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ReSA 813Cor.R. Papaand S. LoyolaSts.

s#, The Review School of Accountancv r,zE+#/734-3e8e
ifili8iTi#iilS
), I resareview@hotmail.
com

AT-18 SELF-TESTand SUPPLf,MENTAL EXERCISESPART I

cAsH AND CASH EQUMTENTS
1. An auditor would considgra cashier'sjob descriptionto contain compatibledutles if the cashier
receivesremittancesfrom the mailroomand also preparesthe:
A. Daily depositslip. C. Prelistof individual checks
B. Remittance advices D. Monthly bank reconciliation
l

2. Whiahof the following internal control,procedureswill mo6t llftcly prevent the concealmentof a
cashshortageresultingfrom improperwrite-off of a trade accountreceivable?Write*offs:
A. Must be supported by an aging scheduleshowing that only receivablesoverdue for several;
months have been wiitten off.
B. Must be approvedby the cashierwho is in a positionto know if the receivableshdve, in fact,
been collected.
C. Must be authorizedby companyfield sales employeeswho are in a positionto determinethe
financialstandingof the customers.
D. Must be approvedby a responsibleofficer after review of credit departmentrecommendatlons
and sirpportingevidence.
3. An entity's internal control structure requiresevery checkrequestthat there be
E an approvedvoucher,
tr supportedby a prenumberedpurchaseorder and a prenumberedreceivingreport,
To deterrnine whetfier cfrecks are bing issued for unauthorized expenditures, an auditor most
likely would setectitems for testing from the populationof all:
A. Cancelledchectcs C. Purchaseorders
B. Approved vouchers D. Receivingreports
4. In testingcashand cashequivalents,an audltorrnay requestthe client'sbankto provide6 cut-off
bank 9tatement. Which of the following aud&hg procedureswould the auditor no't appty to a
cutoff bank statement?
A. Trace year end outstanding checksand dcpoetrsin transit to the cutoff bank statenpnt.
B. Compare dates, payees and endorsements on returned checks with the cash disbursefirents
record.
C. Recbncilethe bank aecountas of the end of the cutoff period.
D. Detcrminethat the year end deposlt in transit was credited by the beak on the first working
day of thE folbwing accountingBeriod.
5. Your cllent, ABCCompany,malntainstwo cash in bank accounts. One of the account,Bank J, has
an overdraft of P20O,00O. The other account,with Bank K, has a positivebalanceof P100,000.To
concealthe overdratt for.mthe.audltor,the cliEntmay decideto do kiting. Whichof the following
choicesbcrt illustrateskiting procedures?
A. Draw a chec* for at bast P2O0,000on Bank J for deposit in Bank K. Recordthe receipt but
not the disbursementand llst the receipt as a deposit in trangit. Recordthe disbursementat
the bglnningof the following year.
B. Draw a check for at feast P200,000on Bank K for deposit in Bank J. Recordthe receipt but
not the dlsbursernentand list the receipt as a deposit in transit. Recordthe disbursementat
the beginnirq of the followingyear.
C. Draw a checkfor at feast P200,0O0on Bank K for depositin Bink J. Recordthe disbursement
but not the receipt. List the disbursementas an outstandingcheck, but do not list the receipt
as a depositin transit, Recordthe receipt at the beginningof the followingpertod.
D. Draw a checkfor at least P2O0,000on Bank JYor deposltin Bank K. Recordthe disbursement
' but not the receiptand list the disbursenientbut not the receiptand list the disbursernentas'
, an outstandingcheck.Recordthe.receiptat the beginningof the followingyear.
6. While performingan audit of cash, an auditor begins to suspectcheck kiting. WhiChof the
followingis the best evidencethat the audi.torcouldobtainwhetherkiting is taking place?
A. Documentaryevidenceobtainedby vouchingcreditson the latestbank statementto
supportingdocuments
B. Documentaryevidenceobtainedby vouchingentriesin the cashaccountto supporting
documents
C. Oral evidenceobtainedby discussion with controllerpersonnel
D^ Evidenceobtainedby preparinga scheduleof interbanktransfers.
 7. You are auditing CopacabanaInc. for the year ended December 31. 2006. Two months before
year-end, Copacabana'sboqkkeeper erroneously recorded the receipf of a,long-term bank loan by
a debit to cash and a credit to sales. Which of the following is ttre rrr$rdbrrective procedure for
detecting this type of error?
A. Analyzebank confirmationinformation
B, Analyzethe notes payableJournal
C. Prepareyear-end bank reconciliation
D. Preparea year-end bank transfer schedule
B, Postdatedchecks received by rnail in settlement of customer's accounts should be
A. Returnedto customer
B. Stamped with restrictivd endorsement
C. Depositedimmediatelyby'the cashier
D. Depositedthe day after together with cash receipts
9. The cashier of Jefferson Starship Inc. covered a shortage.in the cash working fund with cash
obtained at December 31 from a bank by cashing but nof recording a check drawn on the
company out of town bank. You are the companyts Jxternal auditor. How would you discover the
manipulation?
A; By confirmingall December31 bank balances;
B' By countingthe cash working fund'at the close of businesson December31.
C' By investigating items returned with the'bank cut-off statements of the succeedingmonth.
D. By preparingthe independentbank reconciliationas of December31.
10' An esseRtialphase of the audit of the cash balance at the end of the year is the auditor,s review
of cutoff 'bank statement, This specific procedure rs not useful in determining if:
A. Kfting has occurred. '
B. Lappinghas occurred.
C. The cash receiptsjournal was held open.
D' Disbursementsper the bank statement can be reconciledwith total checks written..
11;As one of the year-end audit procedures,the auditor instructedthe client,spersonnel prepare
to a
standard bank conformation request for bank account that had been closeclduring the year,
After
the client's treaiurer had signed the request, it was mailed by the assistant treasurer. what
is
the rnafor flaw of this audit procedure?
A. The confirmation request was signed by the treasurer.
B. Sending t*te reguest was meaninglessbecaure the account was closed before the year-end.
C. The requestwas mailed by the assistanttreasurer.
D. The cPA did not sign the confirmation reguest before it was maifed.

tOAilS ATID RECEIVABLES

12. Rock, CPA, is testing sales transactiong. One step is to trace a sample of debit
entries from the
accounts receivable subsidiary ledger back to the supporting.safes invoices. What
does Rock
intend to establishby this step?
A, Salesinvoicesrepresentbonafidesales.
B' in the accountsreceivablesubsidiarytedger are properly supportedby sates
P^:.?1,^:",t'es
Invotces.
C. All sales invoiceshave been recorded.
D; All'sales invoices have been properly posted to customer accounts.
13. Tracing bills of lading to sales invoices provides evidence that:
A. Shiprnentsto customers were recorded as sales.
B. Shipments to customers were invoiced.
C. Recordedsaleswere shipped.
D.. Invoiced sales were shipped.
1"4'To gather audit evidenee about the proper credit approval of sales,
the auditor would select a
sample of documents from the population represented'by:
A, ]he AR subsidiary ledgers. C. Customer order filei
B. Sales invoicefile. D. Biil of tadtngfile.
15. In deterrnining validity of accounts receivabfe, which of the foltowing
audit evidences would the
auditol consider most reliable?
A. Direct telephone communieation between auditor and the debtor.
' B' Documentary evidencethat s'qpportsthe accounts receivable
balance.
C. Confirmation replies received direcily irom cu5tomers.
. D. Credits to accounts receivablefrom the cash receipts book after the close of businessat year.
end.
16' An auditor is evaluating.th." appropriatenessof adjustments to sales.
which of the folfowing
would be consideredas the best available eviclencefor this objective?
' Physicalevidence obtained by inspectionof goods returned for credit.
I'
E' Oral evidence obtained by cliscussing ecllustment .related procedures
with accountin*
personnel:
- aa^
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-"-l -

Auditing
Theory:Self-Test
Part1 AT.18
C. Analyticalevidenceobtainedby comparingsales adjustnreffi.#g.or. sales for the period
then ended
D' Documentaryevidenceobtainedby inspectingdocumerltssupportingentries to adjustment
accounts.
17. An item was'soldwith terms FOBshippingpoint. Whichsourcedocumentshouldthe auditoruse
to verify the correct salesdate for this transaction?
A. Salesinvoice. C. Customer,spaymentdocument.
B. carrier'sbill of lading. D.' customer'spuichaseorder.
18. Whichof the followingprocedureswould an auditor most llkely rely on to verify management's
assertion of completeness?
A' Confirma sampleof recordedreceivablesby dlrect communicationwith debtors.
B. Observethe client'sdistributionof payrollchecks.
C. Comparea sarnpleof Shippingdocumentsto relatedsalesinvoices.
D. Reviewstandardbank confirmationsfor indicationsof kiting
19, An auditor wishesto substantiatethe gross balanceof the Trade/VotesReceivableaccount. He is
considering the advisability of performing the four procedures listed below. Which pair of
procedureis begt suited to this objective?
ABED
. Age the receivables Yes No Yes Yes
r Confirmthe notes with the makers No Yes No Yes
i Inspectthe notes Yes Yes No No
. Trace a sample of postings from the salesjournal to the
notes receivableledger. No No Yes No
20. An auditor reconcilesthe total of the'accountsreceivablesubsidiaryledgerto'the generafledger
control account, as of october 31, 2oo7. By this procedurethe auditor would oe most lilrcly to
learn which of the following?
A. An Octoberinvoicewas improperlycomputed.
- B. An Octobdr check from customerSvrrasp6ted In error to the account of another customer
with a sirnilarRame.
C, An opening balance in subsidiary ledger account was improperly carried forward from the
previousaccountingperlod.
D. An account bafanceis past due and shouH !c written off.
21. Which of the foflowing is the bcct r3umant aoinst the use of neEativeaccounts recetvsh
confirmations?
A. Thd cost-per-responseis excesstvetyhigh.
B. There is no way of knowing if the intendedrecipientsreceivedthem.
C. Recipientsare likely to feel that the confirmationis a subtterequestfor payment.
D. T.heinference drawn from receiving no reply may not be cor.eci.

rIrvEl{TORIGS ArD COST Of COOOS SOLD

22. when auditing inventories,an auditor would lttrt mrGNyverify that
A. The firiancial *atement presentationof inventories is appropriate.
B, Damagcdgoodi and obsolete items have been properly accountedfor.
C, All inventoryowned by tfie client is on hand at the time of the count.
D,, The client has used proper irwentory pricing.
23. From which of the following evidence-gatheringaudit procedureswould an auditor obtain most
assurancc concernlngthe existence of inventorles?
A. Observationof physicalinventorycounts.
B. Written inventory representationsfrom management.
C. Confirmationof inventorlesin a publicwarehduse
D. Auditor'srecomputattonof inventoryextensions.
24' If inventoriesare material to the financialstatements,the auditor should attend the physical
inventorycountsin order to:
A. Inspectthe inventory.
B. Obsrve compliance with the operations of management's procedures for recording and
. control of resuftsof the count.
.c. Provideevidenceas to the reliabilityof management'sprocedures.
D. All of the above.
25. Which of the following control procedureswould most likely be used to maintain accurate
perpetualinventoryrecords?
A, Independentmatchingof purchaseorders,receivingreportsand vendor'sinvoices.
8.. Independentstorerosrncount of goodsreceived,
C' Periodicindependentreconciliationof controland subsidiaryrecords.
D. Periodicindependentcomparisonof recordswith goodson hand.
 26. The accuracyof perpetualinventoryrecordsmay be established
in paT by comparingperpetual
inventoryrecordswith:
A. Pur ch a serequisitions C. Receiving.*o*o.
B. Purchaseorders. D. Paymentsto vendors.
27.The auditor tests the quantity of materialschargedto work-in-processby tracing these quantities
to the;
A. Receivingreports. C. Materialsr"equisrtionforms.
B. Perpetualinventory records. D. Cost ledgers.
28. An auditor would analyze inventory turnover rates to obtain evidence concerningmanagement's
assertionabout;
A, Valuationor allocation. C. Presentationand disclosure.
B, Rightsand obligations. D. Completeness.
29'Iq inventories,a major objectiverelates to the existenceassertion. Of the followrng
3.tlditinO
audit proceduresrelatingto inventories,whichdoes not supportthe existenceassertion?
A. The auditor reviews the client's inventory-takinginstructionsfor such matters as proper
arrangementof goods, separationof consignedgoods from client's goods, and limits on
movementsof goodsduringinventorycount. \
B. The auditor observes the client's inventory counting and performs test counts as appropriate.
c. The auditor confirrns inventories which are not in the premises.
D . The auditor performs a test regarding valuation of major categories of inventory at lower of
co5t or net realizablevalue.
30, In. ima'nLifacturingcompany, which' one of the following audit procedures would giVe the feast
l
assuranceregarding the valuation of inventory at the audit date?
A. Testing the computation of standard fadtory overhead rates.
B. R'eviewingdirect labor rates used by the dient.
C. Examiningpaid.vendors'invoices
D. Obtainingconfirmationof inventoriespledgedunder loan agreements.
31. When auditing merchandise inventory at year-end, the auditor performs a purchase cutofTtest
to
obtain evidencethat:
All goods purchased before year-end are received before the physical inventory count.
l.
B' No goods held on consigonrnent for customers are included in the inventory balance.
c. No goods,observedduring the physical count are pledged or sold.
' D. Alf goods owned at year end are inclucledin the inventory balance,
32' If undble to attend the physical inventory count on the date planned due to unforeseen
circumstances,the auditor should:
A. Issue a quafifiedopinion due to a scope limitation.
B. Perform analytlcal proceduresas a sufficient alternative to the physical count.
C. Issue a statement of withdrawal from the engagement. .
D. Take or observe some physical counts on an alternative date an6 wlrlbn necessary, perform
tests of in(ervening transactions.
33. You are auditing the inventory accounts of Glass Molders Corporation. Which of the following
ifems Sh'ould;rot be included ln a physical inventory conducted by your client?
A.Materia|sintransitfromvendorsFoBshippingpoint.
B. Goods received for repairs under warraity.
C. Consignmeritto an agent.
D. Goods in a private warehouse

NON.CU RRENT OPERATIIIG ASSETS ( PPE/ I TTTATGIBLES/ OTHCR ASSETS

)
34' Which of the following combination of procedureswould an auditor most tir6ry perform
to.obtain
evfdenceabout fixed assets additions?
A. Inspectingdocumentsand physicallyexaminingassets.
I' lg.p.nputing calculationsand obtaining written management presentations,
C' Observing operating activities and cornparing balances[o prior period balances.
D. Confirming ownership and corroborating trarisactionsthrough inquiries of client personnel.
35. Which of the folloWingis a customary audit procedure for the verification of the legal ownership
of
real property?
A. Examinationsof correspondencewith the corporatecounselconcerningacquisitionmatters.
B' Examination'of ownership documents registergd and on file with the Registerof Deeds.
C' Examination of corporation minutes and resolutions concerning tfrJ afprouai to'u"qrir"
property, plant and equipment
D. Examinationof deeds and title guaranty policieson hand.
36. A weaknessin internal control over recordingretirementsof equipment may cause an auditor
to
' 14. Trace additions to the "other assets" account to search for'equipmeni that is still,gn hand but
no longer being used. :.
B' Selectcertain items of equipmentfrorn the accountingrecordsand locatethem in the plant,
 C. Inspect certain items of equipment in the plant and tr:ace those items to the accounting
records, ?
D. Reviewthe subsidiaryledger to ascertainwhether deprecia$pniltrras taken on each item of
equipmentduringthe year.
37.To yerify the propriety of costs charged to real property recordsfor improvementsto property,
the best source of audit evidencewouldbe the/a(n):
' A. Letter signedby the real property managerassertingthe propriety of costs incurred.
B, Comparisonof billedamountsto contractestimates.
,c. original invoicessupportingentriesin the accounUngrecords.
D. Inspectionby'tfre auditor of reai property improvements.
38. Propertyacquisitionsare misclassifiedas maintenanceexpenseswould moft likgly be detected
by internalcontrolproceduresthat providefor:
. A. Investigationof varianceswithin a formal budgetingsystem.
B. Reviewand approvalof the monthly depreciationentry by the plant supervisor.
C. Examinationby the internal auditor of vendor invoicesand canceledchecks for property
acqulsitions.
D. Segregatlonof dutiesof employeesin the accountspayabledepartment.
39. Luijes, CPA,is verifying the existenceof newly acquiredfixed assets recordedin the accounting
records. Whichof the followlngitems of evidencewill bcst help achievethis objective?
A' Oral evidenceobtainedby discussionswith productionand operaflonsmanagernent.
B. Documentarysu,pportobtainedby vouchingentries to subsidiaryrecordsand invoices.
c. Documentarysupport obtainedby reviewin! utbb and tax returns.
D. Physicalexarninationof a sampleof newly-recordedfixed assets.
40. Assetsmay suffer impairmentin value for a varlety of reasons,excapt:
A. A maJorcorporaterestructuring.
B. Alarmingdetdriorationof demandfor th client,sproducts.
C. SignificantIncreasesin market share.
D. Technological obsolescence.
41. Whichof the followingis not consideredas a researichand developmentactivity?
A. Laboratoryresearchaimed at discoveryof new knowledge.
B. Concepfualformulationand designof productor processafternatives.
C. Deslgn,constructionand testing of pre-productionprototypesand models
D. Rotltinetesting of tools, Jigs,mOldsand dies.
42. A client is asking you whether legal fees incuned by ttre company in defendtng its patent rtgftts
should be capitalized. How would you respqrd?
A. .Outcomeis successful- capitafize Otrtcomeis unsuccessful- expense
B. Otrtcomeis successful* expense Outcomeis unsuccessful- capitalize
C. OutGbmeis successful- capitalize Outcomeis unsuccessfut- capitalize
D. Outcomeis successful- expense Outcomeis unsucbessful- expense
INVGSTTIGilITS ''
43. Whichof the followingis not a control that is designedto protect investmentsecurities?
A. Accessto securitiesshould be vested in more than one individual.
B. Securitiesshould be properlycontrolledphysicallyin o,rderto prevent unauthorizedusage.
C. SecUritiesshoufdbe registeredin the naine of the owner.
' D. Custodyover securitiesshould be limited to individualswho have recordkeepingresponsibility
. over the securities.
44. Which of the following controls would a company most likeiy use to safeguard ihvestment
securitieswhen an independenttrust agent is not empto.yed?
A. The chairman of the board verifies the investment securities,which are kept in a bank safe
' depositbox, each tear on the balancesheet date.
B. The investment cQmmittee of the board of directors periodically reviews the investment
decisionsdelegatedto the treasurEr.
C. Two company officials have joint control of lnvestment securities,which are kept in a bank
safe depositbox.
D. The internal auditor and the controller independently trace all purchases and sales of
I investmentsecuritiesfrom the subsidiaryleeigersto the generalledger.
45. Which of the following controls would an . entity moet likcty used to assist in satisfyingthe
compl etenessassertionrelatedto long-term investments?
A. The controllercomparesthe cuirent market prices of recordedinvestmentswith the broker,s
adviceson file.
B. Seniormanagementverifiesthat securitiesin the bank safe depositbox are registeredin the
entity's name. :
C. The internal auditor comparesthe securitiesin the bank safe deposit box with recorded
investments.
D.' The treasurer vouches the acquisitionof securities by comparing brokers, advices with
. canceledchecks.
'
' 46. An .entity would like to safeguard its investment securities agains! po5sible loss. Which of the
following controls wou[d most likely contribute to achieving this.objedife?
A. A.designated member of the board of director.scontrols th-e seturities in a bank safe deposit
box.
B. An independent trust company that has no direct contact with the employees who have
record-keepingresponsibilitieshas possessionof securities.
C. The internal auditor verifies the investment securitiesin the entity's safe each year on the

D. ?f,5ffi#""T"11tiuoiro.rracesau purchases
anclsaresof invesrment
securities
throughthe
subsidiary ledgers to the general ledger.
47.When negotiable securities are of considerable volume, planning by the auditor is necessary to
guard against:
A, Substitutionof securitiesalready counted for other securitieswhich should be on hand but are
not.
B. Substitutionof authenticsecuritieswith counterfeitsecurities.
C. Unauthorizednegotiation of the securities before they are counted.
, D. Unrecordedsales of securitiesafter they are counted.
48. In testing the valuation assertion for investments, the auditor should do all of the following,
excepe
A. Vouch purchasesand sales of securities by tracing to brokers'advices and canceledchecks.
B. Cornparecost and market by reference to year end market values for selected securities.
C. Confirm securities held in safekeepingoff the client's prernises.
. D, Recalculategain or loss on disposals.
49. An audit procedure that provides evidence about proper valuation of trading securities arising
from a short-term investrnent of excess cash is:
A. Recdlculationof inve5tment carrying value by applying the equity method:
B. Comparisonof carrying value with current market quotations.
C. Confirmation of securities held by broker.
D. Calculationof premium or discount amortization.
50. ABC Company has acquired DEF Company through purchase. Which of the following would be the
best audit procedure to test the appropriatenessof the allocation of cost to tangible assets?
A. Evaluate the reasonablenessof rcorded values by use of replacement cost data.
B. Evaluate the reasonableness of recorded values by discussion with operating personnel.
c. Deteimine whether assets have been recorded at their book value at the date of purchase.
D. Evaluate procedures used to estimate and record fair market values for ptrrchasedassets.
51. The auditee has just acquired another company by purchasing all its assets. As a result of the
purchaSe, 'goodwill" has been recorded on the auditee's books. Which of the following
comparisons would be the fioct sppropriate audit test for the amount of recorded goodwill?
A. The purchase price and the fair mirker value of assets purchased.
nr
B. The purchase price and the book vale of the bssets purchased.
C. The figure for Eoodwilf specified in the contract for purchase.
' D. Earnings in excess of 15o/oof net assets for the past five years.
52. Th'e following procedures pertain to tests for interest on bond investments, which of these is the
most cffiticnt audit procedure for testing accrued interest earned on bond.investment?
A. Vouching the receipt and deposit of interest checks.
B. Tracing interest declarationsto an independent record book.
C. Recomputinginterest earned.
D. Confirminginterest rate with the issuerof the hronds.
53. In establishingthe existenceand ownershipof a long-term investmentin the form of publicly
tradedstock,an auditorshouldinspectthe securitiesoi
A' Correspondwith the'inVesteecompanyto verifythe numberof sharesowned.
B. Inspectthe auditedfinancialstatementsof the investeecompany.
C' Confirmthe numberof sharesownedthat are held by an independentcustodian.
D. Determinethat the investmentis carriedat the lowerof cost or market.-
CURRENTAND NON-CURR.ENT LIABILITIES
54. When using confirmations to provicie evidence about the completeness assertion for accounts
payable,the appropriatepopulationmost likely would.be
A. Vendors with whom the entity has previously done business.
B. Amounts recorded in the accounts payable subskliary ledger.
C. Payeesof checks drawn in the month'after the year end.
D. Invoicqsfield in the entity's open invoicefile.
55' Auditor confirmation of accounts payable balancesat the balance sheet date may be unnecessary
because:
e.: if'tlr is a duplication of cutoff tests.
B. Accountspayable balancesat the balancesheet data may not be paid before the audit
is completed.
 ' 1i:Fj::ril=ai-:"'+-;.-li:'1':;%
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C. Correspondence with the audit client'sattorheywill revealall legalpctionby vendorsfor

nonpayment. -' l-'
r#rs
D. Thereis likelyto be other reliableexternalevideneeto suporttffi balances.
56. Whichof the followingis a substantivetest than an ar.rditormost likely would performto verify
the existenceand valuationof recordedaccountspayable?
A. Invegtigating. the open purchaseorder file to ascertainthat prenumberedpurchaseorders
are usedand accountedfor,
B. n".J"tg-tft;l;;';;uiJ,'unop"ned, for a reasonableperiodof time after the year end to
searchdoe unrecordedvendor'sinfoices.
' C. Vouchingselectedentriesin the accountspayablesubsidiany ledgerto purchabeordersand
recievingreports.
' D. Confirmingaccountspayablebalanceswith known supplierswho have
zero balances.
57. Whichof the followingis the most efficientprocedurefor the detectionof unrecordedliabilities?
A. Ccimparecash disbursementsin the subsequentperiod with the accounts payable trial
balanceat year-end.
B. Confirmlarge accountspayableat balancesheet date.
' C. Examinepurchaseorders issuedprior to the closeof the year.
D. Obtaina liability certificatefrom the cllent.
58. Whichof the followingproceduresis least likefy to be pefformedbeforethe balancesheet date?
A. Testingof interrtalcontrol over cash. C. Searchof unrecordedliabilities.
B. Confirmationof reqeivables. D. Observationof inventory.
59. Whichof the followingproceduresis least likefy to be performedbefon-lthe balancesheet date?
A. Examlne confirmation requests returned by creditors whose accounts appear on a
subsidiarytrial balanceof accountpayable.
B. Examinea sampleof cash disbursementsin the period subsequentto yeaf-end.
C. Examinea sample of invoicesa few days prior to and subsequentto year-end to asceftain
whether they have been properly recorded.
D. Examine unusual relationshlpsbetween monthly accountspayable balancesand recorded
purchases.
60. The audit procedurs used to verify accrued liabilities differ from those employed for the
verificationof acco-untspayablebecause
A. Accruedliabllitiesusually pertain to servies of a contlnuingnature while accountspayabb
are the result of completed transactlon*
B. Accrued liability balancesare lcss rncterfrf 6ran aqcountspayable balances.
C. Evidencesupporting accrued liabilfrtcsis nonexistentwhile evidence supporting accountg
payableis readily available.
D. Accruedliabilitiesat year-endwill become accountspayablein the followingyear.
61. Wtren an'auditor Selectsa sample from the voucherspayableregister for {|re last month of the
period audlted and trfces the items to underlylngdocuments,tha auditor is gathering evidence
primarily in support of the asseftion that
A. Recordedobligations were paid.
B. Incurred obligatlonswere recordedin the correct period.
C. Recordedobligationswere valid.
D. Cashdisbursembntswere recordedas incurredobligations
62. Unrecordedliabilities are most likely to be found during th review of which of the following
documents?
A, Unpaidbllls. C. Biltsof lading.
B. Shippingrecords. D. Unmatchedsalesinvoices.'
63. Whichof the followingproceduresrelatingto tests of accountspayabfecouldthe auditordelegate
entlrelyto the cftent'sempfoyees?
A. Test footings in the accountspayabteledger.
B. Reconcileunpaid invoicesto vendor'sstaternehts,
C. Preparea scheduleof accountspayable,
D. Mail confirmationsfor selectedaccountbafAnces.
64. Whi'chof the followingaudit proceduresis least likely to detect unrecordedliabitity?
A. Analysisand recomputationof interestexpense.
B. Analysisand recomputationof depreciation expense.
C. Mailingof standardbank confirmations.
D .Re a d in goftheminUtesofmeeting s o f t h e b o a rd o f d ire c t o rs
65. Confirmationof accountspayablebalancesis
A. Usualfyperformedat interimdatesratherthan at year end.
B. Not effectivein testingfor unrecordedliabilities.
C. Particularlyusefulwhen the auditorsuspectsliabilitiesmay be materiallyunderstated.
D. Requiredby generallyacceptedauditingstandards.
-F-

' 661To provido assurance that each voucher 'is submitted ind:paib only once, a'n auditdr most likely
. - would examine a sample of paid vo0chers and determine whether;each v_oucheris
A, Suppofted by a vendor's invoice , ,+
B. Prenumbered and accounted for
C. Stamped"paid" by the check signer
D. Approved for authorized purchase
67.In connection with the examination of bonds payable, an auditor would expect tq find in a trust
indenture:
A. The issue date and maturity date of the bond,
B. The names of the original subscribersto the bond issue.
" C. The yield to maturity of the bonds issued.
D. The company's debt to equity ratio at the time of issuance.
68' A company issued bonds for cash iuring the year under audit. To ascertain that this transaction
was properly recorded, the auditor,s best course of action is to:
'rA.
statement from the bond trustees as to the amount of bonds issued and
1".;q"-::t,.i
B. S::?:iltlil3'r"rutt, of the issuance
with the underwriterof investmentbanker.
C. Tracedthe cbshreceivedfrom the issuance to the accounting records.
' D, Verify that the cash received,w?s credited to a ,,Bonds payable,, account,
69.'A cornpanyguaranteesa debt of an affiliate. Whichof the followingprocedureswould make the
aubitorawareof the guarantee?
A. Reviewrninutesand resolutionsof thq board of directors
B. Reviewprior year workingpaperswith respectsto suchguarantees.
C. Revibwthe possibitityof suchguaranteeswith the chiefaccountants.
' D" Reviewthe legal letter returnedby the gompany'soutsidelegalcounsel.
70. The auditor'sprogramfor the examination'offong-termdebt should includesteps that require
th e :
A. Verificationof the existenceof the bondholders.
B. Examinationof any bondtrust,indenture.
C. Inspectionof accountspayablesubsidiaryfedger:
D. Investigationof the credit to bond interest incomeaccount;
71. Durlng the course of an audit, a CPAobservesthat the recordedinterest expenseseems to be
excess-ive-inrelation to the balancein the long-term debt account. This observationcould lead
the auditorto suspectthat:
A. Prerniumon bonds payableis overstated.
B. Discounton bonds payableis undrstated.
C.. Long-termdebt is overstated
D. .Long-termdebt is understated
72- When a CPAobservesthat the recordedinterest expenseseemsto be excessivein relation to the
balancein the bonctspayableaccount,the CpAmight suspectthat
A. Discounton bondSpayableis understated.
B. Premiumon bondspayableis overstated.
C. Eonds piyable are overstated.
D. Bondspayabb are understated.
73.An auditor most tikely would inspect loan agreementsunder which an entity's inventoriesare
pfedgedto,supportmar.ngemntlsfinancialstatementassertionof
A. Presentbtionand disclosure. c. Existenceor occurrence.
B. Valuationor allocation. D. Completeness.
74.In, auditing long-term bonds pa^yable,an auditor most likely would
A' Pefform analyticat procedures on the bond'premium and.discount accounts.
B. Examine documentation of assets purchased with bonds proceed for liens.
C. Compare interest expense with the bond payable arnoufrt of reasonableness.
D. Confirm the existence of individual bond holders at year-end.
75. The can best verify a clieht's bond sinking fund transactions and year-end balance by
A. "uditot
Confirmdtion of lndividual holders of retired bonds.
B. Confirmation with the bond trustee.
C. Recomputationof interest expense, interest payable, amortization of bond discount,or.premium.
D. Examination'andcount of the bonds retired during the year.
PAVROLL
76. When"control risk is assessed as low for assertions related to payroll, substantiv tests of payroll
balancesmost likely would be limited to applying analytical proceduresand
A. ' Observing the distribution of paychecks,
8.. Footing and crossfooting the payroll register.
C. . Inspectingpayrolltax returns.
D. Recalculating payrollaccruals.
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most likely would causean auditorto suspectan employee
77. Whichof the followingcircumstances
payrollfraud scheme?
A, Thereare significantunexplainedvariancesbetweenstandardand actuallaborcost.
B. Payroflchecksare disbursedby the sameemployeeeachpayday.
C. Employeetime cardsare approvedby individualdepaftmentalsupervisors.
D. A separatepayrollbank accountis maintainedon an imprestbasis.
78.In auditingpayroll,an auditormost likelywould
A. Verifythat paychecksrepresentingunclaimedwagesare mailed.
B. Traceindividualemployeedeductionsto entity journalentries.
C. Observeentity employeesdurlng a payrolldistribution.

SHAREHOLDERS', EQUTTY
equity,an auditoris most concernedthat
79.ln' an examinationof shareholder's
A. Capital
stock are
transactions properlyauthorized.
B. Stocksplitsare capitalizedat par or statedvalueon the dividenddeclarationdate.
C. Dividendsdurlngthe year underaudit were approvedby the shareholders.
D. Changesin the accountsare verifiedby a bank servingas'a registrarand stocktransferagent.
80. Whena corporateclientmaintainsits own stock records,the auditorprimarilywill rely upon
A. Confirmationwith the companysecretaryof sharesoutstandingat year-end
B. Reviewof th corporateminutesfor data as to sharesoutstanding.
'C. Confirmationof the number of sharesoutstandingat year-endwith the'appropriatestate
official.
D. Inspectionof the stockbook at year-endand accountingfor all certificatenumbers.
81. Whena clientcompanydoesnot malntainits own stock records,the auditorshouldobtainwritten
confirmationfrom the transfer agent and registrarconcerning
A. Restrictionson the paymerttof dividends.
I. The number of sharesissuedand outstanding.
'C. Guaranteesof preferredstock liquidationvalure.
D. The nurnberof sharessubJectto agreemcfitoto repurchase.
82. In perfor.rningtests concerningthe granting of stok options,an auditor should
A. Confirmthe transactionwith the Secretaryof State in the state of incorporation.
B. Verify the existenceof option holdersin the entity's payroll recordsor stock ledgers.
C. Determinethat sufficienttreasury stock is availableto cover*anynew stock issued.
D. Tracethe authorizationfor the transactionto a vote of the board of direetors.
83. Duringan audit of an entity'sstockholder'sequity accounts,the auditordetermineswhetherthere
are restrictionson retained earnings resultlng from loans, agreefnents,or state law. ThiS audit
procedurcmost likely is intendedto verify management'sasseftionof
A. Existenceor occurrence. C. Valuationor allocation.
B. Completeness. D. Presentation and disclosure.

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[i4 resareview@hotmail.com

AT-19 S,ELF-TESTand SUPPLEMENTALEXERCISESPART I

1. An auditor'spreliminaryanalysisof accountsreceivableturnoverrevealedthe followingrates:
Year AR Turnovcr

2005 7.3 times

2006 . 5.2 times
2A07 4.3 times
Whichof the following is the most llkcly causof the decreaseIn accountsreceivableturnover?
A. Shorteningof due date terms. C. Liberallzation of credit policy.
B. Incrasein the cashdiscountoffered. D. Increased cash sales.
2 . The followingstatementsrelate to analyticblprocedures. Whichone is @rrGct?
A.. Analytical proceduresused in ptanning the audit should be limited to non-financial
informationonly.
B. Analyticalprocedurdsmay be omittedentirelyfor somefinancialstatementaudits.
C. Analytical pr,oceduresafone may provide the appropriate level of assurance for some
assertions.
D. Analyticalproceduresusuallyare effectiveand efficientfor tests of controls.
3 . When used as a substantlvetest, analyticalproceduresfocuson:
A. Obtainingan understanding of the entity, and on identifyingareasof potentialrisk.
B. Obtaining audit evidence about the suitabitity of design and effective operathcnof .the
internal control system of the company.
C, Whetherthe financialstatementsas a whete ar consistentwith the audltor'sunderstandlng
of th entity and lts environment,includingits internal control.
D. Detectlngrnaterialmisstatementsin the financialstatements
4. You_are auditing Dragonballz,Inc. for the year 2007. As a result of analytical procedures
performed, you determined that the gross -proflt percentage has declined from 3$o/oin Z0O6to
2ooloin 29a7. which of the followtngproaedurus,isthe lcd courseof acgon?
A. Document managment'shtqttions |Y|tt nfpcct to plans for reverslng this trend.
B. Evaluatemanagement'sperformancein tustng this decline.
C. Reguirefootnote disclosure.
. D. Considerthe-possibilityof a misstaternentin the financialstatements.
5 . Auditors Sornetimesuse a comparisonof ratios as audit evidence. For example, an unexplained
decrease in the gross profit percntage (ratio of gross profit to sales) 3-rggests which of the
follovting possibilities?
A. There were unrecordedpurchesetratrcactions.
B. Fictitloussales have been recorded by the client.
c. Mer:chandise purchaseshave ueen oe'biteoto sollingand genepl e*penses
D. There are saleswhich have occqrredbut were not recorded
6. The applicationof analytical'proceduresis based on the expectationthat plausiblerelationshlps
among data exist anrdcortinue in the absenceof knorvncondition$to the contrary. Which of the
following itetns tend to be the rnott PtdfcbH. for purposesof analytical proc6duresapplied as
substantivetests?
A. Relationships involvingincomestatementaccounts.
B, RefationshipsInvolvingbalarrcesheet accounts.
c. oati suoSe[ito
.rat';fi"g;; in" p.io.y.rr. '
D. Transactionssubject to maiagement dlscretion. ,'
7' Analyticalproceduresindicatethat the client's dccountsreceivableturnover is 7.1 times in 2006
as comparedto orrly 5.5 times in 2007. It is possiblethat there werel
A, Unrecordedcreditsalesin 2OO7.
B. UnrecordedcashreceiptsIn 2006.
C. Morethoroughcreditinvestigations made by the companylate in 2006.
D. Fictitioussales
nles in 2007.
2007. I
B' Analyticalproceduresperformedin the overall review stage of an audit suggestthat several
accountshave unexpectedfluctuations. The auditor in this situation host li*cly will csnclude
that:
A. "Internalcontrolsystemsare not operatingeffectively.,,
E. ''rhe communication
with the audit cornmitteeshouldbe revised."

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1 C. "Additionaltests of detailsare required."
D. "Irregularitiesexist amongth dccountbalancesinvolvedin the analysis."
9. Analyticalproceduresusedin the overallreviewstageof an audit generallyinclude:
A. Conslderingunusualor unexpectedaccountbalancesthat were not prevtouslyidentified.
B. Performing tests of transactlons to corroborate' management's financial statement
assertions.
C. Gatheringevidenceconcerningaccountbalancesthat^have not changedfrom the prior year.
D. Retestingcontrolsthat appearedto be ineffectiveduring the assessmentof control risk.
10. It means an approximationof the amount of an item in th absence of a precise means of
measurement:
A. Accountingestimate. C. Accountingchange.
B. Accountlngpolicy. D. Accountingerror.
11.one of management'sresponsibllitlests emphasizedin PSA7OA- Audit Reports. It explainsthat
managementis responsiblefor makiirg reasonableaccountingestimates. Which of the following
proceduresshould be adoptedby the auditor when testing accounttngestimates?
^ L Reviewand test the processused by managementto developthe estimate.
II. Use an independentestirnatefor eornparisonwith that preparedby rnanagement.
III. Reviewsubsequentevents which confirm the estimatemade.
A. I and II. C. I and IIL
B. II or III. D. I, II or IIL
t2.In evaluatingthe assutnptionson which the estimate is based,the external auditor would need to
pay particularattention to:
A. Assumptionswhich are subjective,or which are susceptibleto material misstatement.
B. Assumptionswhich are consistentwith those used for other accountingestimates.
' C, Assumptionswhich are consistefi with apprrcpriateplans of management.
D. Assumptionswhich are deemedreasonablein tight of actual resuftl in prior periods.
13' Opening balances mbans those account balanceswhich exist at the beginning of the period.
These are based upon the doslng balancesof the prior period and reflect the effects of:
gcp
. Current transactions (e,9. stock dividends) Brrt,
will be Eiven retroactive effect recognition. Yes No- No No
. Transactionsof prior periods. Yes' Yes Yes ya
r Accountingpolicies applied in the prior period Yes No Yes No
14. Whichof the followlngaccounts'ismong dtffkult for the auditor to be satisfiedas to the batance
at the beginnlngof the period?
A. Loansand receivables C. Trade accouhts palabe.
B. Invntory D. Accruedintereston bonds payable.
15. whlch sf the following is lclst fllrcly considered in determining the suffrciency and
appropriatenessof the audit evidenceregardingopeningbalancts?
A. The length of years in operationsof the client.
B.' Accountingpbfichs adopted by the ctient. :
C' Materlallt'Fof the openingbalancesin relationto the currerit period'sfinancialstatements..
D. Rlsk of mlsstaternantsof the accounts.
16. PSA 620 refers to the audlttng principles in using an expert. Which statement is incorect
regardingthe use of experts?
A. "Experto means a person or firm possessingspecial skill, knowledEaaRd exper:iencein a
particularfield other than accountingand auditing.
B. when using the work rerfiormed by an expert, the audltor should obtain sutficienr
appropriateaudlt evldencdthat such wor:kis adequatefor the.purposesof the audit.
c. The auditor's education and experience enable the ardltor, to' ne knowledgeable about
businessmatters in general, but the audltor ls not expectd to have the eipertise of a
persontrained for or qualifiedto engage-inthe practtceof another professionor occupation;
D' when issuing a report which is unmodified,the auditor needs to refer to the work of the
expert,if suchwork was used.
17' Whenthe auditorhas to determinethe needto use the work of an expert, he would considerthe
following:
A. The quantityand quatityof other audit evidenceavailable.
B. The materlalityof the financialstatement item being considered
9. The risk of misstatement based on the nature and comptexity of th matter being
considered.
D. All of these
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uditor'sus.'J iio work of a expert is

correct?
A, If the auditor believesthat the determinationsmade'by the specialistare unreasonable,
only a qualifiedopinionmay be expressed.
B. 'If the specialistis relatedto the client,the auditor is still pefmitted to use the specialist's
findingsas corroborativeevidence.
C. The specialistmust not be relatedto the cllent.
D. The spectalistis'identifiedin the auditor'sreport when the auditorexpressesan unqualified
opinion.
19. In usingthe work of a expert, an auditor referredto the expert'sfindingsin the auditor'sreport.
This is an appropriatereportlngpracticeif the:
A. Audltor,as a result of tne expert'sfindings,adds an explanatoryparagraphemphasizinga
,' matter reQarding thb'financialstatements.
B. Auditor, as a result of the expert'sflndings,decldesto indicatea divisionof responsibility
with the expert.
C. Expert is aware that his/her work will be used to- evaluate the assertlonsin the financial
statments.
D. Auditor is no! familiar with the professionalcrtification,personal reputation, o parthular
cornpetenceOf the expert.
20. PSA545,covers Fair Value measurementsand disclosures.Whichof the following'accountsis
reported on the balqncb sheet at fair value?
A. Loansand receivabfes c. Patents,
F. Investmentsin tradingsecurities. D. Investmentsin associates.
21. WhlchoJ the folfowingis or.dinarilythe bo* cvldmcr of fair value?
A. Publishedprice quotationsin an active market.
B. Discountedcashflow analysis.
' C. Comparativetransactionmodel.
D. Computationsbasedon the Baumolmodet.
Z?.The,degreeto which.afair value meazurementis susceptibteto misstatementls a(an)
A. Audit risk C. Controlrisk
B. Inhererrtrisk D. Detectionrisk
23. Th fotlowingstatementswere lifted from PSA5*S. ,Whichstatement is incorrcct?
A. The auditor should gbtain sufflcierrt apprnp{fh endtt evidcnce that fair,value rneastlrlnnr*t
and disclosuresare in accordancewith GAAPin the Philippines.
B. The audltor's considerationof such assumptionsis based on information availabfe to the
auditorat the time of the audit.
C. The atrdltor id not re3ponslblefor predictlnEfuture conditions,transactionsor events which,
had thcy been known at the time. of the audit, may have had a eignificant effbct on
management'sactionsqr managernent'sag5urnptlonsunderlylngthe fair value measurements
,D. il:t"l'ffRTr""ients based on estimates lncludingfair vatue measurements,are inherengy
precise,
24. Which$tatementis lncorrct regardingfair value measurements?
A. Undertyingthe conceptof fair value measurementsis a presumptionthat the entity is a going
con@rn.
B. The measurementof fair value may be relativelysimBtefor,assetsthat are bought and sold in
active and open markets.
C. Since a companyis assumedto be a going concern, PSA545 definesfair value as "normally
' the amourrt thdt an entity would recelve or pay ih a forced transaction, involuntary
liquidatlon,or dlstresssale'.
D.. The estimatibnof fair value may b achlevcdthrough the use of a valuationmodel or through"
the assistanceof an expert, such as an independentappraiser.
25. Regardingfair value rneasurementsand disctosures,the auditor is requiredto: I
A g p
r obtain evidenceabout management's intent to carry '
I
. out specificcoursesof action,and considerits abiiity
to do so, whererelevantto the fair value
measurements and disclosuresunderGAAP. Yes Yes Yes Yes
. Evaluatewhether the entity's method for its fair
valuemeasurements is appliedconsistently, Yer No No Yes
. Test the entity's fair value measurements. and
'disclosures. No Yes No Yes
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26. When testing the entity's fair value measurementsand disclosures, the audltor evaluateS
whether:
A gcp
. MaRagement'S assumptionsare reasonable. Yes Yes Yes Yes
. Th fair value measurementwaSdeterminedusingan
appropriatemodel, if applicable Yes No No Yes
e Managementused,relevantiriformationthat was
reasonablyavailable'atthe time. No Yes No Yes
27. Regardingsmall entities, audit standard-settingbodies endeavor to address audit guidance
requirementsfor small and medium-sizedaudit clients. Per PAPS 10O5.(note: this is a
su.perseded standard),a small entity is any entity in which the foltowingcan be found:
E c D
\ | Concentration of ownershipand managementin a
smallnumberof indlviduals,often a singleIndlvidual Yes Yes. Yes Yes
. Few sourcesof Income Yes No No Yes
e Unsophisticatd record*keepingand limited iniernal
controts(togetheriwith potentialfor management
override of controfg) NO Yes No Yes
28, AssertionsUsedby the audltor are classifiedas assertionsabout:
A., Classesof transactlonsand eventsfor the period under audit.
B. Accountbalance-s at period-end.
C. Presentation and disclosure.
D. All of the answers; .
29. An audit is an assuranceengagement. Evidencein an audit engagementcomprises:
.A B C D
' t Accountingrecgrdsand sourcedocuments Yes No Yes No
r Corroboratinginformationfrom other sources No' Yes Yes No
30. The measureof the guality of audit evidence;that is, its relevanceand its reliability in providing
supportfor the conclusionson whlch the audltor'sopinionis based.
A. Adequacy C. Appropriateness
B. Sufficlency D. Completeness
31.The mePsufof the qu.tntity of audit ev,idenceand ite relevanceto;a partictlar assertionard its
refieibilJty.
A. Adequacy , C. Appropriateness
B. Sufficiency D. Completeness
32. The record of wor.k perfornted, results obtained, and eonclusions the practitioiler reached in an
assuranceengagement.
A. Work program c. Data integrity sheet
B; Engegefient documertatiofl D. Audit documentation
33. This provides a thresbld or cut-off -point rathei than being a primiiry quafitative characteristic
whlch information must have if it is to be useful.
A. Materiality B. Audit risk C. Intrnal control D. Reliability
34. If it is probablethat the judgnent of a reasonablepersonwould have been changedor influenced
by the ornissionor: misstaternentof information,then that informationis:
A. Signlflcant B, Inslgnlfiqant C. Material D, Relevant
35. In this assuranceengagement,the evaluationor measurmentof the subject matter is performed
by the responsible.p@y, and the subjgct matter information is in the form oJ an psertiqn bythe
. responsiblepar.tythOt is made available
to the intendedusers.
A. Audit of financialstatements C. Assertion based eng4ements
B. Direct reportlngengagements D. Noneof the answers
36. In thts assurance erigagement, the practltioner dither direcfly performs the 'evaluation or
measurementof the subject matter, or obtains a representationirom the responsibleparty that
has performedthe evaluationor measurementthat is not availableto the int"no"O ,rurJ. m"
su-bjectmattgr-informdtionts proVidedto the intendedusers in the assurancereport.
A' Audit of flnancialstatements C. Assertionbasedengagements
B. Directreportingengagements' Noneof the answers

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