
C Not all engagements performed by professional accountants are assurance erngagements
d. Non assurance engagements include agreed-upon procedures, compilation of financial or other
information,and preparation of tax returns where no conclusion is expressed,tax consulting and
advisory engagements.

A 8. Which of the following is more dificult to evaluate objectively?

a. Efficiency and effectiveness of operations
b. Compliance with applicable government regulations
c. Presentation of financial statements in accordance with the applicable financial reporting critieria
d. Allof the given criteria are equally difficult to evaluate effectively

C 9. Which of the following is one of the limitations of an audit?

The possibility that management may prevent the auditor form performing the necessary audit
procedures
b. The likelihood that the auditor may not be able to detect material misstatements in the financial
statements because the auditor is engaged only after the year end
c. The fact that most audit evidence is persuasive rather than conclusive in nature
d. The risk that the auditor may not possess the training and proficiency required by the engagement.
A 10. One of the requirements of the Philippine Standards on Auditing is "sufficient and appropriate evidential
matter should be obtained". The term "appropriate" refers primarily to
a. Relevance of the evidence
b. Measurability of the evidence
C Consistency of the evidence
d. Dependability of the evidence
 Use the following data for the next four (3) questions:
Your audit disclosed that on December 31, 2020, the accounts receivable control account of Roxas Company had a
balance of P2,365,000. An analysis of the accounts receivable account showed the following:
Accounts known to be worthless P37,500
Advance payments to creditors on purchase orders 150,000
Advances to affiliated companies 375,000
Customers' accounts reporting credit balances
arising from sales return (225,000)
Interest receivable on bonds 150,000
Other trade accounts receivable - unassigned 750,000
Subscriptions receivable for common
stock due in 30 days 825,000
Trade accounts receivable - assigned
(equity in assigned accounts is P150,000) 375,000
Trade installment receivable due 1 - 18 months,
including unearned finance charges of P30,000 330,000
Trade receivables from officers due currently 22,500
Trade accounts on which post-dated checks are held
(no entries were made on receipts of checks) 75,000
Total 2,685,00

A 11. The trade accounts receivable as of Dec 31, 2020is

a. 1,522,500
b. 1,447,500
C. 1,500,000
d. 1,147,500

B 12. The current trade and other receivables net as of Dec 31, 2020 is
a. 1,822,500
b. 2,647,500
C. 1,375,000
d. 1,972,500
C 13. How much of the foregoing will be presented under noncurrent assets as of Dec 31, 2020
a. 150,000
b. 525,000
C. 375,000
d. 547,500
 Use the following data for the next four (5) questions:
In your audit of the books of George Company for the year 2020, you concluded that the allowance for
doubtfulaccounts should be adjusted to equal the estimated amount required based on aging of the accounts
as of December 31. During your audit, you were able to gather the following data:

Allowance for doubtful accounts, Jan. 1, 2020 P300,000

Provision for doubtfulaccounts during 2020(3% of P5,000,000 sales) 150,000
Bad debts written off in 2020 187,500
Recovery of bad debts written off during 2020 50,000
Estimated doubtful accounts per aging of accounts on Dec. 31, 2020 200,000
Accounts receivable, December 31, 2020 2,375,000

A 14. Doubtful accounts expense for 2020.

a 37,500
b. 112,500
C. 150,000
d. 187,500
B 15. Net realizable value of Accounts Receivable as of December 31, 2020.
2,375,000
b. 2,175,000
c. 2,575,000
d. None of the above
B 16. The increase(decrease) in the recorded Allowance for doubtful accounts
a 187,500
b. 312,500
C. 300,000
d. 450,000
17. Assuming there was no aging, Doubtful accounts expense for 2020.
A
a 150,000
b. 300,000
C. 187,500
d. 200,000
B 18. Assumingthere was noaging, Allowance for doubtful accounts as of December 31, 2020.
a 187,500
b. 312,500
C. 300,000
d. 450,000

B 19. In pursuing its quality control objectives with respect to independence, a CPA firm may use policies and
procedures such as the following except:
a. Emphasizing independence in mental attitude and review of work
b. Prohibiting employees from owning shares of the stock of publicly traded companies
c. Suggesting that employees conduct their banking transactions with banks that do not maintain
accounts with client firms
d. Assigning employees who may lack independence to research positions that do not require
participation in the field audit
B 20. Which of the following statements is correct about an auditor's required communication with those charged
with governance? Assume those charged with governance are not involved in managing the entity.
a Any matters communicated to those charged with governance also are required to be communicated
to the entity's management
b. The auditor to inform those charged with governance about significant errors discovered by the
auditor and subsequently corrected by management
C Disagreements with management about the applicationof accounting principles are not required to
be communicated to those charged with governance if they have been appropriately resolved
d. Significant deficiencies in internal control previously reported to those charged with governance that
may have not been corrected need not be communicated again.