Your firm is currently conducting the audit of BC&A COMPANYs financial statements for the year ended May

31, 2016. You are now concentrating on the review of

the working papers prepared by your staff where possible adjusting journal entries may be drafted to arrive at the adjusted balances of the accounts that may be affected.
Working Paper No. 1
CASH BPI
Bank Reconciliation
May 31, 2016
Balance per bank statement
Add (deduct) reconciling items:
Deposit in transit (Note 1)
Outstanding checks (Note 2)
Note charged by the bank (Note 3)
Fund transfer form PNB
Balance per general ledger

7,823,170
93,812
(108,832)
41,850
(12,500)
7,837,500

The top schedule for Cash showed the following accounts with their unadjusted balances:
Cash BPI
Cash PNB
Cash SB
Total

7,837,500
112,500
187,500
8,137,500

Audit Notes:
(1) Inclusive of a customers check in the amount of 18,750 dated April 15, 2016, which up to now is not yet deposited because it has been misplaced.
(2)

Includes two checks totaling 14,354 which were among the items counted during the cash count conducted early morning of June 1, 2016.

(3)

This is maturity value of a two-year note maturing on May 31, 2016. The note bears interest of 12%. Interest for the year ended May 31, 2015 was properly
accrued.

(4)

Upon cross-referencing this with working paper showing the bank reconciliation with PNB, whereby the bank balance was reconciled with general ledger balance,
you verified that the 12,500 was appropriately shown as an addiction to the bank balance.

Working Paper No. 2

ACCOUNTS RECEIVALE
Reconciliation Between Subsidiary Ledger and General Ledger Balances
May 31, 2016
Balance per subsidiary ledger
Add (deduct) reconciling items:
Write-offs (See Working Paper No. 3)
Sales (Note 5)
Collections (Notes 6)
Balances per general ledger

4,023,527
(187,608)
61,250
36,845
3,934,014

The company maintains a credit term of n/30

Audit Notes:
(5) The goods were in transit in transit as at May 31, 2016, terms FOB shipping point. The company recognized a gross profit of 25% on this sale.
(6)

This was collected from a customer by the companys branch on May 31, 2016, on sales made on March 25, 2016, and was remitted to the company on June 15,
2016. Collections from branches are charged to Cash SB account.

Working Paper No. 3

ALLOWANCE FOR BAD DEBTS
May 31, 2016
Balance, June 1, 2015
Add (deduct) transactions during the year:
Write-offs of accounts aged 5 years
Bad debt provision for the year
Balance, May 31, 2016

407,500
(187,608)
108,930
328,822

Based on the companys past experience, an allowance should be set up based on the following rates:
Aging Distribution
Current
Past due:
1-30
31-60
61-90
Over 90
Total

Per Subsidiary Ledger

868,845
808,670
718,853
737,225
889,934
4,023,527

Based on the processing information, determine the adjusted balances of the following:
1.

Cash in banks
a. 8,128,099
b. 8,165,599
c.
8,091,254
d. 8,140,599

2.

Accounts receivable
a.
3,854,669

Percentage
2
5
10
15
20

b.
c.
d.

3,915,919
,879,074
3,878,419

3.

Allowance for bad debts

a. 385,720
b. 605,612
c.
793,220
d. 328,822

4.

The principal amount of the 12% two-year note payable

a.
37,800
b. 41,850
c.
33,750
d. 1,850

5.

Cash in bank - BPI

a.
7,778,754
b. 7,803,754
c.
7,788,734
d. 7,812,546
You were assigned to audit the financial statement of FCA CORPORATION on January 15, 2015, for the year ended December 31, 2015. The general ledger shows
cash account balance of 835,421 as at December 31, 2015.
The bank reconciliation prepared by the clients cashier included the following items:
Cash per bank statement, December 31, 2015.
Bank loan proceeds, directly credited by the bank to the companys account, recorded in the books in January, 2016.
Bank service charge for December, recorded in books in January, 2016.
Outstanding checks, including 21,500 certified by the bank.
Customer checks deposited in December and returned by the bank with the December bank statement, marked NSF, re-deposited in
January 4. No entry made anymore in the books for return and re-deposit.

915,391
120,000
7,500
95,985
5,250

Check of FAC Corporation, charge by the bank in error on December 28, 2015; corrected by the bank on January 2, 2016.
18,250
90,500

December in transit.

From January 2, 2016 to January 15, 2016, the date of your cash count, total debits to cash appearing in the amount to 185,500. During the same period, bank credits
amounted to 163,895. The following cash and cash items were on hand at the close of business on January 15, 2016:
Currency
4,275
Customers checks
5,850
Postage stamps
1,500
Other expense vouchers
3,125
Audits notes:
a) Cash collections from accounts receivable were erroneously recorded by the company as follows:
Date
07/05/15
Allowance for bad debts
6,800
Accounts receivable
12/10/15
Bad debts expense
9,600
Accounts receivable
b)

6,800
9,600

Checks deposit on January 5, 2016, amounting to 21,000 was recorded in the books as 12,000.

Requirements:
6.
What is the correct cash in bank balance as of December 31, 2015?
a.
959,071
b. 949,656
c.
928,156
d. 964,321
7.

What is the cash shortage as of December 31, 2015?

a. 9,415
b. 14,665
c.
30,915
d. 4,915

8.

What is the net adjustment to cash as of December 31, 2015?

a.
92,735
b. 141,235
c.
114,235
d. 79,735

9.

What is the total cash shortage as of January 15, 2016?

a.
5,020
b. 4,605
c.
15,520
d. 14,020

10.

In validating the bank reconciliation statements of the client, the auditor should trace back the unrecorded debits, like service charges to the
a. Bank statement of the current month.
b. Accounts payable voucher.
c.
Cancelled checks returned by the bank.
d. Cut-off bank statement of the subsequent month.

ELEANOR CORP. has been producing quality disposal diapers for more than two decades. The companys fiscal years runs from April 1 to March 31. The following
information relates to the obligations of Eleanor as of March 31, 2016.
BONDS PAYABLE

Eleanor issued 10,000,000 of 10% bonds on July 1, 2014. The prevailing market rate of interest for these bonds was 12% on the date of issue. The bonds will mature
on July 1, 2024. Interest is paid semi-annually on July 1 and January 1. Eleonor uses the effective interest rate method to amortized bond premium or discount.
The following present value factors are taken from the present value tables:
Present value of 1 at 12% for 10 periods
Present value of 1 at 6% for 20 periods
Present value of an ordinary annuity of 1 at 12% for 10 periods
Present value of an ordinary annuity of 1 at 6% for 20 periods

0.32917
0.31180
5.65022
11.46992

NOTES PAYABLE
Eleonor has signed several long-term notes with financial institutions. The maturities of these notes are given in the schedule below. The total unpaid interest for all of
these notes amounts to 600,000 on March 31, 2016.
Due Date
Amount Due
April 1, 2016
400,000
July 1, 2016
600,000
October 1, 2016
300,000
January 1, 2017
300,000
April 1, 2017 March 31, 2018
1,200,000
April 1, 2018 March 31, 2019
1,000,000
April 1, 2019 March 31, 2020
1,400,000
April 1, 2020 March 31, 2021
800,000
April 1, 2021 March 31, 2022
1,000,000
7,000,000
ESTIMATED WARRANTIES
Eleanor has a one-year product warranty on some selected items in its product line. The estimated warranty liability on sales made during the 2014-2015 fiscal year and
still outstanding as of March 31, 2015, amounted to 180,000. The warranty costs on sales made from April 1, 2015, through March 31, 2016, are estimated at
520,000. The actual warranty costs incurred during the current 2015-2016 fiscal year are as follows:
Warranty claims honored on 2014-2015 sales
Warranty claims honored on 2015-2016 sales
Total warranty claims honored

180,000
178,000
358,000

OTHER INFORMATION
1) TRADE PAYABLES
Account payable for supplies, goods and services purchased on open account amount to 740,000 as of March 31, 2016.
2)

PAYROLL RELATED ITEMS

Accrued salaries and wages
Withholding taxes payable
Other payroll deductions
Total

300,000
94,000
10,000
404,000

3)

MISCELLANEOUS ACCRUALS
Other accruals not separately classified amount to 150,000 as of March 31, 2016.

4)

DIVIDENDS
On March 15, 2016, Eleonors board of directors declared a cash dividend of 0.20 per ordinary share and a 10% share dividend. Both dividends were to be
distributed on April 12, 2016, to the shareholders of record at the close of business on March 31, 2016. Data regarding Eleonor ordinary share capital are as
follows:
Par value
Number of shares issued and outstanding 6,000,000 shares
Market values of ordinary shares:
March 15, 2016
March 31, 2016
April 12, 2016

11.

How much was received by Eleonor from the sale of the bonds on July 1, 2014?
a. 8,852,960
b. 10,000,000
c.
10,500,000
d. 10,647,040

12.

What is the current portion of Eleonors note payable at March 31, 2016?
a.
2,800,000
b. 1,600,000
c.
1,300,000
d. 3,800,000

13.

The balance of the estimated warranties payable at March 31, 2016 is

a. 342,000
b. 18,000
c.
520,000
d. 180,000

14.

On March 31, 2016, Eleonors statement of financial position would report total current liabilities of
a. 5,286,000
b. 4,386,000
c.
5,336,000
d. 5,642,000

15.

On March 31, 2016, Eleonors statement of financial position would report total noncurrent liabilities of
a.
14,389,350
b. 14,352,217
c.
14,370,783
d. 14,252,960

5.00 per share

22.00 per share

21.50 per share
22.50 per share

KIKIKTAT CORPORATION was organized in 2015, its accounting records include only one account for all intangible assets. The following is a summary of the debit
entries that have recorded and posted during 2015 and 2016:
INTANGIBLE ASSETS
July 1, 2015
8-year franchise; expires June 30, 2023
126,000
Oct. 1, 2015
Advance payment on leasehold (term of lease is 2 years)
84,000
Dec. 31, 2015
Net loss for 2015 including incorporation fee, 3,000 and related legal fees of organizing, 15,000
(all fees incurred in 2015)
48,000
Jan. 2, 2016
Acquired patent (10-year life)
222,000
Mar. 1, 2016
Cost of developing secret formula
225,000
Apr. 1, 2016
Goodwill purchased
835,200
July 1, 2016
Legal fee for successful defense of patent purchase above
37,950
Oct. 1, 2016
Research and development costs
480,000
Ignore income tax effects.
16. The unamortized patent cost at December 31, 2016, should be
a. 199,800
b. 235,440
c.
222,000
d. 197,490
17.

The unamortized franchise cost at December 31, 2016, should be

a.
110,250
b. 94,500
c.
102,375
d. 118,125

18.

The amount of prepaid rent to be reported in Kikiktars December 31, 2016, statement of financial position is
a.
73,500
b. 31,500
c.
84,000
d. 63,000

19.

The adjusting entries on December 31, 2016, should include a net debit to the retained earnings account of
a.
889,275
b. 42,000
c.
60,375
d. 66,375

20.

As a result of the adjustments at December 31, 2016, the total charges against Kikiktats 2016 income should be
a.
840,900
b. 822,900
c.
597,900
d. 841,275

In the audit of RCC COMPANYS cash account, you obtained the following information:
The companys bookkeeper prepared the following bank reconciliation as of November 30, 2016:
Bank balance 11/30/2016
Undeposited collections
Bank service charges
Bank collection of customers note
Outstanding checks:

90,800
5,000
100
(8,000)
Number
1159
1767
1915

Amount
3,000
5,000
2,000

Book balance 11/30/2016

10,000
77,900

Additional data are given as follows:

a)

b)

Company recording for December:

Total collections from customers
Total checks drawn

165,000
98,000

Bank statement total for December:

Charges
Credits

123,800
169,000

c)

Check no. 1159 dated November 25, 2016, was entered as 3,000 in payment of a voucher for 30,000. Upon examination of the checks returned by the bank, the
actual amount of the check was 30,000.

d)

Check no. 2113 dated December 20, 2016 was issued to replace a mutilated check (no. 1767), which was returned by the payee. Both checks were recorded in the
amount drawn, 5,000, but no entry was made to cancel check no. 1767.

e)

The December bank statement included a check drawn by PCC Company for 1,500.

f)

Undeposited collections on December 31, 2016 - 8,000.

g)

The service charge for December was 150, which was charged by the bank to another client.

h)

The bank collected a note receivable of 7,000 on December 28, 2016, but the collection was not received on time to be recorded by RCC.

i)

The outstanding checks on December 31,2016 were:

Check No.
1767
2856

Amount
5,000
1,300

Based on the above and the result of your audit, determine, the following:

Check No.
2910
2925

Amount
2,300
4,100

21.

Unadjusted cash balance per books as of December 31, 2016

a. 152,800
b. 152,750
c.
144,900
d. 165,700

22.

Adjusted cash balance as of November 30, 2016

a.
85,800
b. 58,800
c.
63,800
d. 90,800

23.

Adjusted book receipts for December 2016

a.
170,500
b. 182,000
c.
172,000
d. 173,000

24.

Adjusted bank disbursement for December 2016

a.
120,150
b. 76,150
c.
125,150
d. 98,150

25.

Adjusted cash balance as of December 31, 2016

a.
132,650
b. 137,650
c.
137,800
d. 134,650

LPC CORPORATION began operations on January 1, 2016, authorized were 100,000 ordinary shares of 50 per value and 50,000 convertible preference shares of 10%
50 par value. The following transactions involving shareholders equity occurred during the first year of operations.
Jan. 1

Issued 10,000 ordinary shares to the corporation promoters in exchange for property valued at 1,250,000 and service valued at 250,000. The
property had cost the promoters 900,000 three years and was carried on the promoters books at 750,000.

Feb. 22

Issued 15,000 preference shares at a price of 60 per share. Each share can be converted to five ordinary shares. The entity paid 25,000 to an
agent for selling the shares.

Mar. 10

Sold 25,000 ordinary shares for 130 per share. issue costs were 100,000.

April 10

20,000 ordinary shares were sold under share subscriptions at 175 per share. No share certificates are issued until a subscriptions contract is
paid in full. No cash was received.

July 15

Exchanged 12,000 ordinary shares and 20,000 preference shares for a building with a fair value of 3,500,000. The building was originally
purchased for 3,250,000 by the owner and has a book value of 2,400,000. In addition, 10,000 ordinary shares were sold for 1,500,000 in
cash.

Aug. 1

Received payments in full for half of the share subscriprions and partial payments on the rest of the subscriptions. Total cash received was
2,250,000. Share certificates were issued for the subscriptions paid in full.

31

Received notice from holders of share subscriptions for 5,000 shares that they would not pay further on the subscriptions because the price of
the share had fallen to 95 per share. The amount still due on those contracts was 750,000. Amount previously paid on the contracts are
forfeited according to the agreement.

Dec. 31

Net income for the first year of operations was 1,500,000

Based on the preceding information, determine the correct balances of the following at December 31, 2016:
26. Ordinary share capital
a.
2,850,000
b. 3,350,000
c.
4,550,000
d. 2,750,000
27.

Share premium - ordinary

a.
5,775,000
b. 7,675,000
c.
6,975,000
d. 6,850,000

28.

Share premium - preference

a. 825,000
b. 950,000
c.
875,000
d. 850,000

29.

Subscriptions receivable
a.
2,250,000
b. 750,000
c.
1,250,000
d. 500,000

30.

Total shareholders equity

a. 14,750,000
b. 12,775,000
c.
13,775,000
d. 15,275,000

As part of your audit of receivables of MCJ Merchandising, you performed a cut-off test of sales. Results of the cut-off test revealed the following:

Recorded as Sales in December 2015

Selling
Price
18,000
12,500
8,680
14,200
9,000
10,000
7,800
14,000

Cost
16,000
10,200
7,240
12,500
7,500
7,750
6,100
12,000

Terms
FOB shipping point
FOB destination
FOB destination
Shipped to consignee
FOB shipping point
FOB destination
FOB shipping point
Shipped to consignee

Recorded Sales in January 2016

Selling
Price
21,000
10,500
4,500
6,500

Cost
18,200
8,800
3,200
5,000

Terms
FOB shipping point
FOB destination
FOB destination
FOB shipping point

Shipment Date

Received by
customers
12/29/2015
12/29/2015
01/02/2016
01/02/2016
01/02/2016
01/03/2016
01/02/2016
01/02/2016

12/26/2015
12/26/2015
12/28/2015
12/29/2015
12/30/2015
12/31/2015
12/31/2015
12/31/2015
Shipment Date

Received by
customers
01/03/2016
01/03/2016
01/03/2016
01/05/2016

12/31/2015
12/31/2015
01/02/2016
01/02/2016

A count of all inventories within the premises was made in the morning of December 31, 2015 prior to any shipment made during the day. The total cost of the count
was recorded as inventories as of December 31, 2015. The goods shipped to consignees are still unsold at December 31.
The unadjusted ledger balances ledger balances show the following:
Accounts receivables
Inventories
Sales
Cost of sales

276,500
425,000
1,320,000
842,000

Determine the adjusted balances of the following:

31. Accounts receivables
a. 250,620
b. 229,620
c.
261,120
d. 289,320
32.

Inventories
a.
406,800
b. 420,440
c.
447,440
d. 449,500

33.

Sales
a.
1,222,320
b. 1,204,620
c.
1,294,120
d. 1,251,500

34.

Cost of sales
a. 846,560
b. 828,360
c.
817,500
d. 873,560

35.

To gain assurance that all inventory items in a clients inventory listing schedule are valid, an auditor most likely would trace:
a. Items listed in the inventory listing schedule to inventory tags and the auditors recorded count sheets.
b. Inventory tags noted during the auditors observation to items listed in the inventory listing schedule.
c.
Inventory tags noted during the auditors observation to items listed in receiving reports and vendors invoices.
d. Items listed in receiving reports and vendors invoices to the inventory listing schedule.

The draft balance sheet of Anne Corporation as of December 31, 2016 reported the net property, plant and equipment at 6,270,000. Details of the amount follow:
Land at cost
Building at cost
Less: Accumulated depreciation at 12/31/15
Plant at cost
Less: Accumulated depreciation at 12/31/15

1,000,000
4,000,000
(800,000)
5,200,000
(3,130,000)

3,200,000
2,070,000
6,270,000

The following matters are relevant:

a) The company policy for all depreciation is that a full years charge is made in the year of acquisition or completion and none in the year of disposal.
b)

Included in the sales revenue is 300,000 being the sales proceeds of an item of plant that was sold on June 30, 2015. The plant has originally cost 900,000
and had been depreciated by 630,000 as of December 31, 2015. Other than recording the proceeds in sales and cash, no other accounting entries for the
disposal of the plant have been made. All plant is depreciated at 25% per annum on the reducing balance basis.

c)

On September 30, 2016, the company completed the construction of a new warehouse. The construction was achieved using the companys own resources as
follows:
Purchased materials
Direct labor
Supervision
Design and planning costs

150,000
800,000
65,000
20,000

Included in the above figures are 10,000 for materials and 25,000 for labor costs that were effectively lost due to the foundations being too close to a
neighboring property. All the above costs are included in cost of sales. The building was brought into immediate use upon completion and has an estimated
useful life of 20 years (straight-line depreciation).

d)

At the beginning of the current year, the company had an open market basis valuation of its properties (excluding the newly constructed warehouse). Land
was valued at 1.2Million and the property at 4.8Million. The directors wish these values to be incorporated into the financial statements. The properties had
an estimated remaining life of 20 years at the date of the valuation (straight-line depreciation is used). The company makes a transfer to retained earnings in
respect of the excess depreciation on revalued assets.

e)

Depreciation for the year 2016 has not yet been accounted for the year ended December 31, 2016 in the draft financial statements.

Based on the above and the result of your audit, answer the following:
36. The carrying amount of the new warehouse as of December 31, 2016 is
a.
1,000,000
b. 869,250
c.
950,000
d. 987,500
37.

The carrying amount of plant as of December 31, 2016 is

a. 1,350,000
b. 1,375,310
c.
1,282,500
d. 1,710,000

38.

The total depreciation for the year ended December 31, 2016 is
a.
736,250
b. 735,750
c.
380,000
d. 740,000

39.

The revaluation surplus as of December 31, 2016 is

a. 1,720,000
b. 1,710,000
c.
1,800,000
d. 960,000

40.

Recorded entries in which of the following accounts are most likely to relate to the property, plant, and equipment completeness assertion?
a.
Accumulated depreciation.
b. Purchase, returns and allowances.
c.
Property, plant and equipment.
d. Repairs and maintenance expense.

COLOONG CO. holds debt securities within a business model whose objective is achieved both by collecting contractual cash flows and selling the debt securities. The
contractual cash flows are solely payments of principal and interest on specified dates.
The following amortization schedule relates to its 5-year, 1,000,000, 7% bonds purchased on December 31, 2014, for 1,086,565. The bonds were purchased to yield
5% interest.
Date

Interest Received

12.31.14
12.31.15
70,000
12.31.16
70,000
12.31.17
70,000
12.31.18
70,000
12.31.19
70,000
*Adjustment due to rounding

Interest Income
54,328
53,545
52,722
51,858
50,982*

Premium
Amortization

Amortized Cost

15,672
16,455
17,278
18,142
19,018

1,086,565
1,070,893
1,054,438
1,037,160
1,019,018
1,000,000

The following schedule presents the amortized cost and fair value of the bonds at year-end.

December 31, 2015

December 31, 2016
December 31, 2017
December 31, 2018
December 31, 2019

Fair Value
1,065,000
1,075,000
1,056,500
1,030,000
1,000,000

Amortized Cost
1,070,893
1,054,438
1,037,160
1,019,018
1,000,000

41.

What amount should be reported as investment in bonds in the statement of financial position of COLOONG CO. on December 31, 2016?
a.
1,086,565
b. 1,054,438
c.
1,075,000
d. 1,065,000

42.

What amount of unrealized gain should be shown as components of other comprehensive income in the 2016 statement of comprehensive income?
a. 26,455
b. 20,562
c.
10,000
d. 16,455

43.

What amount of unrealized loss should be shown as component of other comprehensive income in the 2017 statement of comprehensive income?
a.
14,393
b. 18,500
c.
19,340
d. 1,222

44.

What amount of unrealized loss should be shown as component of other comprehensive income in the 2018 statement of comprehensive income?
a. 8,350
b. 26,500
c.
9,792
d. 10,982

45.

What amount of unrealized gain should be shown in the 2018 statement of change in equity?
a.
26,455

b.
c.
d.

16,883
25,233
10,990

The MILO Company included the following in its notes receivable as of December 31, 2015:
Notes receivable from sale of land
Note receivable from consultation
Note receivable from sale of equipment

2,640,000
3,600,000
4,800,000

The following transactions during 2015 and other information relate to the companys notes receivable:
a) On January 1, 2015, MILO Company sold a tract of land to Triple X Company. The land, purchased 10 years ago, was carried on MILOs book at
1,500,000. MILO received a noninterest-bearing note for 2,640,000 from Triple X. The note is due on December 31, 2016. There was no established
exchange price for the land. The prevailing interest rate for this note on January 1, 2015 was 10%.
b)

On January 1, 2014, MILO Company received a 5%, 3,600,000 promissory note in exchange for the consultation service rendered. The note will mature on
December 31, 2017, with interest receivable every December 31. The fair value of the services rendered is not readily determinable. The prevailing rate of
interest for a note of this type was 10% on January 1, 2015.

c)

On January 1, 2015, MILO Company sold old equipment with a carrying amount of 4,800,000 receiving 7,200,000 note. The note bears n interest rate of
4% and is to be repaid in 3 annual installments of 2,400,000 (plus interest on the outstanding balance). MILO received the first payment on December 31,
2015. There is no established market value for the equipment. The market interest rate for similar notes was 14% on January 1, 2015.

Note: Round off present value factors to four decimal places and final answers to the nearest hundred.
46. What amount of consultation fee revenue should be recognized in 2015?
a.
3,600,000
b. 2,705,000
c.
4,047,500
d. 3,152,500
47.

What amount should be reported as gain on sale of equipment?

a.
994,800
b. 2,400,000
c.
1,162,700
d. 1,237,300

48.

The amount to be reported as noncurrent notes receivable on December 31, 2015 is

a.
7,482,200
b. 6,037,300
c.
5,477,500
d. 7,877,600

49.

The amount to be reported as current notes receivable on December 31, 2015 is

a.
4,800,000
b. 2,400,200
c.
4,404,900
d. 7,400,000

50.

How much interest income should be recognized in 2015?

a.
974,200
b. 756,000
c.
1,378,700
d. 1,160,500

51.

The expertise that distinguishes auditors from accountants is in the

a.
Ability to interpret accounting standards
b. Accumulation and interpretation of evidence
c.
Ability to interpret generally accepted accounting principles
d. Requirement to possess education beyond the bachelors degree.

52.

In pursuing the firms quality control objectives with respect to assigning personnel to engagements, the auditors may use policies and procedures such as
a.
Evaluate clients upon occurrence at specified events to determine whether the relationships ought to be continued.
b. Designing senior qualified personnel to provide advice on accounting and auditing questions throughout the engagement.
c.
Establishing at entry levels a policy for recruiting that includes minimum standards of academic preparations and accomplishments.
d. Requiring timely identification of the staffing requirements of specific engagements so that enough qualified personnel can be made available.

53.

The Board of Accountancy may issue certificate of registration and professional identification card to any successful examinee:
a.
of unsound mind.
b. convicted by a court of political offense.
c.
guilty of immoral or dishonorable conduct.
d. who has falsely represented himself/herself in his/her application for examination.

54.

When CPAs are able to maintain an independent attitude in fulfilling their responsibility, it is referred to as independence
a.
In appearance
b. In conduct
c.
In fact
d. In total

55.

Which of the following statements is true when the CPA has been engages to do an attestation engagement?
a.
As long as CPA firms are competent, it is not required that they remain unbiased
b. The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are the statement users
c.
The CPA firm is engaged and paid by the client; therefore, the firm has primary responsibility to be an advocate for the client
d. Should a situation arise when there is no convincing, authoritative standard available, and there is a choice of actions which could impact clients financial
statement either positively or negatively, the CPA is free to endorse the choice which is in the clients interest

56.

Criteria need to be available to the intended users in an assurance engagement to allow them to understand how the subject matter has been evaluated or measured.
Which of the following is not among the ways by which these criteria could be made available to the intended users?
a.
Publicly
b. Through inclusion in the firms office policy manual.
c.
Through inclusion in a clear manner in the assurance report.

d.

Through inclusion in a clear manner in the presentation of the subject matter information.

57.

The best statement of the responsibility of the auditor with respect to audited financial statement is:
a.
The audit of the financial statements relieves management of its responsibilities
b. The auditor is responsible only to his qualified opinion but not for any other type of opinion.
c.
The auditors responsibility is confined to his expression of opinion about the audited financial statements.
d. The responsibility over the financial statements rests with the management and the auditor assumes responsibility with respect to the notes of financial
statements.

58.

In a review engagement, the practitioner and the client should agree on the terms of the engagement. The agreed terms would be recorded in an engagement letter
or other suitable form such as a contract. The engagement letter should include all of the following except:
a.
The objective of the service to be performed.
b. A sample of the report expected to be rendered.
c.
A provision that the engagement cannot be relied upon to disclose errors, fraud, or illegal acts.
d. A provision that any errors, fraud, or noncompliance with laws and regulation that come to the practitioners attention need not be reported.

59.

The successor auditor requested permission to communicate with the predecessor auditor and review certain portions of the predecessor auditors work papers.
The prospective clients refusal to permit this will bear directly on the successors decision concerning the:
a. Integrity of management
b. Apparent scope limitation
c.
Adequacy of the preplanned audit program
d. Ability to establish consistency in application of accounting principles between years

60.

Engagement letter that documents and confirms the auditors acceptance of the engagement would normally be sent to the client.
a.
At the end of fieldwork
b. After the audit report is issued
c.
Before the audit report is issued
d. Before the commencement of the engagement

61.

In which of the following situations would the auditor be unlikely to send a new engagement letter to a continuing client?
a.
A change in terms of the engagement
b. A recent change of client management
c.
A significant change in the nature or size of the clients business
d. There are new accounting pronouncements affecting the clients financial statements

62.

Inherent limitations in an internal control structure must be considered in evaluating its effectiveness in preventing and detecting errors and irregularities. Inherent
limitations do not include
a.
collusions among employees
b. in compatible functions performed by the same person
c.
management override of certain policies of procedures
d. misunderstanding of instructions, mistakes of judgment, personal carelessness, distraction, or fatigue.

63.

One of the auditors major concern is to ascertain whether the internal control structure is designed to provide reasonable assurance that
a.
The chief accounting officer reviews all accounting transactions.
b. Profit margins are maximized, and operational efficiency is optimized.
c.
Corporate morale problems are addressed immediately and effectively.
d. Transactions are executed in accordance with managements general or specific authorization.

64.

The strongest criticism of the reliability of audit evidence that the auditor physically observed is that
a.
The client may conceal items from the auditor.
b. Such evidence is too costly in relation to its reliability.
c.
The observation must occur at a specific time, which is often difficult to arrange.
d. The auditor may not be qualified to evaluate the items which he or she is observing.

65.

One reason why an auditor makes an analytical review of the clients operations is to identify
a. Unusual transactions
b. Non-compliance with prescribed control procedures
c.
Improper separation of accounting and other financial duties
d. Weakness of a material nature in the system of internal accounting control

66.

Tolerable error means

a.
An error that the auditor expects to be present in the population.
b. The maximum error in a population that the auditor is willing to accept
c.
An error that arises from an isolated event that has not recurred other than on specifically identifiable occasions and is therefore not representative of errors
in the population.
d. The possibility that the auditors conclusion, based on a sample may be different from the conclusion reached if the entire population were subjected to the
same audit procedure.

67.

It relates to materiality of the financial statement assertions affected by the computer processing.
a.
Complexity
b. Relevance
c.
Significance
d. Threshold

68.

An entitys management is responsible for the preparation and fair presentation of the financial statements. Its responsibility includes the following, except
a.
Selecting and applying appropriate accounting policies.
b. Making accounting estimates that are reasonable in the circumstances.
c.
Assessing the risks of material misstatement of the financial statements.
d. Designing, implementing, and maintaining internal control relevant to the preparation and presentation of financial statements.

69.

When the auditor concludes that there is substantial doubt about the entitys ability to continue as a going concern for a reasonable period of time, the auditor
should
a.
issue either qualified or adverse opinion.
b. report to the audit committee the need to adjust management estimates.
c.
consider the adequacy of disclosure in the notes to financial statements.
d. re-issue the prior years audit report and add explanatory paragraph that specifically refers to substantial doubt and going concern.

70.

The auditor shall express an adverse opinion when

a. The auditor, having obtained sufficient appropriate evidence, concludes that misstatements, individually or in the aggregate, are both material and pervasive
to the financial statements.

b.
c.
d.

The auditor, having obtained sufficient appropriate audit evidence, concludes that misstatements, individually or in the aggregate, are material, but not
pervasive, to the financial statements.
The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, but the auditor concludes that the possible effects on the
financial statement of undetected misstatements, if any, could be material but not pervasive.
The auditor is unable to obtain sufficient appropriate audit evidence on which to base the opinion, and the auditor concludes that the possible effects on the
financial statement of undetected misstatements, if any, could be both material and pervasive.

71.

If an amendment to other information in a document containing audited financial statements is necessary and the entity refuses to make the amendment, the
auditor would consider issuing:
a.
Unqualified opinion
b. Qualified or adverse opinion
c.
Qualified or disclaimer of opinion
d. Unqualified opinion with other matter paragraph

72.

When the auditor expresses an opinion that is other than the unqualified, a clear description of all substantive reasons should be included in the report and, unless
impracticable, a quantification of possible effects on the financial statements. This information would ordinarily be set out in
a.
The opinion paragraph of the auditors report
b. A separate paragraph following the opinion paragraph
c.
A separate paragraph preceding the opinion paragraph
d. The paragraph that describes the auditors responsibility

73.

The report on an agreed-upon procedures engagement should contain

a.
A general description of the procedure performed.
b. A statement that the auditor is independent of the entity.
c.
An expression of positive assurance based on the specific procedure performed.
d. Identification of the purpose for which the agreed-upon procedures

74.

The party responsible for assumptions identified in the preparation of prospective financial statement is usually
a.
a third-party lending institution
b. the clients independent auditor
c.
the clients management
d. the reporting accountant

75.

According to PSA 315. Risk assessment procedures means

a. obtaining understanding of entity and its environment, including its internal control.
b. performing substantive tests and testing the operating effectiveness of the entitys internal control.
c.
identifying business risks relevant to financial reporting objectives and deciding about actions to address those risks.
d. discussing with the members of the audit team the susceptibility of the entitys financial statements to material misstatements.