Auditing Theory 1. B
2.
*
+. B
.
-
. -
3. B
9.
*
8.
*
9.
B
As a gui guida danc nce e for mea measu suri ring ng the the qual qualit ity y of the the perf perfor orma manc nce e of an an audit auditor or,, the the audi audito torr should refer to which of the following documents? a. PFRSs. c. nterpretations of PSAs. !. PSAs. d. PAPSs. S1 "he e#istence of computeri$ed computeri$ed data processing does not affect the amount of audit e%idence required !y the auditor, auditor, !ut it may affect the methods of o!taining the e%idence. S2 &hen &hen plan planni ning ng the the audi audit, t, the the audi audito torr must must dete determ rmin ine e the the e#te e#tent nt of data data proce processi ssing ng done done !y compu computer ter the compl comple#i e#ity ty of that that proce processi ssing ng 'e.g. 'e.g.,, use of sophisticated on(line systems). a. "rue, false c. "rue, true !. False, true d. False, false t is is a stat state e impl implyi ying ng dat data a has has cert certai ain n attr attri! i!ut utes es comp comple lete tene ness ss,, soun soundn dnes ess, s, pur purit ity y, and %eracity. a. -ata integration. c. -ata %erification. !. -ata ata int integri egritty. d. -ata stat statem emen entt. *omm *ommun unic icat atio ion n medi media a pro% pro%id ides es the the %eh %ehic icle le to to phys physic icall ally y tran transm smit it the the dat data a sign signal al from from de%ice de%ice to de%ice. A de%ice that regenera regenerates tes and retransmi retransmits ts the signal on a networ/ networ/ is /nown as a a. 0ateway. c. Router. !. Bridge. d. Repeater. An app appro#ima imation tion of the the amou amount nt of of an item item in the a! a!senc sence e of a preci ecise mea means ns of of measurement a. Professional 2udgment c. Scope limitation !. Analytical procedures d. Accounting estimate
a. !. c. d.
"he "he An An An An
audi audito tor4 r4s s rep repor ortt is the the medi medium um thr throu ough gh whi which ch the the audi audito torr e#pr e#pres esse ses s opinion 5 67S A disclaimer of opinion 5 8o opinion 5 67S A disclaimer of opinion 5 6es opinion 5 8o A disclaimer of opinion 5 67S opinion 5 8o A disclaimer of opinion 5 8o
:ate :a teri rial al erro errors rs whi which ch occ occur ur in the the acco accoun unti ting ng proc proces ess s may may not not !e dete detect cted ed !y !y the auditor in his e#amination of the firm is quite a !ig ris/. ris/. n order to minimi$e this ris/, ris/, the auditor relies on a. *ompliance tests. c. Su!stanti%e tests. !. nternal controls. d. Statistical ris/ analysis. &hich &hich of the followin following g would would most li/ely li/ely cause cause a *PA *PA not to acc accept ept a new audit audit engagement? a. a hi high le le%el of of cl client !u !usiness ri ris/. !. !eing approach approached ed !y the client client 2ust 2ust !efore !efore the the fiscal fiscal year year end. end. c. concluding concluding that there there was was a high high inherent inherent ris/ of managem management ent fraud. fraud. d. lac/ of adequa adequate te /nowle /nowledge dge of the the client4 client4s s !usines !usiness. s. n financial statement audit, audit risk represents the pro!a!ility that a. internal internal control control fails and the the failure failure is not detected detected !y the the auditor4s auditor4s proc procedur edures. es. !. the the audit auditor or un/n un/now owin ingl gly y fails fails to modi modify fy an opi opini nion on on mate materi rial alit ity y misst misstat ated ed fina financ ncia iall
c. d.
statements. ' inherent and control ris/ cause errors that could !e material to the financial statements. the auditor is not retained to conduct financial statement audit in the succeeding year.
1;. 'PSA 0lossary) Applications of auditing procedures using the computer as an audit tool A a. *omputer(assisted audit techniques c. Application controls !. nformation technology audit d. 0eneral " controls 11. A
12.
-
According to the RR, how many representati%es of the
1+. A
14.
*
1. A
=nder the 0lossary of "erms, the term >assess, !y con%ention, is used only in relation to a. !.
Ris/ :ateriality
c. d.
Audit engagements Audit procedures
Audit ris/ has three components inherent ris/, control ris/, and detection ris/. "he following statements pertain to these components. &hich one is incorrect? a. "he accepta!le le%el of detection ris/ is in%ersely related to the com!ined assessed le%els of inherent ris/ and control ris/. !. "he higher the assessment of inherent and control ris/s, the lower the detection ris/ that can !e accepted !y the auditor. c. -etection ris/ cannot !e changed at the auditor4s discretion. d. "he auditor considers the com!ined assessments of inherent ris/ and control ris/ in order to determine the le%el of detection ris/ which may !e accepted. PSA ++; requires the auditor to determine o%erall responses to address the ris/s of material misstatement at the financial statement le%el. "hese include A B * 7mphasi$ing to the audit team the need to maintain professional s/epticism in gathering and e%aluating audit e%idence. 6es 6es 6es 8o Assigning more e#perienced staff or those with special s/ills or using e#perts 6es 6es 8o 8o ncorporating additional elements of unpredicta!ility in the selection of further 6es 8o 6es 6es audit procedures '"@*S") •
•
•
Auditing Problems 7spie *ompany is a manufacturer of small tools. "he following information was o!tained from the company4s accounting records for the year ended -ecem!er +1, ;;C n%entory at -ecem!er +1, ;;C '!ased on physical count in 7spie4s warehouse at cost on -ecem!er +1, ;;C) Accounts recei%a!le at -ecem!er +1, ;;C Accounts paya!le at -ecem!er +1, ;;C 8et sales 8et purchases
P1,C9;,;;; ,;,;;; 1,1,;;; D,3D+,;; 3,9+,;;
6our audit re%eals the following information a. "he physical count included tools to !e shipped to a customer F@B shipping point on -ecem!er +1, ;;C. "hese tools cost P3,;;; and were in%oiced at P9C,;; and were recorded as -ecem!er sales. "hey were physically segregated since the company awaits shipping instructions f rom the customer. !.
0oods shipped F@B shipping point !y a %endor were in transit on -ecem!er +1, ;;C. "hese goods with in%oice cost of PD+,;;; were shipped on -ecem!er D, ;;C. "he in%oice for the said goods were recei%ed and recorded on Eanuary , ;;D.
c.
&or/ in process in%entory costing P9,;;; was sent to a 2o! contractor for further processing.
d.
8ot included in the physical count were goods returned !y customers on -ecem!er +1, ;;C. "hese goods costing PD,;;; were inspected and returned to in%entory on Eanuary 9, ;;D. *redit memos for P39,C;; were prepared and issued to the customers at that date.
e.
n transit to a customer on -ecem!er +1, ;;C, were tools costing P19,;;; shipped F@B destination on -ecem!er 3, ;;C. A sales in%oice for PD,;; was issued and recorded on Eanuary +, ;;D, when 7spie *ompany was notified !y a customer that the tools had !een recei%ed.
f.
At e#actly ;; pm on -ecem!er +1, ;;C, goods costing P+1,;; were recei%ed from a %endor. "he related in%oice was recorded on -ecem!er +1, ;;C, !ut the goods were not included in the physical count.
g.
ncluded in the physical count were goods recei%ed from a %endor on -ecem!er 9, ;;C. owe%er, the related in%oice for P+3,;;; was not recorded !ecause the accounting department4s copy of the recei%ing report is yet to !e recei%ed !y the office.
h.
A monthly freight !ill for P13,;;; was recei%ed on Eanuary +, ;;D. t specifically related to merchandise !ought in -ecem!er +1, ;;C, one(half of which was still in the in%entory at -ecem!er +1, ;;C. "he freight was not included in either the in%entory or in accounts paya!le at -ecem!er +1, ;;C.
1.
&hat is the ad2usted !alance of n%entory as of -ecem!er +1, ;;9? A ,;D,;; * ,;3,;; B ,;+1,;; - ,1D,;;
.
&hat is the ad2usted !alance of Accounts Recei%a!le as of -ecem!er +1, ;;9? A ,;,;;; * ,+;+,9;;
-
*
B
,+91,;;
-
,9,+;;
+.
&hat is the ad2usted !alance of Accounts Paya!le as of -ecem!er +1, ;;9? A 1,,;;; * 1,39,;;; B 1,3;,;;; - 1,D1,;;
.
&hat is the ad2usted !alance of Accounts Paya!le as of -ecem!er +1, ;;9? A D,31,D;; * D,3,3;; B D,93,;; - D,9,1;;
B
-
"he schedule !elow shows the account !alances of =!e Rita *o. at the !eginning and end of the year ended -ecem!er +1, ;;C -e!its *ash n%estment in trading securities Accounts recei%a!le n%entories Prepaid insurance Gand and !uilding 7quipment -iscounts on !onds paya!le "reasury stoc/ *ost of goods sold Selling and general e#penses ncome ta#es =nreali$ed loss on trading securities Goss on sale of equipment
-ec. +1, ;;C 1,DDC,;;; D;,;;; 1,++,;;; ,31D,;;; ,;; 1,9,;;; ,9DD,;;; 93,;; ,;;; ,C1,;;; ,C+,;;; +1,;;; +3,;;; D,;;;
-ec. +1, ;;9 ;,;;; +3;,;;; D;;,;;; ,9;;,;;; 1C,;;; 1,9,;;; 1,+;,;;; C1,;;; D;,;;;
9,;;; +3,; 11,9; D,;;; 3+;,;;; 13,;;; +1,;;; D,;;; +3;,;;; ,;,;;; +,;;; +,+,3;; ,;;; +,;;; +11,;; 1,;,;;; C,;C,;;; 1;C,;;;
,;;; ;,;; 9,;; ;,;;; 1C;,;;; 9C,+;; D;,;;; C1,;;; ;,;;; ,;,;;; 9D,9;; 1,C;;,;;; D;,;;; ;9,;;; 1,;;C,;;; ,;;;
*redits Allowance for !ad de!ts Accumulated depreciation H Building Accumulated depreciation H 7quipment Accounts paya!le 8otes paya!le H current Accrued e#penses ncome ta#es paya!le =nearned re%enue 8otes paya!le H noncurrent Bonds paya!le -eferred ta# lia!ility @rdinary shares capital, P1; par Retained earnings appropriated for treasury Retained earnings appropriated for e#pansion =nappropriated retained earnings Share premium Sales 0ain on sales of trading securities Additional information a.
All purchases and sales were on account.
!.
7quipment with an original cost of P1+,;;; was sold for P3+,;;;.
c.
Selling and administrati%e e#penses include the following Building depreciation P++,9; 7quipment depreciation 9,; Bad de!t e#pense 9,;;;
nterest e#pense
13,;;;
d.
A si#(month note paya!le for P;,;;; was issued in connection with the purchase of a new equipment.
e.
"he noncurrent note paya!le requires the payment of P1C;,;;; per year, plus interest until paid.
f.
"reasury stoc/ was sold for PD,;;; more than its cost.
g.
-uring the year, a +;I stoc/ di%idend was declared and issued. At that time, there were 1C;,;;; shares issued. owe%er, 1,C;; of these shares were held as treasury stoc/ at the time and were prohi!ited from participating in the stoc/ di%idend. :ar/et %alue of the ordinary share capital was P; per share when di%idends were declared.
h.
7quipment o%erhauled, enhancing its operational efficiency, at a cost of P,;;;. "he cost was de!ited to 7quipment. Required
B
B
. ow much were paid for selling and administrati%e e#penses 'e#cluding interest e#pense) for the year? A ,1++,;;; * ,;D,+;; B ,;+,C;; - ,;,C;; 3. &hat is the net income in ;;C? A +D1,;; B +D3,;;;
* -
;,;;; ,9;;
6ou are assigned to audit the financial statements of "anduay -istillers nc. as of and for the period ended -ecem!er +1, ;;C. "anduay -istillers nc. normally stores its alchohol products a period of + to years in oa/ !arrels !efore they are ready for further processing and production. n your in%estigations you noted the following transaction @n Eanuary , ;;+, "anduay sold a !atch of its alcohol in oa/ !arrels to BP nc. "he products had cost the company P;,;;;,;;; and the proceeds from the sale was P+;,;;;,;;;. "he company recorded the sale !y de!iting cash and crediting sales for the consideration recei%ed. t will !e years !efore the products are ready for further processing. "anduay will !e responsi!le for the ageing process of the alcohol. &hen the alcohol is ready, it will ha%e a mar/et price of PC;,;;;,;;;. "anduay has an option to repurchase the products in fi%e years Eanuary , ;;C for P,C9;,;;;. "he pre%ailing mar/et rate of interest for agreements of this nature is 1I. @n Eanuary , ;;C, the company reacquired the alcohol from BP at the agreed repurchase price and immediately resold it at the e#pected mar/et price. "he purchase was recorded at the said repurchase amount and the sale recorded for the consideration recei%ed. Required 9. ow much in re%enues should !e recogni$ed !y "anduay in ;;+ from the a!o%e transactions? A A ; * ;,;;;,;;; B 1;,;;;,;;; - +;,;;;,;;; C. A
By how much is net income o%erstated !y in ;;+? A 1+,3;;,;;; * 3,;;,;;; B 1;,;;;,;;; - net income is correct
D. B
By how much is net income understated or o%erstated !y in ;;9? A net income is correct * ,;C,;;; o%erstated B ,33,;;; o%erstated - 9,1+;,;;; understated
B
1;. By how much is net income understated or o%erstated !y in ;;C? A 9,1+;,;;; o%erstated * 9,1+;,;;; understated B +,C9;,;;; understated - net income is correct
-
11. &hat is the retroacti%e ad2ustment in retained earnings !eginning in ;;C, if there are any? A no ad2ustment necessary * ,C9;,;;; de!it B 1;,;;;,;;; de!it - +,C9;,;;; de!it
6ou are auditing the accounts recei%a!le and the related allowance for !ad de!ts account of Bi!o *orp. "he control account of the aforementioned accounts had the following !alances Accounts Recei%a!le Gess Allowance for !ad de!t 8et Boo/ Jalue
P1,9;,;;; '9C,;;;) P1,1D,;;;
=pon your in%estigation, you found out the following information a. !.
"he company4s normal sales term is n+;. "he allowance for !ad de!t account had the following details in the general ledger
Euly +1 &rite off
c.
Allowance for Bad -e!ts ,;;; Ean. 1 Balance -ec. +1 Pro%ision
+;,;;; 9,;;;
"he su!sidiary ledger !alances of the company4s accounts recei%a!le as of -ecem!er +1, ;;C contained the following information -e!it !alances *redit !alances =nder one month P;,;;; Kamote *o. P1,;;; @ne to si# months ,;;; Kutchay *orp. 1,;;; @%er si# months C,;;; Kalachuchi nc. 9,;;; P1,+;,;;; P3;,;;; Additional information "he credit !alance with Kamote *o. was for an o%erpayment from the customer. "he company deli%ered additional merchandise to Kamote *o. on Eanuary +, ;;D to co%er such o%erstatement. "he credit !alance of Kutchay *orp. was due to a posting error, the amount should ha%e !een credited to Kutchara *orp for a 3; day outstanding recei%a!le. "he credit !alance from Kalachuchi nc. was a cash ad%ance for a deli%ery to !e made on Eanuary 1, ;;D. •
•
•
d.
t was estimated that 1 percent of accounts under one month is dou!tful of collection while percent of accounts one to si# months are e#pected to require an allowance for dou!tful of collection. "he accounts o%er si# months are analy$ed as follows -efinitely uncollecti!le -ou!tful 'estimated to !e ;I collecti!le) Apparently good, !ut slow 'estimated to !e D;I collecti!le) "otal
P9,;;; +3,;;; 1;,;;; PC,;;;
B
1. "he ad2usted accounts recei%a!le account !alance on -ecem!er +1, ;;C, should !e A 1,1,;;; * 1,+D,;;; B 1,9,;;; - 1,3;,;;;
B
1+. "he required !alance of the allowance for !ad de!ts account on -ecem!er +1, ;;9, is A 3,;; * 3,;; B 3,; - 1,;;
-
1. "otal !ad de!t e#pense for ;;C is A ;,;; B 3,;;
* -
9,;;; 11,;;
=A&SA6@ *@:PA86 0eneral and Petty *ash *ount Audit 6ear ;;C -ate of count H Eanuary , ;;D, D1; am Bills and *oins -enom. Bundles of 1;; pcs P;; 1 1;; ; + ; 1;
Rolls of ; coins
1 . *hec/s :a/er ". @tis H customer R. 7yes H customer @. Gie%er H customer F. Rancisco H customer =hawsaiyo :. -o$a H officer @. *ampo L
3 1; ;
Payee =hawsaiyo =hawsaiyo =hawsaiyo =hawsaiyo AB* *o. *ash *ash
-ate 1+;;C 13;C 1;D 11;C 19;C 1;D 1D;C
Goose D 9 1; ; 13
Amount P11,D; 1,; ,9;9 1+,+; 1,;; +1; 3;
*Amount is for a return of travel advance made to the employee in an earlier period. Jouchers and @=S Paid to Post office talian Jillage H *hristmas party . -io H @= @thers 1. *ash sales in%oices . @fficial receipts 8um!er +1; +11 +1 +1+ +1
-ate 1;;C 1+;C 19;C
Amount 1; 3,D; +;;
'all currencies 8o. 19D;+ to 1C11), P1;;,;; Amount Form of *ollection P3; *ash 1,; *hec/ 1,; *ash 11,D; *hec/ 1+,+; *hec/
+. Stamps of %arious denomination amounted to PC;. . A notation on a sheet of paper as follows >Proceeds from employee contribution for Christmas Party, P9,500” . Petty cash per ledger, P1,;;;.
*
1. &hat is the ad2usted petty cash fund as of -ecem!er +1, ;;C? A ; * 1 B - +1